Princely Purchase


Tiny, Rich Monaco Comes to Washington

More people live in Rockville, Md., than in Monaco, whose 35,000 people are crammed into less than one square mile along the Mediterranean. In fact, it’s so tiny that the entire microstate can be captured in one pan-oramic photograph. But don’t be fooled by its smallness. This glitzy little tax haven is rich. Filthy rich.

In 2006, Monaco’s gross domestic product reached an astonishing .6 billion—roughly the same as that of dirt-poor Haiti, home to 8.5 million people, and nearly twice that of sparsely populated Mongolia, which is 800,000 times the size of Monaco.

That .6 billion translates into a per-capita GDP of ,000, though when it released such figures for the first time earlier this year, the government made its calculations assuming a total population of 70,000 to include the 35,000 French and Italian citizens working daily in Monaco. If based on resident population alone, Monaco would have a per-capita GDP of 5,000, making it the wealthiest place on Earth.

“What makes Monaco special is its history and traditions,” said the country’s first-ever ambassador in Washington, Gilles Alexandre Noghes. “People are ready to pay a very high price to live in Monaco because of security, a soft tax system and an excellent quality of life.”

A high price indeed. It’s nearly impossible these days to find a two-bedroom, 1,000-square-foot apartment with views of the Mediterranean for less than .5 million.

Yet only 8,000 of Monaco’s 35,000 inhabitants are native Monegasques; the rest are mainly French and Italian, with another 100 nationalities represented.

“That’s why I call Monaco a global village,” said Noghes, himself a fifth-generation Monegasque whose family settled there in 1820. The ambassador’s father, Antony Noghes, founded the Monaco Grand Prix in 1929 and is widely credited as the inventor of the checkered flag used in auto racing worldwide.

Noghes, 60, spoke to The Washington Diplomat last month during a leisurely interview at the new Embassy of Monaco. It’s located in Washington’s exclusive Kalorama neighborhood, along a stretch of Wyoming Avenue that also houses the embassies of Afghanistan, Syria, Yemen and Zimbabwe.

The prime piece of real estate was actually purchased by a prince—that would be Prince Albert II, who assumed the throne in April 2005 upon the death of his father, Prince Rainier III.

Rainier and his beloved wife, American actress Grace Kelly, had ruled Monaco since 1949, transforming the country from a provincial backwater into a thriving gambling and tourist resort destination as well as an international banking center.

“Prince Rainier’s 56-year reign completely changed the principality,” said Noghes. “Now Prince Albert has his own vision and wants to expand Monaco’s international reputation. We don’t want people to continue believing that Monaco is only a place for leisure.”

Prince Albert knows the United States well. As a child, he attended summer camp in New Hampshire and later interned for banks and marketing firms in New York. So it wasn’t much of a surprise when the new monarch decided to open Monaco’s first non-European embassy in the United States.

“A treaty with France dating from 1818 had been renegotiated in 2002, giving Monaco the possibility to extend our diplomatic network overseas, and to accredit foreign diplomats in Monaco,” the ambassador explained. “Until then, we had only honorary consuls. This reinforces the international character of the principality.”

Noghes presented his credentials to President Bush on Dec. 8, 2006. A month later, the embassy moved into its current 90-year-old colonial mansion, which happens to be the former residence of U.S. President Warren G. Harding. Albert personally selected this piece of Washington real estate, for which the principality paid a princely sum. (Noghes politely declined to say exactly how princely.)

“We’re using it temporarily as a chancery, but we’re looking for office space in the neighborhood,” he said, noting that “we are not quite ready for an official inauguration.”

Today, in addition to Washington, Monaco maintains embassies in the capitals of Belgium, France, Germany, Italy, Spain and Switzerland. It also has missions in New York (Monaco joined the United Nations in 1993) and in Strasbourg, France (Monaco joined the Council of Europe as its 46th member in 2004). Monaco also has a network of 104 honorary consulates in 56 countries.

Noghes is proud of his principality’s future potential as well as its illustrious past. “Monaco is one of the oldest existing countries in the world. Our destiny has been linked to the Grimaldi family for over 700 years. It’s the oldest dynasty in Europe,” he explained. “The first recognition of its independence was at the end of the 15th century, by France. Since then, the only time Monaco ceased to be independent was from 1793 to 1814, during the French Revolution.”

Although not the smallest country in the world (Vatican City claims that title), Monaco is the smallest member of the United Nations. At one time, Monaco was 20 times its current size—a historical fact reflected in several maps hung along the walls of the embassy. But in 1861, Prince Charles III conceded to France his rights over Menton and Roquebrune, guaranteeing Monaco’s total independence. As a result, the principality saw its territory slashed to almost nothing.

“What could have been a fatal destiny became our biggest incentive to survive economically, and that was the reason for the creation of tourism and the casino, which attracted to Monaco the entire aristocracy of Europe,” said Noghes. “Among Europe’s microstates, Monaco is the only one with a harbor and access to the sea.”

It also boasts the world’s largest pier for super-expensive yachts. The 0 million floating pier was inaugurated in 2002—the same year Monaco adopted the euro as its official currency, even though it’s not a member of the European Union.

“The fact that we use the euro facilitates tourism a lot,” said Noghes, estimating that last year, more than 5 million tourists visited Monaco, 350,000 of whom stayed overnight. About half of Monaco’s income derives from its 19.6 percent value-added tax, and tourism is a mainstay of the principality’s economic success.

Both tourists and residents alike are attracted by Monaco’s well-deserved reputation for safety and security. The principality boasts one policeman for every 100 residents and a system of 24-hour video surveillance that covers Monaco’s entire surface area. Begging and violent crime are virtually non-existent in this microstate.

Another big draw is the fact that since 1869, residents of Monaco have been exempt from all personal, property or income tax—a loophole that’s attracted thousands of well-heeled foreigners to the principality. Even so, Noghes cautioned that “it’s not easy to get citizenship, and it’s not automatic. It’s only at the discretion of the prince.”

Like Prince Albert, Noghes has his own personal ties to the United States—his wife Ellen is originally from Michigan. He noted that Monaco has honorary consuls in Boston, Chicago, Dallas, Los Angeles, Miami and San Francisco, and that “we are considering putting one in Las Vegas.”

“Opening this embassy in Washington was a natural thing to do, considering the strong relationship that exists between Monaco and the United States,” explained Noghes, who also oversees Monaco’s mission in New York and served as director of Monaco’s tourism office for eight years.

A career diplomat who speaks fluent French, English, German and Italian, Noghes earned a degree in mechanical engineering from Switzerland’s Federal Institute of Technology in 1971 and a master’s in business administration from France’s INSEAD four years later. He’s served at Monaco’s embassies in Germany, France and Switzerland, and since 2004, has been Monaco’s permanent representative to the United Nations in New York—a position he’ll continue to keep, concurrent with his new assignment in Washington.

But why does such a tiny country need an embassy here in the first place? “This will put Monaco on the map for those Americans who don’t know it so well,” Noghes responded. “My mission will be political and economic, while the consulate-general in New York will continue to handle cultural and tourist activities.”

Bob Bauman, a former U.S. congressman from Maryland who now writes a blog on offshore tax havens, sees Monaco’s new Washington mission “as perhaps evidence of an exodus of rich Americans. Recently, the International Herald Tribune reported on the increased number of Americans who are moving abroad and ending their citizenship, possibly as a means to avoid high U.S. taxes. Monaco would be a prime residence for such U.S. expats and the new Washington embassy could be their first stop on the road to hoped-for tax freedom.”

But Bauman, quoting an unnamed source in Monaco, suggested that “this has more to do with Prince Albert wanting to influence the movers and shakers in the world, as he is very concerned about global warming and the environment generally. And where better for that than Washington? It’s Monaco’s greenhouse next to the White House.”

Indeed, Albert recently created his own foundation to address the issues of biodiversity, water resources and climate change. The Prince Albert II of Monaco Foundation—inaugurated in June 2006—will initially be funded with 22 million euros, though the objective is 80 million euros, according to Noghes.

“A committee will be created in the United States to raise funds for this foundation,” said the ambassador, noting that Albert will address the U.N. General Assembly in late September on environmental issues.

The 49-year-old monarch is also concerned about Monaco running out of room. “With such a small territory and such a dense population, Monaco must find space in order to grow,” said Noghes. “So Prince Albert has launched a new project that will probably start in 2014. It will extend our territory by about 22 acres, not by filling in the sea, but by offshore construction that will cause no harm to the environment.”

Noghes said the project is budgeted at around 5 billion euros and will create some 3 million square feet of new office and residential space on various levels.

Monaco is also making a name for itself as a telecommunications center—a status helped along by the principality’s use of its own +377 international dialing code for the last 11 years, freeing it from the French telephone network. The country’s wireless provider, Monaco Telecom, now provides mobile service in such far-flung places as Afghanistan, Kosovo and various African countries.

But the area where tax-free Monaco is really making a name for itself is in the booming financial sector. Because the microstate lacks a stock market, its banks and financial professionals specialize in asset management for high net-worth individuals. At present, the principality boasts 41 banks and credit institutions, with deposits and securities amounting to more than 70 billion euros. Credit institutions and portfolio managers alone employ 2,900 people and generate .1 billion euros in annual sales, representing 16 percent of Monaco’s total revenues.

Yet the successful principality hasn’t been able to avoid controversy completely. Since 2000, Monaco has been blacklisted by the Organization for Economic Cooperation and Development (OECD). At one time, this so-called “List of Uncooperative Tax Havens” singled out 45 countries and jurisdictions, but the OECD blacklist is now down to five countries. Besides Monaco, they are Andorra, Liberia, Liechtenstein and the Marshall Islands.

“When we make a commitment, we stick to it. Some countries got off the OECD blacklist by making promises, but Monaco decided not to do that,” said Noghes. “We stayed on the blacklist, but that has more to do with taxation, since for over 100 years, Monaco has had no income tax.”

Noghes added that “Monaco has been fully supportive of measures against money laundering for terrorism,” and that the country has agreed to impose a withholding tax on revenue from interest-bearing accounts to comply with a new European Union directive passed in early 2003 aimed at EU member states with secret banking laws. Other key non-EU countries have agreed to adopt similar measures.

About the Author

Larry Luxner is news editor for The Washington Diplomat.