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Cyberfraud:

The fictitious "Dominion of Melchizedek"

Of all the scams and con jobs perpetrated over the Internet, nothing compares to what a virtual country and its creators have done to the world, writes Bertil Lintner.

Cyberbanking and crime in Cyberspace, states the Australian Federal Police's Transaction Reports and Analysis Centre (Austrac) in a recent report, will be the most important challenge of the 21st century. The Internet revolution has made money transfers across frontiers alarmingly easy, and the world's police forces have yet to catch up with criminals who are taking full advantage of the new information technology that is readily available in any neighbourhood computer store.

The task would have been difficult enough if money were passing through only the Internet-banks in a next-to-impenetrable web of secrecy laws in the world's recognised tax havens: Vanuatu in the Pacific, Caribbean islands such as the Caymans and Antigua, or Gibraltar and the Channel Islands. But enforcing the law becomes a nightmare, when new technology has made it possible to invent new countries which exist only in Cyberspace. The world's best-known virtual country is the "Dominion of Melchizedek", a California-based scam which in recent years has spread its tentacles across the Pacific, Latin America, and even Europe. It claims to have "embassies" and other "legations" in Washington, Canberra, Budapest, Lima and Sao Paulo, and "trade centres and liaison offices" in Singapore and Lagos. Apart from offering to incorporate banks, insurance companies, trusts and private corporations for a few thousand dollars, the "dominion's" website also provides a wide range of services, including passports, university degrees and lawyers' certificates.

In East Asia, the scam broke in November last year when three Melchizedek "officials" were arrested in the Philippines. They had duped hundreds of local Filipinos, Chinese and Bangladeshis to pay up to US$3,500 for worthless Melchizedek travel documents they were told were "internationally-recognised passports". Some had also paid large amounts of money to obtain "government jobs" on a Pacific island which the "Dominion of Melchizedek" claimed was within its jurisdiction.

One of the "officials" of the "dominion", Australian Dennis Oakley, claimed to be its "minister of the navy and the coast guard". His accomplice, Chew Chin Yee of Malaysia, had name cards identifying himself as Melchizedek's "honorary consul" in Hong Kong as well as "minister of public works and gaming". The third suspect, Stuart Mason-Parker, was a British lawyer who was a prosecutor in colonial Hong Kong and left the colony more than a year ago, allegedly with considerable debts.

But the ringleader got away, according to the Philippine police: a convicted Australian fraudster named John Gillespie, who served time in jail in the late 1980s for trying to fix a race in Brisbane by dyeing a horse. Known as the "Fine Cotton affair" after the horse in question, the scam involved several Australians, some of whom later sought refuge in the Philippines. Gillespie joined them following his release, and was appointed "governor" of territories which Melchizedek claims in the Pacific. He is also the brother-in-law of Chew Chin Yee, who remains in police custody in the Philippines.

The gang in the Philippines had raked in an estimated one million dollars before they were picked up by the police - but the Manila passport scam is only the latest in an astonishing series of worldwide swindles associated with the curious name Melchizedek. In 1995, Bank of England officials raided the London premises of a company called Inner Sanctum, which offered get-rich-quick investment schemes backed by a phoney bank "registered" in Melchizedek. Investors were told the bank's assets were backed by US Treasury bonds - which turned out to be worthless "financial instruments" issued by the pre-war German Weimar republic. Subsequently, the Commercial Crime Bureau issued a warning that "the Dominion of Melchizedek is not a sovereign country, nation or state".

So what is the "Dominion of Melchizedek"? Its nerve centre remains hidden behind its Internet home page, well beyond the reach of the law, and the brains behind the scam are David and Mark Pedley, an American father-and-son team of convicted swindlers who are well-known to California's police and prisons.

In 1983, Mark Pedley was convicted in San Francisco of mail and interstate fraud and sentenced to eight years in jail. His father David, who has been convicted four times of stock fraud, theft and counterfeiting, escaped trial because he was in a Mexican prison, accused of having orchestrated a scheme to convert the then-fast devaluating peso into dollars through a bank in Saipan, a US possession in the Pacific.

In 1987, a casket purporting to contain the remains of David Pedley was sent back to the United States. At the funeral, two FBI agents requested permission to fingerprint the corpse. But the family refused, leading to speculation that he is still alive and living somewhere under an assumed name. Mark Pedley was paroled in 1990 from Walla Walla in Washington state - one of America's toughest penitentiaries - and almost immediately launched his "Dominion of Melchizedek". He named his new "country" after the Old Testament "righteous king of peace", which served a cynical purpose: it made it easier for Pedley to accuse his detractors of religious persecution, a potentially emotive defence in devout America.

The Internet had also made its debut while Pedley had been in prison. Under a new name, Branch Vinedresser - which he later changed to Tzemach Ben David Netzer Korem, or basically the same name in Hebrew - he organised his now infamous website. He appointed his Filipina wife, Elvira Gamboa, as the "dominion's" "president" under the name "Mz Pearlasia" - and teamed up with like-minded fraudsters in the Asia-Pacific, among them John Gillespie.

Another associate was a British swindler who, using the assumed name "Dallas Bessant", founded two offshore insurance companies with US$25 million in phoney treasury bonds issued by the "Sovereign Cherokee Nation of Tejas", which claimed to exist on a 155-acre sandbar created in 1967 when a hurricane caused the Texas-Mexican border river Rio Grande to change course. Bessant also proclaimed himself "Chief Wise Otter" of his own "sovereign nation".

Melchizedek, however, lacked any territory other than a spurious place in Cyberspace, so Pedley first laid claims to Isla de Malpeto, a rock in the Pacific Ocean off the coast of Colombia. But when the Colombian government asserted that it was within its jurisdiction (Bogota even maintains a small garrison on the island), "the dominion" moved 1,600 km south of Tahiti, to "Karitane" which it claimed had been acquired from "the Kingdom of Polynesia", a non-existent entity. The authorities in French Polynesia - the territory closest to "Karitane" - found that any land at the site was located nine metres under water.

"The Dominion" then moved again, this time to Taongi in the western Pacific. According to a Melchizedek press release, Taongi was leased in 1997 under a treaty with representatives of "the Kingdom of EnenKio" - another, less known Cyberspace-country and self-proclaimed tax haven which claims the US-held Wake Island. In May this year, an announcement on Melchizedek's home page claimed that its "vice president" - Mark Pedley, alias Branch Vinedresser alias Tzemach Ben David Netzer Korem - had just visited the Marshall Islands and obtained a "fifty years master lease" with "full sovereign rights until the year 2049" over Taongi to "make it the next haven like Hong Kong" (sic.)

Taongi, in fact, is an uninhabited atoll in the Republic of the Marshall Islands. In recent years, Taongi has been visited only by a group of environmentalists from the East-West Centre in Honolulu who recommended designating it as a bird sanctuary. In response to questions submitted by this writer, the Washington embassy of the Marshall Islands replied that its government "discourages all independent sovereign nations ... from acknowledging any fraudulent claims made by representatives of the 'Kingdom of EnenKio' and the 'Dominion of Melchizedek' ". The "Dominion" admitted in a recent press release that Melchizedek may not be "a traditional country ... (it) exists primarily as an ecclesiastical state".

But despite all the farcical elements to the Melchizedek saga, it is no joke, asserts a high-ranking US law enforcement official: "Their so-called banks are involved in serious fraud, and we are watching them closely. It's possible to transfer funds from one jurisdiction, via Melchizedek, and on to a real tax haven such as Gibraltar or Antigua. In this way, the origin of the money can be totally obscured."

Law enforcement officials say that Pedley has contacts and co-conspirators in several Latin American countries, in Nigeria and Australia. Cheques issued by Melchizedek banks have been discovered all over the world. Using legitimate-sounding names such as the Zurich Euro bank, the Swiss Investment Bankers, Morgan Guarantee, Banco de Asia, Canam Pacific Management, and the Cambridge Merchant Bank, they have managed to fool quite a few.

In June 1998, the "Dominion" "liquidated" one of its banks, the so-called London Chartered Bank, when the Swiss and British police were on its tail. Its reputed owner, Robert Styer, had been sentenced to four years in jail in 1994 for financial fraud, but escaped justice and is still at large.

Last year, investors in the Dominican Republic and the Caribbean islands of St Marteen, Antigua, Grenada, St Lucia and St Vincent, plus others in Portugal, Singapore, the USA and the UK, also put millions of dollars into a so-called "60/40 Investment Programme" offered by Credit Bank International. More than 2,000 creditors lost their savings - and, hardly surprisingly, the "bank" turned out to be registered in Melchizedek. Following these disclosures, Pedley issued a statement saying that it "will do everything in its power to dissuade and stop individuals or groups from using banks licensed by the Dominion of Melchizedek for any illegal purposes".

Speaking on the phone from California, Pedley told this writer that "these are independent banks which operate on their own" - following what law enforcement agencies describe as a "by now familiar pattern of denying any involvement in a major fraud once it has been discovered".

In the same vein, the "Dominion" now claims that the three arrested tricksters in the Philippines were "former officials" who were acting on their own behalf. Pedley told this writer that "we may remove (Malaysian fraudster) Chew from our list, if we find out that he's really involved in this." He claimed that both Gillespie and Oakley had already "resigned" from the "Dominion".

In Asia, Pedley's creation first gained notoriety when in 1995 a young man claiming to be its "crown prince" tried to open several bank accounts in Hong Kong with cheques issued by phoney Melchizedek banks. The celebrity, "His Serene Highness Gerald-Dennis Sayn-Wittgenstein-Hohenstein" turned out not to be a prince, or a banker, but a 22-year old unemployed Austrian baker whose real name was Gerhard Bacher and who had been mostly living in the passenger terminal at Kai Tak airport. Bacher was arrested and magistrate Yung Yiu-wing in Hong Kong's Eastern Court dismissed the idea that the scheme was a practical joke: "A fraud on the banking system in Hong Kong is a very serious business."

Equally disturbingly, it was discovered that the young trickster had actually managed to visit a number of Asian countries with his Melchizedek "diplomatic passport". In January this year, the "Dominion" even managed to have the immigration authorities in both Singapore and Malaysia respond favourably to letters asking whether "Melchizedek passport holders" needed visas to visit those two countries. In the same month, the Asia-Pacific Parliamentarians' Union in Taipei issued a statement recommending observer status for "the Dominion", perhaps not realising that it was - and is - a virtual fraud rather than an actual country.

Equipped with such documents, the Pedleys (the father was in fact spotted alive and well in San Francisco in January this year) are trying to establish some kind of legitimacy for their "country". Speaking on the phone, Mark Pedley accused the US authorities of "violating their own constitution by recognising the Vatican - which is a real ecclesiastical sovereignty - and not Melchizedek. "Absolutely, we are a legitimate entity," he said. He also compared his "Dominion" with the Sovereign Military Order of the Knights of Malta, which has no territory but maintains embassies all over the world.

But to convince the rest of the world that Melchizedek falls into the same category of "ecclesiastical sovereignties" will be an uphill battle, to say the least. In late 1998, the First American Legal Corporation published a special bulletin on its home page "Scams and Financial Traps", alerting its customers to the fact that Melchizedek was founded by former convicts. On November 13, Daniel Stipano of the US Office of the Comptroller of the Currency, a banking watchdog in Washington, issued a statement to chief executive officers of all banks in America to send in "information regarding the Caribbean Bank of Commerce". That bank had no known financial capabilities - but, the OCC said, it held a "licence issued by the Dominion of Melchizedek, a non-recognised sovereignty". In all, there are at least 30 "banks" worldwide which are "registered" in the Pedleys' "Dominion". Obviously, crime in Cyberspace is here to stay - and the recent passport scam in the Philippines may only be the tip of the iceberg.

Significantly, in April this year another fictitious country appeared on the Internet: the "Principality of New Utopia", headed by "Prince Lazarus R Long". This new nation, an announcement over the Internet said, "would be built on concrete platforms on an underwater mass located 185 kilometres to the west of the Cayman Islands in the Caribbean". Quite a few investors fell for it, and sank money into a phoney US$350 million bond offering. The creation of the "Dominion of Melchizedek" - and similar entities such as the "Sovereign Cherokee Nation of Tejas", the "Kingdom of EnenKio", and "the Principality of New Utopia" - may serve as a harbinger of more to come in a field in which today's law enforcement officials are yet to become familiar: criminals who use the Internet to further their schemes - and who make a mockery of the law and international enforcement agencies.

This article first appeared in The Nation (Bangkok), May 30, 1999

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