‘We are not interested in dirty money’
Whipps says Palau is building a ‘scammer-proof’ ecosystem for digital residency
By Mar-Vic Cagurangan
The response to Palau’s much-ballyhooed digital residency program has been much slower than expected. So far, 800 people have signed up since the program went online in January.
Although well below the target, that number is passable for now, according to Palau President Surangel Whipps Jr. “We had zero and now we have 800. The goal is 7 billion, but we have got to start somewhere,” he said in a recent interview with Kelvin Anthony, RNZ Pacific's regional correspondent.
The world’s first digital residency program has paved the way for Palau’s ambition to become a borderless financial hub that relies on blockchain and crypto technology. The digital residency costs $248 per person.
“Part of building economic resilience means we need to diversify our economy. We need to look at other opportunities to help develop new types of business opportunities and economic growth,” Whipps told RNZ. “We have two fiber optic cables that we went into debt to bring to Palau.”
Palau’s $30-million subsea cable, owned by the National Submarine Cable Utility Belau Submarine Cable Corp., connects the Pacific nation to Southeast Asia and the U.S. mainland. Whipps said Palau must find businesses and development opportunities around this infrastructure. He visualized the digital residency program as a portal for foreign investments “whether it is in the crypto space or any other type of FinTech.”
Whipps said Palau will eventually develop a corporate registry for companies that are headquartered in the country. “We know we are small, but we want to be able to look at those business opportunities and attract businesses that are operating in the region, especially in Asia,” he said, adding the new system will allow investors “to be able to transact business, whether it's in cryptocurrency or in any other type of business.”
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So far, Palau’s digital residency program has drawn interest from different regions. “We have about a third from the Americas, we have a third from Asia and a third from Europe,” Whipps said. “So, it is a mix of people and that is what it was developed to be. We want to make the ecosystem so that we can attract citizens from all over the world.”
But experts have warned that Palau’s bid to become a global hub for cryptocurrency could turn the nation into a “scammers’ paradise.”
“Crypto developers are rarely drawn to struggling communities because they want to fix things,” Peter Howson, an expert on cryptocurrency at Northumbria University, told The Guardian. “The research shows that these crypto developers are usually just looking for new punters, and performing real-world tests.”
Howson warned of the danger that the Root Name System administrator of the residency program “will tarnish that brand, attracting any old Tom, Dick and Harry with dodgy investments looking for a safe haven to park their ill-gotten crypto assets.”
To begin with, Palau has a fragile reputation in the financial community. Despite Koror's protestations, Palau remains on the European Union’s list of jurisdictions with tax systems described as "vulnerable to tax fraud and dirty money."
“We are not interested in money laundering and bringing criminals in. We want to do it the right way because there is a lot of people around the world that want to participate in it,” Whipps told RNZ.
Acknowledging that “there are always risks,” Whipps underscored the need to calculate the program’s implementation to mitigate any peril along the way. “That is why we're not jumping in and changing everything at once. We are taking baby steps,” he said.
Palau’s digital residency permit is available through a partnership with Cryptics Labs. Once approved, residents would receive a non-fungible token ID card and entry to a digital-first economy.
In an earlier announcement, Cryptics Labs explained that besides basic personal information, a digital ID includes anti-money laundering and anti-terrorism financing verification processes.
"Unlike passports, for example, any citizen of a country can get a passport. But under our digital residency program, we have to do a background check on you," Whipps said. "So, you're selected and then it only lasts for a year. If there are bad activities that come up, you get taken off the program.”
Now that the system is up and running, Whipps said the money streaming into the program will be reinvested in the development of a scammer-proof ecosystem to protect the digital residents.
“We understand that there is a responsibility that comes along with this program and we want to do it the right way and the money that we have gotten so far, we are putting it right back into hiring experts to help us develop the ecosystem and protect us,” Whipps said.