HOUSE ARREST FOR AMCITS IN INVESTMENT DISPUTE ENDS, CASE

UNCLAS KOLONIA 000097

SENSITIVE
SIPDIS

E.O. 12958: N/A
TAGS: CASC ECON EAID CPAS FM
SUBJECT: HOUSE ARREST FOR AMCITS IN INVESTMENT DISPUTE ENDS, CASE
AGAINST DEPARTMENT OF STATE SUBMITTED

REF: A. A) KOLONIA 41

B. B) KOLONIA 40

C. C) E-MAIL WEMHOENER-CUITE/KORFF 6-19-09 AND PREVIOUS


1. (SBU) SUMMARY: Robert and Patricia Arthur's (Reftels) house
arrest ended on June 30. The case by the FSM Development Bank,
which resulted in the house arrest, is still active. Despite
concerns that the FSM courts may impose additional penalties,
the Arthurs continue to appeal the initial decision and have
begun a letter writing campaign. The Arthurs also named the
Secretaries of State and Interior in a lawsuit brought in a U.S.
District Court in an attempt to bring attention to their case
within the FSM. END SUMMARY.

House Arrest Over, Case Ongoing
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2. (U) The March 27, 2009 FSM Supreme Court decision to place
Robert and Patricia Arthur under house arrest expired on June

30. Both Arthurs told Econ/Conoff they were pleased they could
leave their hotel again, but expressed concern about what may
happen next. Robert Arthur stated that when the FSM government
informed them early on June 30 that the house arrest enforcement
order had expired, they were given no information on what steps
the State may take next. The Arthurs expressed concern that the
next enforcement step the State may take could include jail
time. The FSM Supreme Court maintains custody of the Arthurs
passports.


3. (SBU) Robert Arthur commented that during their house arrest
he and Patricia contacted a number of friends to start a letter
writing campaign on their behalf. Post has received a number of
letters urging Post to lobby on behalf of the Arthurs. Post's
response assures the writers that the Embassy is actively
engaged with the Arthurs on their concerns and will maintain
that engagement (Ref C). Post understands similar letters were
addressed to the Department, the U.S. Congress, and segments of
the Pohnpei State and FSM National Government. Two people have
also written letters to the editor that were printed in the June
24 issue of the Kaselelhlie Press, FSM's only newspaper, which
is released every two weeks.

Case Background
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4. (U) Approximately a decade ago the Arthurs lost their
"Pohnpei Pepper" and a Trocus Shell button businesses. To fund
the startup of the two companies the Arthurs and a FSM national
associate took a loan from the FSM Development Bank (FSMDB).
Early indications were that both businesses were successful.
Pohnpei State then entered into the pepper business and
subsidized farmers selling to the state. The legislature also
capped Trocus Shell harvesting. These two actions chased the
Arthurs out of business. In the first of two court ruling
regarding the investments, the court ruled that the state's
actions caused the businesses to close and thus the state owed
the Arthurs compensations. A portion of the settlement was
paid. In the second case, the court determined that the Arthurs
are still liable for the loan they took out. The Arthurs have
not repaid the loan.

Arthurs Sue USG
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5. (SBU) On June 10 the Arthurs filed a case in the
Commonwealth of the Northern Mariana Islands naming the U.S.
Secretary of State, U.S. Secretary of Interior, Pohnpei State,
and the FSMDB as defendants. The Arthurs have repeatedly told
Econ/Conoff that their intention with the suit is to show the
seriousness of the Pohnpei State's (note: likely referring to
the state legislature) actions. Robert Arthur stated that the
FSMDB used funding from the USG that was intended to promote
investment and economic development. By forcing the closure of
their businesses, the State is not adhering to the principals by
which it is entitled to continued funding from the USG for
economic development. Robert Arthur admitted that he does not
think his case in the U.S. Court in the CNMI has much traction,
but it shows Pohnpei State the seriousness of their claims.

Comment
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14. (SBU) As highlighted in earlier reftels, the Arthurs remain
adamant that the FSMDB and Pohnpei State are wrong in their
pursuit for loan repayment. The Arthurs continue to reject a
proposal by the Pohnpei State's Attorney General to offset the
two court cases, permitting the Arthurs to keep the partial
payment they already received, and drop all further proceedings.
The dispute is likely to continue for the foreseeable future,
including possible additional enforcement measures such as
renewed house arrest taken against the Arthurs. End Comment.

DOUGLASS