‘The Northern Marianas economy continues to struggle, and the government remains in deep fiscal distress. These are conditions that make the commonwealth acutely vulnerable to CCP exploitation’.
Saipan, USA
At the end of our interview the American Governor said, quietly and to himself, “there is no crying in baseball.”
But he hadn’t been talking about baseball. He had been describing how he was trying to stabilize his economy after it became the target of major Chinese influence operations including a Chinese-linked casino that ran billions of dollars through his jurisdiction.
And how he was asking Washington to send in more auditors and FBI agents to help him clean up his government.
All while governing one of the most strategic locations in the United States of America. A location many Americans don’t even realize is in the United States.
AMERICA’S REAL WEST COAST
Arnold Palacios is the Governor of the Commonwealth of the Northern Mariana Islands (CNMI). Yes, CNMI is very much part of the United States. The main island in the chain, Saipan, is around 2,500km east of Taiwan and even closer to Okinawa, Japan. Meanwhile, it is around 6,000km west of Honolulu, Hawaii.
CNMI has been on the front line of geopolitics for over a century. Colonized by Spain, it was then sold to Germany. Germany lost it in World War I, then the League of Nations gave it to Japan to “manage” as part of the South Sea Mandate. Japan was in CNMI for three decades, where Tokyo developed it as a colony, until the islands were liberated by the Americans in World War II.
In an indication of its strategic location, the World War II military airport on CNMI’s island of Tinian was one of the busiest in the world in 1945, and was where the Enola Gay took off from on its way to Hiroshima.
After World War II, the United Nations gave CNMI to the United States to “manage” as part of the “Strategic Trust Territories of the Pacific Islands”. After several years of negotiations and public votes, in 1986 CNMIbecame part of the United States, and they became American citizens.
However, given CNMI’s remoteness and unique considerations, it was given unusual control over its own labour and immigration laws.
CHINA’S BACKDOOR INTO THE U.S.
In his 24August testimonybefore a U.S. Congressional Committee, Palacios explained what happened next: “From the 1980s through the early 2000s, we opened our doors to the garment industry. More than 30 factories, predominantly Chinese-owned, set up operations throughout the 47-square mile island of Saipan to assemble garments for export to the continental United States. Tens of thousands of people were brought in, many from the PRC, to work in these factories.”
By 1998, the garment industry made up around 22% of the CNMI government’s $234 million budget. Then China joined the WTO.
Palacios continued: “The factories began to close after global trade rules changed in 2005, stripping the commonwealth of competitive advantages it had through tariff-free and quota-free access to U.S. markets…The last factory shut down in 2009.”
The loss of the garment sector devastated the CNMI economy. In our interview, Palacios explained: “They just got up and left. Some didn’t clean up their factories. And it wasn’t just the factories—it was ancillary businesses that closed as well. We had relied on that for around 20 years. It was a shock. Just like for a community in small-town USA when the steel factory closes. Government revenue went south along with the economy. Critical public services couldn’t continue. So they looked for another way out.”
Again, the Chinese were waiting in the wings to maximize this backdoor into the U.S. From 2009, PRC nationals were allowed to enter CNMI as tourists, visa-free, under a “discretionary parole” system. Before Covid killed tourism, Chinese tourists made up around 40% of the visitors. And a big draw was the casinos.
According to Palacios’ testimony: “We turned to Chinese gambling, legalizing casino gaming on Saipan even after the venture previously failed on Tinian. An exclusive license was nevertheless awarded to a Chinese casino operation that has been mired in litigation and criminal investigation practically from the start…The Chinese casino on Saipan at its peak raked in billions of U.S. dollars in monthly rolling chip volumes from just 16 VIP tables, outdoing even the glitziest casinos in Macau.”
This turbo-boosted the economy but also, according to Palacios, “was fraught with controversy—from human trafficking to birth tourism, labour abuse, money laundering, and public corruption.”
The biggest casino operator began construction on a massive building in the centre of the main town on Saipan. Palacios explainedin our interview that they were “bringing in workers under the China visa waiver for tourists. The federal government started investigations. We started seeing evidence of abuse of workers at the hospital. One of the workers fell from a scaffold and died—he was on a tourist visa. Also, the company was not paying bills. There was a lot of non-compliance with federal laws and there are still outstanding cases.”
Currently, Chinese tourism has dwindled and the casinos are closed (though a newChinese casino is waiting to open in Tinian—and is located at the port the U.S. military is thinking of using for its increasing activities in the region). Meanwhile, the previous CNMI administration burned through the money it received during Covid.
In Congressional testimony given by Palacios in February, soon after he took office, he said: “Four weeks ago, I was sworn in as the 10th elected governor of the Northern Marianas. I entered an office that had been literally stripped of all furniture and equipment by my predecessor. But far more troubling than that, I found the government’s finances in complete disarray.”
What does that mean, practically? In our interview, Palacios, his voice shaking with emotion, said it has meant things like, “telling a person with Stage Two cancer there isn’t money for them go to Hawaii to see an oncologist.”
In his February testimony, Palacios did that rarest of things in politics, ask for his government to be investigated: “My administration has sought assistance from, and pledged full cooperation with, the Commonwealth’s Attorney General, the Office of the Public Auditor, and the U.S. Department of Justice in investigating and holding accountable those responsible for the misuse and abuse of public funds. The Northern Marianas would benefit particularly from a stronger Department of Justice presence, including the assignment of more federal agents based in the Commonwealth, and the appointment of a dedicated District U.S. Attorney.”
In our interview he elaborated: “I don’t know what the consequences will be but, before we move forward, we need to clean that slate.”
THIS IS ABOUT A FREE AND OPEN INDO-PACIFIC
Why does all this matter?
In his latest testimony Palacios said: “The Northern Marianas economy continues to struggle, and the government remains in deep fiscal distress. These are conditions that make the commonwealth acutely vulnerable to CCP exploitation…. Whatever form this pressure takes, it is always erosive to America’s influence and security in the region.”
Already some in the CNMI business community are pushing for the Governor to encourage more tourism from China. Meanwhile, 27 Chinese who came in on “parole”were found trying to illegally sneak in to Guam from CNMI by boat, and the actual number who made it is said to be in the hundreds in the past few months. This again raises questions about why the Chinese can still arrive essentially visa free and so many others can’t.
Palacios wants to move away from reliance on China in any sector. In our interview he said: “It’s kind of cold turkey because we are so reliant but we need to wake up. Every time we rely on this it collapses. If you have a community in dire straits they are vulnerable. There are many reasons it could collapse again. Geopolitics included.
“We need sustainable partners like Korea, Japan, Taiwan, and India. In April when I was in DC, I was very pleased to get an invite from the Indian Embassy, as well as be invited to the Ambassador’s residence. We need to put together a policy of 40-50 year stable investment and relationships with friends of the United States.”
While in Saipan, I met people who lived through World War II—hiding in caves while the war raged around them. One, Marie Castro, was 10 when the U.S. Marines brought her and her family out of the caves to safety, and gave her a much-needed drink of water. It was those moments of security and humanity that played a role in the people of CNMI voting to become Americans.
This time, it’s not Marines who are needed to liberate CNMI and give it a chance to come out of the darkness, it’s forensic accountants, FBI agents, special investigators and others who can shine a light on corruption—the fuel that drives PRC expansion. And others are needed who will help it rebuild its economy in a viable way, creating resilience against the next attacks. And there will be more attacks. You just need to look at a map to see why.
Those who are fighting to clean up CNMI are a threat not just to local criminals, but to the PRC. Those forces are not sitting still. They’ve spent decades trying to take CNMI, control its strategic location, and have a backdoor into the rest of the U.S. There isn’t a lot of time.
At the end of our interview, Palacios said: “I was born 11 years after the war. Our people are so resilient.Our parents talk about horrors they lived through. We are a small population of Americans on the shifting sands of geopolitics—in the crosshairs. I don’t sleep so soundly at night as I used to. But I have to have hope that today could be a better day.We know how China works. We are hopeful things won’t get worse but we are prepared, and we will toe the line.We are proud Americans. There are at least 2,000 U.S. military veterans from CNMI. There’s no crying in baseball.”
Cleo Paskal is a non-resident senior fellow for the Indo-Pacific at the Foundation for Defense of Democracies.