A lawsuit filed earlier this month could redefine Pohnpei's foreign investment practices and potentially affect how U.S. citizens approach business ventures in the FSM.
The Aug. 2 complaint was brought by local businessman Allois Malfitani, co-owner of the Pohnpei Surf Club and a U.S. citizen, after he was denied a foreign investment permit to establish an eco-resort on Pohnpei under the name Pohnpei Ocean Park, Inc.
Though officially filed with the FSM Supreme Court, at press time the suit had not yet been served on named defendants including the Pohnpei State Foreign Investment Board and Pohnpei resident Frank Panuelo, in his capacity as representative of the Pohnpei Business Association.
Malfitani and his lawyer, Andrea Hillyer, say they elected this approach to allow maximum time for consultation and resolution - namely a reversal of the FIB's decision - rather than formal legal action.
According to the complaint, the permit denial raises concerns not only about possibly discriminatory actions by the FIB but also about how the FSM interprets certain provisions of its amended Compact of Free Association with the United States.
Malfitani's application was turned down by the FIB in late June, after more than four months of consideration by the board and alleged efforts by PBA to persuade local businesses to oppose the application.
The board denied the application in a letter, stating its opinion that "the hotel sector . . . can not yet justify the presence of additional hotel rooms in the market."
" . . . it is generally feared," the letter continues, "that granting direct engagement in hotel development and operation at this point may have damaging effect on the many locals who have risked every means and in many cases borrowed money to capitalize the business to advance their dreams."
In response, Malfitani's complaint says "The reasons for denial, and the lobbying efforts . . . from the Pohnpei Business Association constitute an illegal attempt to restrict competition in the hotel, bar and restaurant industry in Pohnpei."
Further, the complaint argues that U.S. citizens should not have to seek foreign investment permits to conduct business in the FSM in the first place.
Section 142 of the amended Compact requires the FSM to adopt - with regards to U.S. citizens seeking to work or invest in the FSM - "immigration-related procedures no less favorable than those adopted by the Government of the United States with respect to citizens of the Federated States of Micronesia seeking employment in the United States."
The FSM government has interpreted the provision to mean that U.S. citizens need investment permits. However, FSM citizens may work and invest in the United States free of permit applications and immigration restrictions.
Panuelo, who chairs the PBA, said he was shocked by the lawsuit's claims. "What libelous, criminal activity did we do?" he said. "I didn't think expressing opinion on behalf of the business community was a sue-able offense."
PBA, which does not have an office or a published phone number, is identified in the complaint as "an unincorporated association of individuals and businesses in Pohnpei." Panuelo said PBA - less than two years old - is working on its incorporation and bylaws. The association counts around 60 local businesses among its membership.
The FIB meets approximately twice a month to consider applications. Panuelo said PBA was invited to contribute comments when Malfitani's application was considered.
Malfitani's promotion of Pohnpei - on behalf of his surf club - as an attractive tourist destination has drawn the attention of a number of professional surfers as well as numerous publications and television shows.
According to Malfitani's application, Pohnpei Ocean Park - which was incorporated by the state in May - would include a bar and restaurant and offer tourists access to a number of environmentally-friendly activities and tours.
The permit he holds for the surf club expressly prohibits hotel ownership.