Nauru is an island of about eight and a half square miles with a population of around 10,000. It’s located in the South Pacific about halfway between Australia and Hawaii. The country has a storied history, to say the least. In a period of fewer than three decades, Nauru went from being the world’s wealthiest country to one of the poorest. Its story involves environmental destruction, money laundering for the Russian mob, and a series of ill-conceived, money-making schemes.
1. Nauru was considered the world’s wealthiest country in 1980, but by 2017, it was one of the five poorest.
The reason it was considered the wealthiest country was due to the large income the government made by selling phosphate. The island had large deposits of high-grade phosphate rock that had formed as a result of several millenniums’ worth of seabird guano. In 1975, the country earned the equivalent of $2.5 billion which gave it the highest income per resident in the world. The government’s large income allowed it to collect no taxes and provide essential services for free including health care, dental care, bus transportation, and education. If a Nauruan needed medical treatment not available on the island, the government would pay to fly them to Australia. In addition, qualified Naurans could go to university in Australia for free, and government housing was available for less than $5 a month.
2. Nauru started suffering from persistent droughts, and there’s a theory that they were caused by the “oven effect.” That means rain clouds are blown away by hot air rising from the island’s bare, rocky interior that was the result of the mining.
Over the years, the extensive phosphate mining has resulted in almost 80% of the island’s interior becoming uninhabitable since it’s covered with abandoned, surface mines. It has been described as a “barren moonscape of jagged rock,” full of stone canals, coral outcroppings, and limestone towers. As a result, the island’s population lives only on the outer rim of the island.(source)
3. In the early 1990’s, the phosphate resources started running out. The government tried to generate income in a number of ways but ended up losing large amounts of money instead. One of their plans was to invest in a musical theater show.
One of the government’s financial advisers was previously a roadie for a British pop band and had co-written a musical with the band’s lead singer. The musical was based on the life of Leonardo Da Vinci and was called “Leonardo the Musical: A Portrait of Love.” The financial adviser convinced the government to finance the show.
The show debuted in London in June of 1993, and most of the audience left before the performance ended. It was panned by critics for its rambling plot. The show closed a few weeks later. By investing in the show, the government lost approximately $7 million in today’s currency.
That wasn’t the only time Nauru had poor luck with its financial advisers. Another adviser embezzled $60 million from the country. Also, the Nauru government fell for an investment scam in 1992 and lost $30 million. The scam involved selling investors like Nauru “prime bank notes” that were supposedly traded in secret by the super-rich.(1,2)
4. Other money-making schemes considered by the Nauru government included manufacturing coffee tables and getting into the phone-sex industry.
One government official said there was some discussion about allowing Nauru’s phone code to be used for 1-900 phone-sex lines. In 2000, the president said Nauru was studying a proposal to cut slabs from the limestone pinnacles on the island and use them to make coffee tables for sale in the West.
Nauru has even used its membership in the UN General Assembly to make money. Unrecognized nations, such as the breakaway republics Abkhazia and South Ossetia, have paid Nauru tens of millions to help legitimize them by “recognizing” their countries.(source)
5. One way the government successfully made money was by offering other countries the opportunity to set up banks on the island. Nauru specializes in “shell banks,” which means they only exist on paper. Shell banks in Nauru are free from the standard requirement of recording major transactions which makes them ideal for money laundering.
As of 2000, Nauru had at least 400 shell banks registered on the island. But since shell banks only exist on paper, Nauru’s banking system consisted only of a bunch of computers in a shack.(source)
6. The island’s loose banking laws made it attractive to the Russian mafia. In 1998, they set up shell banks and laundered more than $70 billion through Nauru.
This money-laundering operation is considered responsible for crippling Russia’s economy. In 2000, more than half of the 400 shell banks on the island were owned by Russian clients. Because the country keeps no records of shell banks’ transactions, Nauru doesn’t make money based on the amount of funds passing through the banks. Instead, they collect only a start-up fee of $20,000 and an annual renewal fee of $1,000.(1,2)
7. In 2000, the president of Nauru tried to extort $10 million from the US Treasury Department. He wrote a letter asking for the money and said in exchange he would reform Nauru’s banking system.
Nauru’s shell banks were used in the 1999 Bank of New York money-laundering scandal which laundered $7 billion, so the US was putting pressure on Nauru to change its banking laws.
In the letter, the president said he would only change the laws if the US paid $10 million. The letter claimed that the money was simply compensation for Nauru’s losses due to “unsubstantiated allegations” of money laundering.
In response, the deputy treasury secretary said in a speech that ”Nauru should not expect to receive a big check anytime soon.” Instead, Nauru was put under some of the harshest sanctions on any country. Western banks now won’t permit transactions involving Nauru.(source)
8. In 2001, Australia denied entry to 434 refugees and paid Nauru to temporarily house them. To deter future refugees from coming to Australia, the people were treated like criminals and held in detention centers under horrible conditions. Following that first group of refugees, Australia has continued to send many more.
In addition to Nauru, Australia sends refugees to similar camps in Papua New Guinea. As of this year, there are more than 2,000 refugees currently in Australia’s offshore system. It has turned out to be very lucrative for Nauru. Australia has paid Nauru and Papua New Guinea nearly $10 billion over the last four years for housing refugees.
The chief psychiatrist for the detention camps said the conditions there are tortuous. There have been allegations of medical neglect leading to death, and also sexual abuse, and torture by guards. After one refugee was told he would spend the next 10 years there, he set himself on fire in front a group of visiting officials from the United Nations.
One way the Nauru government has tried to keep the treatment of the refugees quiet is by making it difficult for journalists to get a media visa.(source)
9. In 2014, Nauru made it more difficult for foreign journalists to report on the country. The government increased the cost of applying for a media visa from $200 to $8,000, and the fee was non-refundable even if the application was rejected.
Australian opposition politicians said the change was likely requested by the Australian government to limit media coverage on the treatment of refugees in Nauru. And, if the higher fee wasn’t enough, several journalists who requested visa application forms said they received no response.(1,2)
10. In 2000, Nauru’s president said the country planned to rehabilitate the island. Since there’s no topsoil left, it’s estimated that rehabilitating the island would cost $300 million and take 20 years.
The president also said they planned to leave one area of the island as it is with all the damage from mining preserved. He said the area will act as a kind of museum, “so that future generations can see what it was like.” But in 2016, the government-owned Nauru Rehabilitation Corporation (NRC) said it was currently focusing on building seawalls to stop the erosion of the coastline. The NRC said it will begin a reforestation project once the seawalls are completed.(1,2)