ECONOMIC SANCTIONS LIKELY AGAINST NAURU AND NIUE OVER INTERNATIONAL DRUG

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MONEY

By Michael Field

AUCKLAND, New Zealand (December 9, 1999 – Agence France-Presse)---The Group of Seven (G7) super-powers are preparing tough economic sanctions against two of the world's smallest states, Nauru and Niue, over mounting evidence they are key players for the Russian mafia and South American drug cartels.

The tiny South Pacific states are seen as serious threats to the world banking system.

Nauru, the world's smallest republic with 10,605 people, saw 70 billion U.S. dollars moved through its banks last year and may be the key player in the seven billion dollars of Russian mafia money moved through the Bank of New York.

Much of the money does not make it to Nauru and is instead moved through Internet-based Nauru incorporated sites, but in May there was so much cash in Nauru that government officials were seen by AFP flying to neighboring Kiribati to deposit money in Australian banks.

Niue, self-governing in free association with New Zealand and home to 2,103 people, is a center for offshore company formation which, sources here say, is a cover for Panamanian drug related operations.

Senior diplomatic and international law enforcement sources, who cannot be identified, confirmed to AFP that measures designed to isolate Nauru and Niue are being drawn up by the G7, the Paris-based Organization for Economic Cooperation and Development (OECD) and the French Finance Ministry.

The measures will isolate both countries economically, with all their banks, both local and tax haven operations, de-registered and unable to transact with other banks.

Australia and New Zealand may bare some of the consequences of the sanctions as Australian currency is used in Nauru and New Zealand currency in Niue.

One source said Nauru had been warned directly by the OECD's Financial Action Task Force (FATF) to clean up its act but was told that it was none of their business.

Nauru's President Rene Harris told them it was European consumers of Russian mafia-provided prostitution and drugs who created the wealth and if they wanted to end the tax haven operation then they should stop being consumers for the mafia.

Nauru is also snubbing its neighbors in the 16 nation Pacific Forum who in their 1992 Honiara Declaration noted: "Adverse law enforcement environment threaten the sovereignty, security and economic integrity of Forum members and jeopardize economic and social development."

A diplomatic source confirmed measures were ready in Paris but stressed they were not French measures and were not primarily directed at Nauru and Niue.

However a law enforcement official said Nauru had become "number one bad guy" in the world of tax haven operations.

Niue's problem was different with the development of prime bank instrument fraud centered on its tax haven banking.

The Panamanian link is being monitored closely here with New Zealand offering the only direct access to the country.

Regional criminal intelligence operations were also monitoring large numbers of Russians moving into the region.

In October, Victor Melnikov, deputy chairman of the Russian central bank, told the Washington Post that last year 70 billion dollars was transferred from Russian banks to accounts of banks chartered in Nauru, primarily to evade taxes.

Russia's total exports last year amounted to only 74 billion dollars.

Melnikov said Nauru "has the most attractive regime" for Russians trying to hide money offshore.

Last weekend, the London Sunday Times said Nauru's behavior had become a headache for John Battle, the British Foreign Office minister with responsibility for the area, who is trying to monitor the activities of at least 200 banks and shell companies registered by the Nauru Agency Corporation.

In March, FATF named Nauru, the Cook Islands, Samoa and Vanuatu for their "heavy concentration of financial activity related to Russian organized crime."

The then Nauru President Bernard Dowiyogo said he had announced a complete review of the Nauru operations of its offshore financial center.

"My government does not condone registered off-shore Nauruan companies or banking licenses being exploited by unscrupulous people for fraudulent or money-laundering purposes," Dowiyogo said.

Soon after he lost power.

Michael Field New Zealand/South Pacific Correspondent Agence France-Presse E-mail: afp.nz@clear.net.nz  Phone: (64 21) 688438   Fax: (64 21) 694035 Website: http://www.afp.com/english/ 

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