U.S. Tricked, Lied To Us, Says Impoverished Nation

by Kalinga Seneviratne

In the last few months, the U.S. government has persuaded Nauru to close offshore banks, scrap a passport-selling scheme and agree to host a U.S. spy base, in return for $250 million of aid Washington Nauru officials were expecting.

The closure of offshore banks and an end to the passports scheme for foreigners were in an executive order signed on Feb. 27 in Washington by Nauru's President Bernard Dowiyogo, before he died of a heart attack a few days later.

But U.S. officials now deny that they promised financial aid to Nauru.

"We have been given the riot act by the United States," Nauru's former finance minister Kinza Clodumar told 'The Australian' newspaper. "And we feel our sovereignty has been compromised -- no doubt about that."

He added that Nauru was very unhappy with the deal it signed and "we came back with no piece of paper about aid, only promises."

Replying to questions by 'The Australian', the State Department said that it is "not currently developing a financial assistance package for Nauru." Clodumar says the U.S. has still made no concrete offers of aid to Nauru.

Nauru's offshore banking scheme was a target and of special interest to the United States -- after the Sept. 11 terrorist attacks. It has also been criticized for some time by the Financial Action Task Force, a group of 29 nations that coordinates the global fight against money laundering.

Nauru was known to be popular with groups like the Russian mafia and the Chinese triads, who used offshore banks with top secrecy conditions and only a post box address to move millions of dollars around the world. Many Chinese syndicates were also believed to have bought Nauru passports to use for their criminal activities.

But its offshore banking character is also a major foreign currency earner for Nauru, whose phosphate deposits which in the eighties gave it the world's biggest per capita income -- have virtually been exhausted.

Media reports have long talked about how international syndicates had cheated the nation of millions of dollars in the 1990s, and how it had been swindled after taking advice from shady financial, legal and academic advisers mainly from Australia.

"What they offer is anonymity and secrecy," said Rick Donnel, head of the Asia-Pacific Group on Money Laundering secretariat. "Criminals can misuse and have often misused it for money laundering and for some terrorist financing transactions."

Donnel told 'Radio Australia' that the United States has paid attention to Nauru because "if there are any gaps in the chain, then those people who want to hide their transactions... will go to that place."

Public servants in Nauru, a country of 11,000 people, have not been paid for months. Its international debts total $130 million.

So when the U.S. 'offer' came, Nauru officials thought they saw a lifeline.

Through secret deals negotiated through non-government officials since the Oct. 12 bombing in Bali, Indonesia, the Bush administration has been successful not only in getting Nauru to pass laws outlawing offshore banking and scrapping the sale of Nauru passports to foreigners.

It also got Nauru to sign the 'Article 98' agreement that obliges Nauru not to allow U.S. citizens to be brought to the International Criminal Courts for war crimes.

However, the most controversial aspect of Nauru's capitulation to U.S. pressure is the agreement to allow Washington to set up a spy station in the north central Pacific island of 21 square kilometers. The U.S. government will set up a listening post, a satellite tracking station and a shortwave radio broadcasting center for central Pacific.

As detailed in a three-page expose in 'The Australian' newspaper early this month, the behind-the-scenes negotiations done over six months by three men tells an astonishing as the David and Goliath of world affairs thrashed out the deal.

To make the story more astonishing, the reports say, the agreements signed by Nauru make these three men -- Steven Ray, a U.S. intelligence operative, Jack Sanders, a New Zealander, and Thomas Richards, a Canadian attorney -- senior representatives or advisers to the Nauru government (see related article).

Before he died, Dowiyogo agreed to appoint Ray as Nauru's honorary consul in Washington, Sanders as charges d'affairs in Beijing and Richards as special legal counsel to the president.

After his death, Nauru's ambassador to the United Nations Vinci Clodumar said: "I have no doubt in my mind that president Dowiyogo signed the Feb. 27 executive order under duress."

The Bush administration used a carrot-and-stick method during the negotiations leading up to this agreement.

The carrot it offered was a 10-year, $250 million aid package to get the bankrupt nation on its feet. The stick included a threat to impose economic sanctions on Nauru under the U.S. anti-terrorism legislation passed last year as the Patriot Act that would have virtually shut down the tiny country's economy.

These sanctions were due to be imposed at the end of April, and the Nauru parliament passed the necessary legislation in late March.

Meantime, Nauru continues to the subject of strange proposals like one last month from a group of Australian financial advisers one of whom faces fraud charges that urges the Nauru government to turn the country into a new tax haven and casino. The proceeds, they said, could be split 50-50 with them.

Looking back, Helen Hughes, a senior fellow at the Sydney-based Center for Independent Studies, says that if the country had maintained and nurtured the wealth it earned from its phosphate resources in the 1980s, each Nauruan would be worth $15 million today.

But Hughes argues that in truth, Nauru does not need aid. "If it learns to accept sound financial advice, it can pay its debts and marshall its investments so that Nauruans can live in comfort and health" she said.