The island nation of Nauru was considered to be the richest country in 1980, but 28 years later it’s one of the poorest. What happened?
Nauru is a small 21-square kilometer stretch of land in the South Pacific, just halfway between Australia and Hawaii. Only 3 decades ago, it had massive phosphate deposits that generated enough profit to rank the country as the wealthiest on the planet.
Back then, Nauru was a tax free welfare state that provided essential services such as health care, dental care and education to its citizens for free. But over the years, a series of bad investments have turned the country into one of the poorest.
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When the phosphate reserves started running out in the early 1990s, the country looked to generate money from other businesses.
One of those schemes was investing millions of dollars in a musical theater show.
One of the government’s financial advisers convinced them to invest in a musical he had co-written with the lead singer of a British pop band. Leonardo the Musical: A Portrait of Love, a flop, was a musical based on the life of Leonardo Da Vinci and cost the country the equivalent of $7 million today.
The government lost an additional $60 million when they trusted yet another adviser with their money.
To make up for the money lost, the government of Nauru became involved in some very superstitious affairs.
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Other than trying to make coffee tables from limestone slabs and setting up a phone-sex industry for the West, they sold their votes at the United Nations General Assembly.
It is believed that the government receive large sums of money to vote in favor of the recognition of the breakaway republics Abkhazia and South Ossetia.
However, one scheme proved to be very lucrative and brought hundreds of millions of dollars into the country.
Not only did the government of Nauru allow other countries to open up banks in the country, but they specialized in what is known as “shell banking”.
The shell banks were allowed to open and operate free from regulations, and did not have to keep records of major transactions. This made them ideal for money laundering.
The Russian Mafia picked up an interest in these banks and is believed to have laundered more than $70 billion through Nauru in 1998.
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When the US pressured the government to crackdown on money laundering and change their banking system, the President of Nauru tried to extort $10 million from the US in exchange for compliance.
Outraged, the the deputy treasury secretary Stuart E. Eizenstat said in a speech that “Nauru should not expect to receive a big check anytime soon.”
But the most profitable business for the country has been housing refugees that were denied entry in Australia.
Over the last few years, Australia has paid Nauru and Papua New Guinea around $10 billion to house rejected refugees.