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            <p></font><font size="4">The Billion-Dollar Shack </font><font SIZE="3"><br>
            </b>By Jack Hitt <br>
            <br>
            12/10/2000 <br>
            The New York Times <br>
            c. 2000 New York Times Company </p>
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            <p>In a ferocious tropical heat, I stood a few feet from the front door of the building --
            a shack, really -- that some say brought Russia to its knees and destroyed it as a modern
            nation. There is no plaque commemorating this achievement, and I may have been the first
            to make this pilgrimage. After all, there are only two flights a week out of Brisbane,
            Australia, that will even take you here -- here being the nation of Nauru, a tiny island
            1,200 miles east of New Guinea in the Pacific Ocean, just south of the Equator. It may be
            about as far away from everywhere as you can get and still be somewhere. </p>
            <p>Nauru is not a place you just visit. The beaches are raked with razorlike coral
            formations, and there is no natural harbor. Foreigners, who land on the airstrip left by
            Japanese conquerors in World War II, are confined mainly to Australian engineers who work
            at the island's nearly depleted phosphate mines. </p>
            <p>Although this island is one of the most obscure places on the planet, Nauru has lately
            gained a name for itself in Western international-finance circles. Amid the recent
            proliferation of money- laundering centers that experts estimate has ballooned into a $5
            trillion shadow economy, Nauru is Public Enemy No. 1. </p>
            <p>The Group of 7, the organization of seven leading economic powers, has a task force in
            Paris that routinely ''names and shames'' the dozen or so nations -- from the Philippines
            to the Cook Islands -- that provide a haven to illegal money. In this rarefied company,
            Nauru stands out. According to the deputy chairman of Russia's central bank, Viktor
            Melnikov, in 1998 Russian criminals laundered about $70 billion through this shack in
            Nauru, draining off precious hard currency and crippling the former superpower. Just to
            put that in perspective, last year's Bank of New York money- laundering scandal, which
            rocked the financial world, washed $7 billion. </p>
            <p>Half of that went through Nauru, too. </p>
            <p>As a result, Nauru is suffering under what are arguably the harshest sanctions imposed
            on any country, including those against Iraq and Yugoslavia. Western banks ranging from
            Deutsche Bank to Bankers Trust no longer permit any dollar-denominated transactions that
            involve Nauru. In the digital age, this action packs the same wallop as an old-fashioned
            gunboat blockade. </p>
            <p>Nauru wasn't always an outlaw nation. A decade ago, it was an up-and-coming country in
            the old global economy -- having done quite well with a singular export derived from its
            geographical isolation. For a million years, migrating birds took a bathroom break on this
            coral sanctuary, leaving the island's interior hummock composting rich veins of dense
            phosphate. For a time, exports of this key fertilizer ingredient made Nauruans among the
            richest people per capita in the world. But with the mineral wealth running out, Nauru's
            finest minds have turned to the heady new-economy riches of international banking.
            Specifically, they've opted for offshore banking, whereby a country registers new banks
            with loose rules and permits them to operate anywhere in the world -- except onshore in
            the country of registry. </p>
            <p>Nauru's new banking system was rumored to be entirely contained within a government
            institution called the Nauru Agency Corporation, which was said to be nothing more than a
            bunch of humming computers sitting inside . . . the shack. By knocking on its door, I
            hoped to look into the face of the new global economy. </p>
            <p>Getting to this place wasn't easy. An official representative of the government told me
            that no journalist would be permitted on the island. So I went as a tourist. When I
            announced my status to the ticket clerk in Brisbane, she laughed in my face. </p>
            <p>But Customs in Nauru -- I landed at 4 a.m. -- was too tired to care about my reasons
            for visiting, so I was cleared easily and caught a ride to the Menem, one of two hotels on
            the island. In my room was a printed notice asking guests to be considerate, waterwise,
            since the country was in its third year of a drought. My attempt at a shower ended 30
            seconds later. </p>
            <p>At 7 a.m., I decided to walk up the road about two miles to a knot of buildings that
            locals expansively call ''the capital city of Yaren.'' Wealth on a remote island manifests
            itself in peculiar ways. Every Nauruan seemed to own a car, but many of the houses were
            made of unpainted cinder blocks. Because of the drought, the yards were configurations of
            dirt. Trash, too expensive to export, was simply collected in piles in the back, as in
            Appalachia. Even at the shore's edge, many of the island's palm trees were dead from
            drought -- coconutless, frondless poles curving obscenely toward the sun. </p>
            <p>Returning to the hotel, I set about trying to locate the Nauru Agency Corporation. None
            of the clerks had ever heard of it. The driver of the island's only taxicab didn't know
            either, but he did react to my laments about my roasting flesh by driving me to the only
            souk on the island that sold hats. A passing cargo ship must have dumped a pallet of them,
            all the same: bright red baseball caps bearing the slogan ''KGB -- The Secret Is Out.'' My
            covert walkabout was ambling into the realm of farce. </p>
            <p>Nauru is a perfectly circular atoll, about a third the size of Manhattan. Midtown, more
            or less. But nearly 80 percent of the island's interior consists of abandoned surface
            mines and is uninhabitable. The nation's 10,000 residents dwell exclusively on a ring of
            green that hugs the shore, held together by a single loop of road. </p>
            <p>Walking along this roadside, I passed the Nauruan golf club. Because of the drought,
            the entire nine-hole course was completely grassless, a three-par sand trap. I made my way
            to the post office, where I earned the trust of a postal clerk by talking stamps with him.
            He pulled out a map and directed me to the Nauru Agency Corporation. It was just around
            the corner. </p>
            <p>Standing at last before the building that destroyed Russia filled me with a weird
            terror. The Nauru Agency Corporation was indeed a shack -- actually, half a shack. One
            side was rented out. Air-conditioners were stuffed in nearly every window, presumably
            huffing away to keep the computers cool. The place had the beaten look of a college
            sophomore's off-campus apartment. Yet I trembled when I walked up close enough to see the
            letters spelling out Nauru Agency Corporation on the door. Seventy billion dollars.
            Russian mobsters. Officials in Moscow had been machine-gunned for less. </p>
            <p>I knocked on the door, and it opened slightly to reveal a woman holding a broom. The
            cleaning lady of the new global economy. She wasn't particularly hostile when I asked if
            there was someone inside I could talk to. But she said that there wasn't and that I should
            telephone. When I asked her for the number, she said she didn't know it and closed the
            door. </p>
            <p>Money laundering comprises endless variations on a simple theme: taking money earned in
            illegal ways and moving it through one or more transactions so that it looks legal. Once
            cleansed, the funds can easily be spent on legitimate deals, like real estate or stock. </p>
            <p>For example, say you're a drug dealer with $100,000 in cocaine-flecked 20's. You might
            enter a casino and buy $100,000 in chips, gamble modestly, then cash in your chips for a
            cashier's check. Because any bank transaction over $10,000 has to be reported, you can now
            hand over the casino check for deposit at a bank and, without too much suspicion, call it
            ''winnings.'' Another money- laundering method involves taking your drug profits and
            buying up cashier's checks with a value under $10,000. (Drug dealers typically employ
            squads of what law-enforcement officials call ''smurfs'' to perform this service.) This
            money can be deposited without fanfare and later wire-transferred to an offshore bank
            account. </p>
            <p>In the 80's, the problem of money laundering at last began to be taken seriously. The
            first bill passed by Congress with the words ''money laundering '' in the title was in
            1986. International organizations, like the Group of 7, began cracking down as well. As a
            result, some nations cleaned up their acts. Switzerland, for one, will no longer fully
            protect the identities of those old ''numbered accounts.'' But by going straight, the
            Swiss simply created fresh demand for their old service. And they did it on the eve of the
            digital revolution, permitting any sovereign nation with a phone line to get into the
            game. Scores of little countries like Nauru have seized this opportunity. </p>
            <p>Nauru specializes in something called a shell bank, which exists only on paper. There
            are no teller windows, no A.T.M.'s. Indeed, much of a shell bank's activity takes place
            not on Nauru (or even in the shack) but in ''correspondent accounts'' in other countries.
            A correspondent account is just like a checking account -- except it's for an entire bank.
            </p>
            <p>Since most banks are required by the country they are registered in to keep a record of
            every major transaction that goes in and out of such accounts, money can be traced. (Most
            banks are also required to report suspicious patterns of activity and to know the identity
            of their customers.) But Nauru permits its shell banks to operate without such
            encumbrances. While specific clumps of money may enter a Nauruan correspondent account at
            a real brick-and-mortar bank, the person charged with managing those transactions sees
            only an unidentified flow of funds passing through. And once the funds have passed on
            through, they become untraceable. </p>
            <p>The recent Bank of New York scandal revealed not only the latest techniques in money
            laundering but also the critical role a tiny nation like Nauru can play. The scheme was
            designed by Russian bankers but was run by a married couple in New York -- Peter Berlin
            and Lucy Edwards, a vice president of the Bank of New York . (Edwards was born Ludmilla
            Pritsker in Leningrad.) Beginning in Moscow, two established banks, Sobinbank and MDM,
            opened two separate banks -- Depozitarno-Kliringovy Bank, or DKB, and Flamingo Bank -- to
            serve as the conduits for fleeing funds. </p>
            <p>Funds from Flamingo and DKB were then funneled to a shell bank registered in Nauru
            called Sinex. (Yes, these names are real.) Sinex was founded in the early 90's by several
            Russians -- one of whom, Aleksey Volkov, eventually worked directly with Berlin and
            Edwards out of their New York office. Sinex opened a correspondent account with the
            Commercial Bank of San Francisco, which permitted it to operate in the United States.
            Payments from Sinex were generally made to a number of shell firms -- companies that did
            no business other than to receive these funds -- with running accounts at the Bank of New
            York . To avoid suspicion, Berlin and Edwards continuously created new names for these
            shell firms: Benex International, General Forex, Torfinex, Lowland Inc., Becs
            International. From there, money was dispatched to numerous offshore locations, where it
            rested as clean corporate funds, easily accessible. </p>
            <p>One Russian suspected in participating in this scheme is Semyon Mogilevich, the
            notorious mafia head known as the Red Don. Not to put too fine a point on the quality of
            the clientele, but when Edwards pleaded guilty in New York to money- laundering charges
            earlier this year, she admitted, ''I was aware that personnel from DKB were on occasion .
            . . afraid to leave the bank because they said customers with machine guns were waiting
            for them.'' </p>
            <p>In the three years that Berlin and Edwards ran their operation from the top floor of
            118-21 Queens Boulevard, they used three standard-issue computers to perform 160,000
            transactions. For flushing $7 billion out of Russia, they were paid approximately $1.8
            million in fees, which they ultimately parked in offshore accounts on the Isle of Man.
            Their scheme might still be working, except that a $300,000 ransom fee intended for
            kidnappers of a Russian businessman named Edouard Olevinskiy used the Benex pipeline to
            make the payment and set off an F.B.I. investigation. </p>
            <p>Starting a bank in Nauru is simple and comparatively cheap. If you click on
            www.anti-taxes.com, you can get one going for just $25,000. (This outfit handles
            registration and payments to the Nauru Agency Corporation.) Benefits are wide ranging,
            according to the Web site: you can ''improve your image by owning your own bank'' while
            hiding your money from ''a vindictive ex-spouse.'' The pitch is clearly not aimed at the
            average investor. ''Seize your assets before your creditors even think of it,'' the site
            recommends. </p>
            <p>Once your dirty funds have moved through a bank registered in Nauru, they are
            essentially liberated. No investigator can subpoena ''records'' to trace the flow of money
            -- because there simply aren't any. A Nauru bank is a firewall for any investigating
            official. What, exactly, was the transaction? Where did the money come from? In Nauru, the
            bucks stop there. </p>
            <p>It's not difficult to figure out why Nauru would get into the offshore-banking
            business. The country had only one export and, like so many colonial dependents, relied
            upon experts from the developed world to exploit it and reap the benefits. </p>
            <p>In the heyday of colonialism in the late 19th century, when every European nation with
            a boat charged to the Pacific to claim tiny islands, Germany was the first to toss its
            flag on Nauru's shore. According to legend, a colonial officer noticed that a big rock
            used as a doorstop was made of pure phosphate. Right away, tracks for a railroad into the
            island's interior were laid, and exporters began carrying off, shipload by shipload, the
            island's soil. </p>
            <p>Australia seized the island from the Germans in World War I. The Japanese took it
            during the next world war and deported some 1,200 Nauruans to the Chuuk Islands, where 500
            of them died as slave laborers. After the war, Australia resumed mining and earned
            enormous profits before the island achieved independence in 1968. The Nauru Phosphate
            Royalties Trust raked in the money over the next decades. Health care and education were
            guaranteed to every Nauruan. Cars, air-conditioning and other imports were available
            nearly to all. By the early 90's, the trust had an estimated principal of $800 million,
            with real-estate investments in Oregon and Hawaii. </p>
            <p>But in that volatile decade, a number of bad investments were made. One of the
            country's London financial advisers, Adrian Powles, embezzled $60 million from the trust.
            Nauru was also the chief backer of a London musical based on the life of da Vinci.
            ''Leonardo'' flopped. </p>
            <p>In 1992, Nauru bought into a scheme of ''prime bank notes.'' This was a scam that lured
            investors with the promise that the superrich secretly traded these notes for enormous,
            fast profits. Nauru sank $30 million in the deal. The money, most likely washed through
            Antigua, is now untraceably gone. </p>
            <p>Recent trust estimates reveal that it has plunged to roughly $130 million. And there is
            no other obvious economy in waiting. Tourism might have been a possibility once, except
            that a century of phosphate mining has left Nauru with probably the most devastated
            ecosystem on the planet. Without the intervention of some environmental white knight with
            Noachian ambitions, it's not just the island's economy that's in danger. It's the island
            itself. </p>
            <p>At 5 a.m. the day after I arrived, my body clock woke me to full darkness. I stood on
            the beach watching the stars as the horizon blinked and a bloodred morning raced across
            the surface of the sea. In the brightening light, I decided to canvass the island before
            the heat became overwhelming. No sooner had I started walking down the road, though, than
            a car pulled over, and its curious driver offered me a ride. </p>
            <p>''What are you doing on Nauru?'' he asked. </p>
            <p>''Just visiting,'' I said. </p>
            <p>He looked at me sideways, then chuckled. ''Let me ask you something,'' he said. ''Have
            you ever practiced the profession of journalism?'' </p>
            <p>''I. Have. Been. Known. To. Practice. Something. Like. Unto. Which. Journalism.
            Technically. Is.'' </p>
            <p>''I wouldn't want to talk to a journalist who'd use my name,'' he said. </p>
            <p>That settled, my new friend offered to take me on a tour of the island. For 20 minutes
            we drove the circumference of Nauru, stopping once at a small store whose empty shelves
            held only one thing for sale: white bread. As we drove, nothing was noted or pointed out.
            The tour took place in an eerily expectant silence because we both knew there is only one
            thing a visitor to Nauru really wants to see. Eventually the driver pulled up beside the
            phosphate factory. ''You want to see Topside, right?'' he asked, using the local nickname
            for the interior of the island. </p>
            <p>We turned up a dirt road. You could still see where huge boulders were shipped in on
            the railroad to be roasted and processed into refined, powdery phosphate. We drove to a
            place atop what's left of the interior mound of the atoll, where we could see in one
            sweeping view the belly of the island. </p>
            <p>There are no words or pictures that can adequately capture what mining has wrought in
            Nauru. To get out and stand there is to be scared, to feel the overwhelming fear of being
            alone in a coliseum. The small atoll has essentially been tonsured, sheared of all
            greenery and dug down to the rock. The thinning vegetation on the periphery -- the dead
            palms, the pandanus trees with black crowns, the grassless golf course -- is the good
            news. The entire interior of the island is a lunar landscape of excavated channels. With
            all the topsoil and phosphate gone, what's left are sinuous stone canals marked by
            sun-bleached limestone towers and coral outcroppings. </p>
            <p>One environmental theory that explains Nauru's persistent drought is called the oven
            effect. The white hot plate of Nauru's interior creates a column of scorched air that
            rises up fast enough to blow away rain clouds. </p>
            <p>We drove slowly with the windows down. The driver stopped and, scanning the skeletal
            landscape, told me how when he was a boy, all this was dense tropical forest. He and his
            friends would hunt black noddy birds with nets and then bring them home to prepare them in
            the traditional Nauruan style. Today, he said, there are few noddy birds left. </p>
            <p>We sat in a hissing silence for a while. There was no breeze, just fine talc, airborne
            and stagnant, like particulate. It seemed to crackle and pop in the heavy, birdless air.
            Perhaps more unnerving than the landscape was the driver's stoic face -- absent of all
            affect, tensed by something unnameably sad. He held himself immobile, with an expression
            of shame I had never before seen. He and his people, perhaps unknowingly, had sold off
            their motherland. It was done gradually, by accretion, and amid the joy of sudden wealth.
            There were probably rationalizations and explanations, and yet it was an incomprehensible
            thing to see it and feel it. Imagine France paving Bordeaux; Israel plowing under
            Jerusalem; Spain salting the Castilian plain. The driver said he hoped that one day I'd
            get the chance to eat a noddy bird, then dropped me off at the post office. </p>
            <p>I walked up the road to the shack to knock once more. No one answered. I worried that I
            might never get to look into the face of the new global economy. I was halfway back to my
            hotel, staggering under the equatorial sun, before I realized I had been looking at it all
            morning. </p>
            <p>As the phrase ''Money Laundering '' implies, there are a number of cycles to the
            cleaning process. After procuring funds by some less-than-legal means, the money launderer
            first wires the money through a bank registered someplace like Nauru. But in the ''spin
            cycle,'' that money has to pass through an economically stable place with lots of clean
            money -- a place like the United States of America. When that money moves through our
            banks, it churns some easy profits. As a result, America's own money- laundering standards
            are, to put it nicely, confusing. </p>
            <p>''Simply put, criminal money is illegal; corrupt money is not,'' said Raymond Baker, a
            money- laundering specialist with the Center for International Policy. If the money is
            derived from criminal sources like drugs, America officially opposes it. But if it is
            derived from corrupt foreign sources -- like Gen. Sani Abacha, whose family is believed to
            have washed billions out of oil-rich Nigeria in his lifetime -- then it's fine. </p>
            <p>For most of the 90's, Citibank maintained accounts for the Abachas' billions. This was
            legal, because transferring money that is accumulated from bribes and extortion in another
            country is not a crime here. Citibank has admitted to handling billions of dollars from
            all kinds of corrupt leaders and their kin: Omar Bongo, the president of Gabon; Jaime
            Lusinchi, the former president of Venezuela; Raul Salinas de Gortari, the brother of
            Mexico's former president. Like most large American banks, Citibank has a special program
            for such wealthy customers: it's called private banking. Besides identifying customers
            only by secret code names to maintain privacy, private banking provides conveniences like
            ''pass-through accounts'' -- which allow unidentified money to be brought into the U.S.
            banking system momentarily before being wired to an offshore account. </p>
            <p>Because of this thin distinction between criminal and corrupt funds, approximately $40
            billion in corrupt funds is washed through American banks each year. As Baker sees it,
            ''We condemn one kind of money laundering while encouraging the other.'' </p>
            <p>Indeed, the punishments meted out for money laundering do not exactly qualify as a
            deterrent. For instance, the Bank of New York scandal has so far resulted in one prison
            term, for Svetlana Kudryavtsev, a secretary in the New York operation who was paid $500 a
            month to monitor shady accounts. Declaring that he wanted to ''send a message,'' United
            States District Judge Jed Rakoff sentenced her to jail -- for two weeks. </p>
            <p>Because so many people can easily launder money today, the problem is rapidly
            worsening, a trend that worries many experts. Jonathan M. Winer, a former State Department
            official, described money laundering as a kind of cancer. ''It metastasizes and creeps
            into different economies,'' he said. He cited the collapse of Albania in 1998, when
            loosey-goosey bank regulations allowed a pyramid scheme to infiltrate the country's
            economy. In the end, when it collapsed, the people panicked, stormed the nation's armories
            and flooded the country with Kalashnikovs. These rebels spilled over into Kosovo, giving
            their anti-Serbian neighbors enough momentum and weaponry to start a war, which eventually
            required American intervention to end. </p>
            <p>From the perspective of someone like Winer, an alarming number of recent crises -- the
            collapse of the Mexican peso in 1994, the looting of Russia, the destruction of Venezuela,
            the current bilking of Colombia by its drug lords -- have money laundering at their
            source. The Long-Term Capital Management hedge-fund crisis of 1998 is another example,
            closer to home. The fund invested billions in sleazy overseas deals involving some
            offshore-banking switcheroos. When the fund was on the verge of collapse, top financial
            officials, including Alan Greenspan of the Federal Reserve Board, argued that, no matter
            how unfair, the American financial community should bail it out. It did, at a cost of $3.6
            billion. </p>
            <p>Why? The fear, according to Winer, is that the instability that triggers such scandals
            might find its way into the American market, whose strength currently depends on
            confidence and certainty. This is why Secretary of the Treasury Lawrence Summers now
            speaks so insistently about protecting the ''global financial architecture.'' </p>
            <p>But this effort isn't going to be easy. With so many fledgling nation-states appearing
            on the scene -- Nauru's neighbor Palau, a competitor in the shell-bank business, became
            independent only in 1994 -- selling sovereignty gets only easier. And for countries with
            few natural resources, the lure of the electronic-transfer scam is strong. </p>
            <p>Indeed, even if the State Department manages to force countries like Nauru to clean up
            their acts, technology is threatening to make money laundering so easy that elaborate
            ruses like shell banks won't be necessary. A few years from now, a drug dealer might be
            able to have digital dollars zapped right into his Palm Pilot while cutting a deal in an
            alley -- and then have those funds transferred to Liechtenstein before crossing the
            street. </p>
            <p>Though their work is clearly cut out for them, officials like Winer refuse to give up.
            ''We have to keep up the effort of policing the global-finance system, because you have to
            realize that banking is a kind of confidence game,'' he said. ''Your typical con artist
            has to win your confidence only for as long as it takes to get your money. But bankers
            have to win your confidence, and keep it, forever.'' </p>
            <p>After returning from Nauru, I learned that its president would be visiting New York to
            address the United Nations during the millennium summit. Bernard Dowiyogo has served in
            this office four times in the last decade of Nauru's turbulent internal politics. </p>
            <p>A courtly man, Dowiyogo invited me up to his Park Avenue hotel room for breakfast. He
            and I sat together, along with Nauru's ambassador and some other government officials, and
            shared a plate of sausage and eggs scrambled in that flawlessly yellow hotel style. </p>
            <p>''We cooperate with authorities when they come to the island with court orders,''
            Dowiyogo told me. </p>
            <p>To be sure, Nauru has been cooperative in some fairly grotesque cases. In the 90's, a
            Florida outfit called Greater Ministries International, which was affiliated with the Ku
            Klux Klan, operated a Ponzi scheme. Christians looking for easy profits invested in
            something called the Double Your Blessing program, only to have their money disappear
            through a Nauru bank. After the scam became public, Nauru revoked G.M.I.'s banking
            charter. </p>
            <p>''We check every company's background,'' Dowiyogo said, an assertion disputed by the
            State Department. ''We check a company's credentials. It's not true what they say about
            Russian money and Nauru. If that money had come through Nauru, we'd have a gold mine.'' He
            adjusted the knife at his place setting. ''That money went through the Bank of New York
            .'' </p>
            <p>Because Nauru's bank system scrupulously avoids monitoring transactions, it can't
            really make any commissions off the size or number of transfers. Nauru's government
            collects only the crumbs: the one-time start-up fee and then annual renewal fees. </p>
            <p>''It costs $1,000 to renew,'' Dowiyogo explained. </p>
            <p>According to the Treasury Department, Nauru has at least 400 shell banks registered on
            the island (half of them by Russian clients), providing half a million in easy annual
            revenues. That's not a trivial sum for a country with such a small population. But Nauru
            is planning some costly projects that should keep it in the offshore-banking business for
            some time. </p>
            <p>Dowiyogo told me that his country hoped to rehabilitate Topside. As there is no topsoil
            left, such an undertaking would take 20 years and cost $300 million. ''One of the things
            we have in mind,'' Dowiyogo said, ''is that part of the dug-out area should be left as it
            is so that future generations can see what it was like.'' Like a museum, added the
            ambassador. </p>
            <p>So maybe there is a new economy ahead for Nauru after all: ecotourism, only in reverse.
            </p>
            <p>I then asked Dowiyogo what other ideas were kicking around Nauru to make money. He said
            they were studying one proposal to slice the limestone pinnacles into cross sections,
            polish them and sell them in the West as coffee tables. When I asked what other business
            opportunities his country was contemplating, he took a bite of toast. </p>
            <p>Another government official told me later that there has been talk of permitting the
            country's phone code to be used for 1-900 sex lines. Vanuatu, another money- laundering
            island in the region, has already gone this way. Nauru is holding out for the coffee
            tables. </p>
            <p>Nauru's biggest holiday is called Angam Day. It celebrates the several occasions in the
            past when the island's population was 1,500 -- the magic figure deemed necessary for life
            to flourish there. Today, with 7,000 Nauruans inhabiting the island's green skirt -- and
            with an economic future contingent upon Western desire for limestone coffee tables -- I
            gingerly asked the president what might happen to the people on Nauru in the next 10
            years. </p>
            <p>''That's not a problem,'' he said, explaining that residual phosphate mining will hold
            them. </p>
            <p>''What about 20 years?'' I asked. </p>
            <p>''That may be a problem,'' the president said quietly. </p>
            <p>Soon after my chat with Dowiyogo, the group of 7 task force that monitors shady banking
            practices issued some rare praise for countries described as ''improving'' their bank
            laws. Notably absent was Nauru. </p>
            <p>One senior Treasury Department official told me that Nauru had grown only more
            bellicose -- to the point of extortion. Dowiyogo had written the Treasury Department a
            letter claiming that since Nauru ''has been the victim of unfair adverse media publicity
            based on unsubstantiated allegations of money laundering ,'' the country could not
            possibly ''go ahead with the implementation of its resolve to reform its offshore
            financial regime'' before America paid Nauru at least ''$10 million.'' </p>
            <p>Stuart E. Eizenstat, the deputy treasury secretary, responded in a speech: ''Nauru
            should not expect to receive a big check anytime soon.'' If anything, the financial
            blockade may soon become formalized. A bill written by Representative Jim Leach and
            currently waiting to get out of committee would empower the Treasury Department, without
            Congressional approval, to quarantine any nation that refused to meet America's banking
            standards. Nauru, in a sense, is the test case for the new global money police. </p>
            <p>In the meantime, Nauru has ignored the West and shifted gears to pursue a very modern
            strategy: public relations. In October, I received an invitation from Helen Bogdan, a P.R.
            agent in Melbourne who represents ''the country of Nauru.'' She was flying to New York to
            appear at one of the tonier downtown clubs, Lot 61. There, she would show a 10-minute
            film, the kind of thing you might see on an airplane just before the movie. </p>
            <p>The event started at midnight on a Saturday. I was escorted past a rope line where
            anxious club kids waited for the chance to enter and sip $10 drinks beneath lush motion
            pictures of smiling Nauruan children, swaying palms and turquoise waves. The brief shots
            of Topside were so fast-cut and tightly focused that the pinnacles resembled beautiful
            Polynesian totems. With numerous women in pastel fabrics grinning from thatched huts and a
            lot of outrigger boats pounding atop spangling waves, Nauru suddenly looked a lot like how
            Paul Gauguin might have imagined it. </p>
            <p>I said hello to Bogdan, a platinum blonde dressed in all black with matching beret, and
            asked her about a rumor. I'd heard that Nauru had bought up land in Australia in case
            global warming threatens the island with flooding. Bogdan said the story was partly true,
            in that Australia had once offered the Nauruans an island off the Great Barrier Reef. The
            gift was declined because it required the Nauruans to surrender their sovereignty to
            Canberra. </p>
            <p>But it seems likely that Nauru will have to plan for such a contingency. Even if Nauru
            were to become the next Switzerland, the money wouldn't wash up on shore fast enough. A
            rise in sea level of only a few feet would engulf the meager inhabitable ring of the
            island, leaving the coral boneyard of Topside all alone at sea, once again available to a
            million years of birds<b></p>
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