hitt - the billion dollar shack

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8/6/10 2:he Billion-Dollar Shack - The New York Times

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December 10, 2000

The Billion-Dollar Shack

By Jack Hitt

In a ferocious tropical heat, I stood a few feet from the front door of the building -- a shack, really -- thatsome say brought Russia to its knees and destroyed it as a modern nation. There is no plaquecommemorating this achievement, and I may have been the first to make this pilgrimage. After all, there areonly two flights a week out of Brisbane, Australia, that will even take you here -- here being the nation ofNauru, a tiny island 1,200 miles east of New Guinea in the Pacific Ocean, just south of the Equator. It maybe about as far away from everywhere as you can get and still be somewhere.

Nauru is not a place you just visit. The beaches are raked with razorlike coral formations, and there is nonatural harbor. Foreigners, who land on the airstrip left by Japanese conquerors in World War II, areconfined mainly to Australian engineers who work at the island's nearly depleted phosphate mines.

Although this island is one of the most obscure places on the planet, Nauru has lately gained a name foritself in Western international-finance circles. Amid the recent proliferation of money-laundering centersthat experts estimate has ballooned into a $5 trillion shadow economy, Nauru is Public Enemy No. 1.

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 ahaven to illegal money. In this rarefied company, Nauru stands out. According to the deputy chairman ofRussia's central bank, Viktor Melnikov, in 1998 Russian criminals laundered about $70 billion through thisshack in Nauru, draining off precious hard currency and crippling the former superpower. Just to put that inperspective, last year's Bank of New York money-laundering scandal, which rocked the financial world,washed $7 billion.

Half of that went through Nauru, too.

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 Trustno longer permit any dollar-denominated transactions that involve Nauru. In the digital age, this actionpacks the same wallop as an old-fashioned gunboat blockade.

Nauru wasn't always an outlaw nation. A decade ago, it was an up-and-coming country in the old globaleconomy -- having done quite well with a singular export derived from its geographical isolation. For amillion years, migrating birds took a bathroom break on this coral sanctuary, leaving the island's interiorhummock composting rich veins of dense phosphate. For a time, exports of this key fertilizer ingredientmade 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 permitsthem to operate anywhere in the world -- except onshore in the country of registry.

Nauru's new banking system was rumored to be entirely contained within a government institution calledthe Nauru Agency Corporation, which was said to be nothing more than a bunch of humming computerssitting inside . . . the shack. By knocking on its door, I hoped to look into the face of the new globaleconomy.

Getting to this place wasn't easy. An official representative of the government told me that no journalistwould be permitted on the island. So I went as a tourist. When I announced my status to the ticket clerk inBrisbane, she laughed in my face.
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But Customs in Nauru -- I landed at 4 a.m. -- was too tired to care about my reasons for visiting, so I wascleared easily and caught a ride to the Menem, one of two hotels on the island. In my room was a printednotice asking guests to be considerate, waterwise, since the country was in its third year of a drought. Myattempt at a shower ended 30 seconds later.

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 Nauruanseemed to own a car, but many of the houses were made of unpainted cinder blocks. Because of thedrought, 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 fromdrought -- coconutless, frondless poles curving obscenely toward the sun.

Returning to the hotel, I set about trying to locate the Nauru Agency Corporation. None of the clerks hadever heard of it. The driver of the island's only taxicab didn't know either, but he did react to my lamentsabout my roasting flesh by driving me to the only souk on the island that sold hats. A passing cargo shipmust have dumped a pallet of them, all the same: bright red baseball caps bearing the slogan ''KGB -- TheSecret Is Out.'' My covert walkabout was ambling into the realm of farce.

Nauru is a perfectly circular atoll, about a third the size of Manhattan. Midtown, more or less. But nearly 80percent of the island's interior consists of abandoned surface mines and is uninhabitable. The nation's10,000 residents dwell exclusively on a ring of green that hugs the shore, held together by a single loop ofroad.

Walking along this roadside, I passed the Nauruan golf club. Because of the drought, the entire nine-holecourse was completely grassless, a three-par sand trap. I made my way to the post office, where I earned thetrust of a postal clerk by talking stamps with him. He pulled out a map and directed me to the NauruAgency Corporation. It was just around the corner.

Standing at last before the building that destroyed Russia filled me with a weird terror. The Nauru AgencyCorporation was indeed a shack -- actually, half a shack. One side was rented out. Air-conditioners werestuffed in nearly every window, presumably huffing away to keep the computers cool. The place had thebeaten look of a college sophomore's off-campus apartment. Yet I trembled when I walked up close enoughto see the letters spelling out Nauru Agency Corporation on the door. Seventy billion dollars. Russianmobsters. Officials in Moscow had been machine-gunned for less.

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 talkto. But she said that there wasn't and that I should telephone. When I asked her for the number, she said shedidn't know it and closed the door.

Money laundering comprises endless variations on a simple theme: taking money earned in illegal ways andmoving it through one or more transactions so that it looks legal. Once cleansed, the funds can easily bespent on legitimate deals, like real estate or stock.

For example, say you're a drug dealer with $100,000 in cocaine-flecked 20's. You might enter a casino andbuy $100,000 in chips, gamble modestly, then cash in your chips for a cashier's check. Because any banktransaction over $10,000 has to be reported, you can now hand over the casino check for deposit at a bankand, without too much suspicion, call it ''winnings.'' Another money-laundering method involves taking yourdrug 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 bedeposited without fanfare and later wire-transferred to an offshore bank account.

In the 80's, the problem of money laundering at last began to be taken seriously. The first bill passed byCongress with the words ''money laundering'' in the title was in 1986. International organizations, like theGroup of 7, began cracking down as well. As a result, some nations cleaned up their acts. Switzerland, forone, will no longer fully protect the identities of those old ''numbered accounts.'' But by going straight, theSwiss 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 Nauruhave seized this opportunity.


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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.

Since most banks are required by the country they are registered in to keep a record of every majortransaction that goes in and out of such accounts, money can be traced. (Most banks are also required toreport suspicious patterns of activity and to know the identity of their customers.) But Nauru permits itsshell 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 transactionssees only an unidentified flow of funds passing through. And once the funds have passed on through, theybecome untraceable.

The recent Bank of New York scandal revealed not only the latest techniques in money laundering but alsothe critical role a tiny nation like Nauru can play. The scheme was designed by Russian bankers but was runby a married couple in New York -- Peter Berlin and Lucy Edwards, a vice president of the Bank of NewYork. (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 FlamingoBank -- to serve as the conduits for fleeing funds.

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 acorrespondent account with the Commercial Bank of San Francisco, which permitted it to operate in theUnited States. Payments from Sinex were generally made to a number of shell firms -- companies that didno business other than to receive these funds -- with running accounts at the Bank of New York. To avoidsuspicion, 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 numerousoffshore locations, where it rested as clean corporate funds, easily accessible.

One Russian suspected in participating in this scheme is Semyon Mogilevich, the notorious mafia headknown as the Red Don. Not to put too fine a point on the quality of the clientele, but when Edwards pleadedguilty in New York to money-laundering charges earlier this year, she admitted, ''I was aware that personnelfrom DKB were on occasion . . . afraid to leave the bank because they said customers with machine gunswere waiting for them.''

In the three years that Berlin and Edwards ran their operation from the top floor of 118-21 QueensBoulevard, they used three standard-issue computers to perform 160,000 transactions. For flushing $7billion out of Russia, they were paid approximately $1.8 million in fees, which they ultimately parked inoffshore accounts on the Isle of Man. Their scheme might still be working, except that a $300,000 ransomfee intended for kidnappers of a Russian businessman named Edouard Olevinskiy used the Benex pipelineto make the payment and set off an F.B.I. investigation.

Starting a bank in Nauru is simple and comparatively cheap. If you click on www.anti-taxes.com, you canget one going for just $25,000. (This outfit handles registration and payments to the Nauru AgencyCorporation.) Benefits are wide ranging, according to the Web site: you can ''improve your image byowning your own bank'' while hiding your money from ''a vindictive ex-spouse.'' The pitch is clearly notaimed at the average investor. ''Seize your assets before your creditors even think of it,'' the siterecommends.

Once your dirty funds have moved through a bank registered in Nauru, they are essentially liberated. Noinvestigator can subpoena ''records'' to trace the flow of money -- because there simply aren't any. A Naurubank is a firewall for any investigating official. What, exactly, was the transaction? Where did the moneycome from? In Nauru, the bucks stop there.

It's not difficult to figure out why Nauru would get into the offshore-banking business. The country had onlyone export and, like so many colonial dependents, relied upon experts from the developed world to exploit itand reap the benefits.


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In the heyday of colonialism in the late 19th century, when every European nation with a boat charged tothe Pacific to claim tiny islands, Germany was the first to toss its flag on Nauru's shore. According tolegend, a colonial officer noticed that a big rock used as a doorstop was made of pure phosphate. Rightaway, tracks for a railroad into the island's interior were laid, and exporters began carrying off, shipload byshipload, the island's soil.

Australia seized the island from the Germans in World War I. The Japanese took it during the next worldwar 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 wereavailable 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.

But in that volatile decade, a number of bad investments were made. One of the country's London financialadvisers, Adrian Powles, embezzled $60 million from the trust. Nauru was also the chief backer of a Londonmusical based on the life of da Vinci. ''Leonardo'' flopped.

In 1992, Nauru bought into a scheme of ''prime bank notes.'' This was a scam that lured investors with thepromise that the superrich secretly traded these notes for enormous, fast profits. Nauru sank $30 million inthe deal. The money, most likely washed through Antigua, is now untraceably gone.

Recent trust estimates reveal that it has plunged to roughly $130 million. And there is no other obviouseconomy in waiting. Tourism might have been a possibility once, except that a century of phosphate mininghas left Nauru with probably the most devastated ecosystem on the planet. Without the intervention of someenvironmental white knight with Noachian ambitions, it's not just the island's economy that's in danger. It'sthe island itself.

At 5 a.m. the day after I arrived, my body clock woke me to full darkness. I stood on the beach watching thestars as the horizon blinked and a bloodred morning raced across the surface of the sea. In the brighteninglight, I decided to canvass the island before the heat became overwhelming. No sooner had I started walkingdown the road, though, than a car pulled over, and its curious driver offered me a ride.

''What are you doing on Nauru?'' he asked.

''Just visiting,'' I said.

He looked at me sideways, then chuckled. ''Let me ask you something,'' he said. ''Have you ever practicedthe profession of journalism?''

''I. Have. Been. Known. To. Practice. Something. Like. Unto. Which. Journalism. Technically. Is.''

''I wouldn't want to talk to a journalist who'd use my name,'' he said.

That settled, my new friend offered to take me on a tour of the island. For 20 minutes we drove thecircumference 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 expectantsilence because we both knew there is only one thing a visitor to Nauru really wants to see. Eventually thedriver pulled up beside the phosphate factory. ''You want to see Topside, right?'' he asked, using the localnickname for the interior of the island.

We turned up a dirt road. You could still see where huge boulders were shipped in on the railroad to beroasted and processed into refined, powdery phosphate. We drove to a place atop what's left of the interiormound of the atoll, where we could see in one sweeping view the belly of the island.

There are no words or pictures that can adequately capture what mining has wrought in Nauru. To get outand stand there is to be scared, to feel the overwhelming fear of being alone in a coliseum. The small atollhas essentially been tonsured, sheared of all greenery and dug down to the rock. The thinning vegetation onthe periphery -- the dead palms, the pandanus trees with black crowns, the grassless golf course -- is thegood news. The entire interior of the island is a lunar landscape of excavated channels. With all the topsoil


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and phosphate gone, what's left are sinuous stone canals marked by sun-bleached limestone towers and coraloutcroppings.

One environmental theory that explains Nauru's persistent drought is called the oven effect. The white hotplate of Nauru's interior creates a column of scorched air that rises up fast enough to blow away rain clouds.

We drove slowly with the windows down. The driver stopped and, scanning the skeletal landscape, told mehow when he was a boy, all this was dense tropical forest. He and his friends would hunt black noddy birdswith nets and then bring them home to prepare them in the traditional Nauruan style. Today, he said, there

are few noddy birds left.

We sat in a hissing silence for a while. There was no breeze, just fine talc, airborne and stagnant, likeparticulate. It seemed to crackle and pop in the heavy, birdless air. Perhaps more unnerving than thelandscape was the driver's stoic face -- absent of all affect, tensed by something unnameably sad. He heldhimself immobile, with an expression of shame I had never before seen. He and his people, perhapsunknowingly, had sold off their motherland. It was done gradually, by accretion, and amid the joy of suddenwealth. There were probably rationalizations and explanations, and yet it was an incomprehensible thing tosee it and feel it. Imagine France paving Bordeaux; Israel plowing under Jerusalem; Spain salting theCastilian plain. The driver said he hoped that one day I'd get the chance to eat a noddy bird, then droppedme off at the post office.

I walked up the road to the shack to knock once more. No one answered. I worried that I might never get tolook into the face of the new global economy. I was halfway back to my hotel, staggering under theequatorial sun, before I realized I had been looking at it all morning.

As the phrase ''Money Laundering'' implies, there are a number of cycles to the cleaning process. Afterprocuring funds by some less-than-legal means, the money launderer first wires the money through a bankregistered someplace like Nauru. But in the ''spin cycle,'' that money has to pass through an economicallystable place with lots of clean money -- a place like the United States of America. When that money movesthrough our banks, it churns some easy profits. As a result, America's own money-laundering standards are,to put it nicely, confusing.

''Simply put, criminal money is illegal; corrupt money is not,'' said Raymond Baker, a money-launderingspecialist 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.

For most of the 90's, Citibank maintained accounts for the Abachas' billions. This was legal, becausetransferring 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: OmarBongo, 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 programfor such wealthy customers: it's called private banking. Besides identifying customers only by secret codenames to maintain privacy, private banking provides conveniences like ''pass-through accounts'' -- whichallow unidentified money to be brought into the U.S. banking system momentarily before being wired to anoffshore account.

Because of this thin distinction between criminal and corrupt funds, approximately $40 billion in corruptfunds is washed through American banks each year. As Baker sees it, ''We condemn one kind of money

laundering while encouraging the other.''

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 secretaryin the New York operation who was paid $500 a month to monitor shady accounts. Declaring that hewanted to ''send a message,'' United States District Judge Jed Rakoff sentenced her to jail -- for two weeks.

Because so many people can easily launder money today, the problem is rapidly worsening, a trend thatworries many experts. Jonathan M. Winer, a former State Department official, described money launderingas a kind of cancer. ''It metastasizes and creeps into different economies,'' he said. He cited the collapse ofAlbania in 1998, when loosey-goosey bank regulations allowed a pyramid scheme to infiltrate the country's


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economy. In the end, when it collapsed, the people panicked, stormed the nation's armories and flooded thecountry with Kalashnikovs. These rebels spilled over into Kosovo, giving their anti-Serbian neighborsenough momentum and weaponry to start a war, which eventually required American intervention to end.

From the perspective of someone like Winer, an alarming number of recent crises -- the collapse of theMexican peso in 1994, the looting of Russia, the destruction of Venezuela, the current bilking of Colombiaby its drug lords -- have money laundering at their source. The Long-Term Capital Management hedge-fundcrisis of 1998 is another example, closer to home. The fund invested billions in sleazy overseas dealsinvolving 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, theAmerican financial community should bail it out. It did, at a cost of $3.6 billion.

Why? The fear, according to Winer, is that the instability that triggers such scandals might find its way intothe American market, whose strength currently depends on confidence and certainty. This is why Secretaryof the Treasury Lawrence Summers now speaks so insistently about protecting the ''global financialarchitecture.''

But this effort isn't going to be easy. With so many fledgling nation-states appearing on the scene -- Nauru'sneighbor Palau, a competitor in the shell-bank business, became independent only in 1994 -- sellingsovereignty gets only easier. And for countries with few natural resources, the lure of the electronic-transferscam is strong.

Indeed, even if the State Department manages to force countries like Nauru to clean up their acts, technologyis threatening to make money laundering so easy that elaborate ruses like shell banks won't be necessary. Afew years from now, a drug dealer might be able to have digital dollars zapped right into his Palm Pilotwhile cutting a deal in an alley -- and then have those funds transferred to Liechtenstein before crossing thestreet.

Though their work is clearly cut out for them, officials like Winer refuse to give up. ''We have to keep upthe effort of policing the global-finance system, because you have to realize that banking is a kind ofconfidence game,'' he said. ''Your typical con artist has to win your confidence only for as long as it takes toget your money. But bankers have to win your confidence, and keep it, forever.''

After returning from Nauru, I learned that its president would be visiting New York to address the UnitedNations during the millennium summit. Bernard Dowiyogo has served in this office four times in the lastdecade of Nauru's turbulent internal politics.

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 eggsscrambled in that flawlessly yellow hotel style.

''We cooperate with authorities when they come to the island with court orders,'' Dowiyogo told me.

To be sure, Nauru has been cooperative in some fairly grotesque cases. In the 90's, a Florida outfit calledGreater 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 tohave their money disappear through a Nauru bank. After the scam became public, Nauru revoked G.M.I.'sbanking charter.

''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 thatmoney had come through Nauru, we'd have a gold mine.'' He adjusted the knife at his place setting. ''Thatmoney went through the Bank of New York.''

Because Nauru's bank system scrupulously avoids monitoring transactions, it can't really make anycommissions off the size or number of transfers. Nauru's government collects only the crumbs: the one-timestart-up fee and then annual renewal fees.

''It costs $1,000 to renew,'' Dowiyogo explained.


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According to the Treasury Department, Nauru has at least 400 shell banks registered on the island (half ofthem by Russian clients), providing half a million in easy annual revenues. That's not a trivial sum for acountry with such a small population. But Nauru is planning some costly projects that should keep it in theoffshore-banking business for some time.

Dowiyogo told me that his country hoped to rehabilitate Topside. As there is no topsoil left, such anundertaking would take 20 years and cost $300 million. ''One of the things we have in mind,'' Dowiyogosaid, ''is that part of the dug-out area should be left as it is so that future generations can see what it waslike.'' Like a museum, added the ambassador.

So maybe there is a new economy ahead for Nauru after all: ecotourism, only in reverse.

I then asked Dowiyogo what other ideas were kicking around Nauru to make money. He said they werestudying one proposal to slice the limestone pinnacles into cross sections, polish them and sell them in theWest as coffee tables. When I asked what other business opportunities his country was contemplating, hetook a bite of toast.

Another government official told me later that there has been talk of permitting the country's phone code tobe used for 1-900 sex lines. Vanuatu, another money-laundering island in the region, has already gone thisway. Nauru is holding out for the coffee tables.

Nauru's biggest holiday is called Angam Day. It celebrates the several occasions in the past when theisland's population was 1,500 -- the magic figure deemed necessary for life to flourish there. Today, with7,000 Nauruans inhabiting the island's green skirt -- and with an economic future contingent upon Westerndesire for limestone coffee tables -- I gingerly asked the president what might happen to the people onNauru in the next 10 years.

''That's not a problem,'' he said, explaining that residual phosphate mining will hold them.

''What about 20 years?'' I asked.

''That may be a problem,'' the president said quietly.

Soon after my chat with Dowiyogo, the group of 7 task force that monitors shady banking practices issuedsome rare praise for countries described as ''improving'' their bank laws. Notably absent was Nauru.

One senior Treasury Department official told me that Nauru had grown only more bellicose -- to the point ofextortion. Dowiyogo had written the Treasury Department a letter claiming that since Nauru ''has been thevictim of unfair adverse media publicity based on unsubstantiated allegations of money laundering,'' thecountry could not possibly ''go ahead with the implementation of its resolve to reform its offshore financialregime'' before America paid Nauru at least ''$10 million.''

Stuart E. Eizenstat, the deputy treasury secretary, responded in a speech: ''Nauru should not expect toreceive a big check anytime soon.'' If anything, the financial blockade may soon become formalized. A billwritten by Representative Jim Leach and currently waiting to get out of committee would empower theTreasury Department, without Congressional approval, to quarantine any nation that refused to meetAmerica's banking standards. Nauru, in a sense, is the test case for the new global money police.

In the meantime, Nauru has ignored the West and shifted gears to pursue a very modern strategy: publicrelations. In October, I received an invitation from Helen Bogdan, a P.R. agent in Melbourne whorepresents ''the country of Nauru.'' She was flying to New York to appear at one of the tonier downtownclubs, Lot 61. There, she would show a 10-minute film, the kind of thing you might see on an airplane justbefore the movie.

The event started at midnight on a Saturday. I was escorted past a rope line where anxious club kids waitedfor 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 thepinnacles resembled beautiful Polynesian totems. With numerous women in pastel fabrics grinning fromthatched huts and a lot of outrigger boats pounding atop spangling waves, Nauru suddenly looked a lot likehow Paul Gauguin might have imagined it.


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I said hello to Bogdan, a platinum blonde dressed in all black with matching beret, and asked her about arumor. I'd heard that Nauru had bought up land in Australia in case global warming threatens the island withflooding. Bogdan said the story was partly true, in that Australia had once offered the Nauruans an islandoff the Great Barrier Reef. The gift was declined because it required the Nauruans to surrender theirsovereignty to Canberra.

But it seems likely that Nauru will have to plan for such a contingency. Even if Nauru were to become thenext Switzerland, the money wouldn't wash up on shore fast enough. A rise in sea level of only a few feetwould engulf the meager inhabitable ring of the island, leaving the coral boneyard of Topside all alone atsea, once again available to a million years of birds.

Photos: Home of the Nauru Agency Corporation, a haven for dirty money worldwide; Topside, the island'sinterior: what the old economy's joy of sudden wealth wrought. (Don Brice/Southlight, for The New YorkTimes)

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