ACCUSED OF RUSSIAN MAFIA CONNECTIONS, PACIFIC’S NAURU TO CLEAN UP ITS BANKS

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By Michael Field

AUCKLAND, New Zealand (April 26, 2000 - Agence France-Presse)---A Pacific island republic that has 400 offshore banks registered to one mailbox and faces accusations it is a major Russian Mafia money-laundering center said Wednesday it was taking urgent measures to reform its tax haven operations.

Nauru’s President Bernard Dowiyogo, elected to the office last week, said his new cabinet was concerned by reports of criminals using the country’s offshore banking facilities.

"We certainly do not approve of such activities," Dowiyogo said in a statement issued through a Melbourne public relations firm.

However, Dowiyogo, who helped set up the tax haven operation, has named Kinza Clodumar to his cabinet as Minister for Industry and Economic Development. He was Finance Minister in the outgoing administration of President Rene Harris.

Observers believe Clodumar, who has also served as president, actually runs Nauru and its tax haven operations. Harris and Dowiyogo have, in the past, made similar statements without any obvious action. However, Nauru has recently faced increased pressure from the Group of Seven and the Paris based Organization of Economic Cooperation and Development and the Financial Action Task Force.

Nauru, the world’s smallest republic, is a 21 square kilometer (eight square mile) island just south of the Equator. Once known as Pleasant Island it is today a bleak landscape after a century of strip-mining of its phosphate rich topsoil. Its 10,000 people were among the world’s richest on a per capita basis but they paid a price bought on by a diet of junk food, which gave them the world’s highest rates of diabetes, obesity, heart disease and hypertension.

Phosphate production has sharply declined, as has the price, forcing Nauru into doubtful financial operations, including its tax haven banking. Earlier this year, the U.S. International Narcotics Control Strategy Report from the State Department noted that Nauru had 400 off shore finance centers registered to a single post box, making the country second to the Cayman Islands with 584. The Cayman Islands has legal controls on criminalized drug money laundering but Nauru has none.

"Nauru’s non-resident banks appear to be particularly susceptible to money laundering operations," the report said, noting it had been linked to the Russian Mafia.

"Correspondent bank accounts held by Nauruan non-resident banks in foreign financial institutions figure prominently in elaborate international funds movement schemes. Nauruan non-resident banks attract this level of financial activity primarily because of the ease of setting up the funds’ transfer mechanisms and the secrecy that Nauruan banks provide."

Last year Victor Melnikov, deputy chairman of the Russian Central Bank, claimed that 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.

Most of the operation is via the Internet through the government’s Nauru Agency Corporation in the main village of Yaren.

It was central to the laundering of between 7-10 billion dollars through the Bank of New York (BNY) last year.

Following that, Deutsche Bank and Bankers Trust, which operate a global money transfer system for retail banks, and the U.S. Republic National Bank and BNY placed a ban on any U.S. dollar trades with Nauru, as well as Palau and Vanuatu.

Dowiyogo, in a statement, said his government was committed to stabilizing the economy.

"My government is committed to Nauru’s continuation to participate in the international drive to combat money laundering and subject to its financial limitations and constraints, to urgently take the requisite steps to reform and improve Nauru’s offshore banking regime, to conform to international standards for preventing and punishing abuse of money laundering," he said.

"Nauru would welcome any assistance from the government of USA and others in this respect."

Nauru has been experiencing almost continuous political turmoil for the last five years.

Dowiyogo, who needs daily dialysis treatment and experiences bouts of regular serious illness, is now serving his sixth term as president. Harris, the previous president, was last week re-elected president with a one-vote majority by the 18-member assembly. However, he was unable to pick a cabinet in a country divided by clan loyalties. Harris survived in office a week before last Wednesday when Dowiyogo knocked him over with a vote of no confidence.

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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