What's up guys and welcome back to wall street millennial on this channel, we talk about everything related to stocks and investing today we're going to discuss one of the strangest cases of large-scale financial mismanagement and money laundering. In this case, the subject is not a criminal bank or company, it is a sovereign nation. From the 1970s to the 2000s, this nation went from being one of the richest countries in the world to being completely dependent on foreign aid for the survival of its people. With virtually no domestic productivity of its own in the 1990s, this island nation turned to money laundering and eventually to detention services to support its people to this day is still mostly dependent on australia for all of its income.

We're talking about the tiny island country of nauru, nauru is a small island nation in the pacific to the northeast of australia. In the late 19th and early 20th centuries, nauru was subject to colonial influence and rule under germany in world war, 1 and world war ii. The island nation was frequently a war zone due to its strategic location. It was taken over by the australians in world war 1 and by the japanese in world war ii, ending in a joint administering authority between australia, new zealand and the uk.

Finally, in the 1960s, nauru became its own country following negotiations with australia. It has remained an independent nation. Ever since the economy of nauru has historically been dependent on phosphate mining, naru was one of the few pacific islands with immense phosphate deposits in the early 1900s phosphate is used as one of the most important ingredients in fertilizers. The fertilizer market is enormous, projected to grow larger than 210 billion dollars by 2027., as the home of one of the world's richest deposits of phosphate nauru benefited enormously from it.

The phosphate deposits were first discovered in 1900. They were then mined by foreign companies throughout the first part of the 20th century. However, the mining activities were extremely destructive to the ecology of the island. By the middle of the 1900s, the landscape of the island had become virtually unrecognizable to the tropical paradise that it once was by the 60s.

The situation had become dire and the island had become nearly uninhabitable in 1964 because of the deteriorating conditions on nauru. The australian government proposed to relocate the people of nauru to nearby kurdish island. In return, the naruwans would become australian citizens. The naroons did not want to become australian citizens, partly because of australia's history with nauru, so they rejected the proposal and remained on the island as an independent state for the next couple decades.

The narowan economy flourished with the immense phosphate reserves on the island. It was able to achieve a per capita gdp of 50 000 that made it one of the richest countries per capita in the entire world. For a while things couldn't be better for the nauruan's. The government established a trust to invest the company's proceeds from mining.

They realized that, eventually, the phosphate deposits would be depleted. They needed a way to sustain their population after it became uneconomical to depend on phosphate mining in the 1980s, the phosphate deposits started to become depleted and it became harder and harder to mine. The phosphate nauru had very little in the way of other natural resources. It had not built up any significant economic activity.

Besides phosphate mining after the phosphate deposits were depleted. The only thing the nation had to depend on was the government's trust. However, the country had been preparing for this moment by contributing a significant amount of the proceeds from the phosphate mining to the national trust. At one point, the trust contained more than a billion dollars at a conservative market rate of return.

During that time it should have provided the government, with the equivalent of close to two hundred million dollars of proceeds per year after adjusting for inflation, with a population of around ten thousand. That's about twenty thousand dollars per year per person. Compare that to the total tax revenues that the u.s federal government collected in 2020 and nauru should have been making almost twice that amount per capita just from its trust investments. Unfortunately, the trust was incredibly poorly managed.

For example, the managers of the trust funded a production of a musical called leonardo. The musical naru invested millions of dollars into the production of that musical. It featured a fictionalized story of leonardo da vinci's creation of the mona lisa and premiered in 1993 at the strand. Theater in london, it turned out to be one of the biggest failures in the history of the london theater on its opening night.

Most of the audience left before the show ended after just five weeks after taking the wrath of critics and receiving no interest from viewers. The show ended, naaru also operated an airline which had only a handful of jets at its peak in the 1990s, its operations became insolvent and for the next several years, its aircraft and other assets frequently were repossessed by the early 2000s naaru's trust had shrunk to only About 100 million dollars with no economic activity on the island itself, the government and its people were unable to sustain themselves. The gdp of the nation became non-existent. It was estimated that the per capita gdp fell as low as just 2 500 in 2007..

In comparison, at the same time, the us's gdp was about 20 times that, once among the world's richest nations, the financial mismanagement made naru become one of the poorest. The population also fell into extreme obesity. It is now one of the most obese independent nations on the planet because of the heightening economic desolation on the island, naru turned to facilitating fraud and financial crime. It became a tax haven and engaged in shady political activities, including selling passports.

It also became a money laundering haven. Anyone could purchase a banking license for just tens of thousands of dollars and set up an officially sanctioned bank on the island. Because of this it quickly became a favorite for mafia and terrorist groups. Shady actors used nauru to move around dirty money without the risk of it being seized by responsible governments.

Naru deliberately turned a blind eye to these activities for the much needed revenue that it brought in in the form of bank, license registration fees and other fees. It has been estimated that 70 billion dollars of russian mafia money traveled through nauru in a single year. Other groups that use these laxed laws include al qaeda. In 2002, the u.s officially designated nauru as a money laundering state with that the nation was subject to harsh sanctions that put further strain on the already struggling economy.

Finally, nauru had no choice but to pass legislation and end the practice of selling banking licenses in 2004. These laws helped to eliminate the money laundering within the country. However, there still have been lingering concerns about money laundering in the country ever since, without the income from selling banking licenses, naru had to come up with another way to sustain its population. The answer came in 2001 and later again in 2013, when australia and nauru set up a detention facility on the island.

This facility housed refugees fleeing to australia from nearby islands, whether it be due to persecution, war or poverty. Australia houses these refugees on the island partially to ensure that there is no possibility of them escaping and entering into australia. In return for allowing the detention facility on nauru, the australian government pays nauru resettlement fees and provides some jobs for the people. The total cost to australia of having the offshore detention facilities comes to 5 billion since 2012., although most of the cost is paid to australian contractors.

Some of it ends up sustaining the naaru people. The conditions on the naaru detention facilities for refugees were reported to be humanitarianly awful children as young as eight years old were reports have committed suicide. These concerns, as well as the high costs associated with running an offshore detention center, contributed to the center being shut down in 2019. However, the problem of asylum seekers on the island has not gone away since then, and they remain to this day.

People on the island seeking resettlement, but despite this naru is no longer receiving any economic benefit from it. Mining natural resources may be the only way for nauru to survive again in the future. A company called deep green is interested in mining. Deep sea minerals around the island, particularly the mineral manganese manganese, is an element used in all sorts of industrial applications, including the production of steel, rechargeable batteries and fertilizers.

There are supposedly significant deposits of the mineral in nodules around the island. Deep green has started exploring the mining possibility, which would take place more than a mile below the surface of the ocean. The mining operations would potentially begin in 2025.. The president of nauru has expressed hope and optimism that deep green may provide the revenue to nauru that it needs in an agreement between the company and the island.

The company would pay royalties of tens of millions of dollars a year to the government. This would mean that the island's gdp would be significantly made up of just this one mining operation also naroons have already started to be offered training and jobs with the company. However, this sounds disturbingly similar to the phosphate mining industry that once made nauru rich. If the island nation becomes dependent on manganese deep sea mining, it won't solve the problem of lack of economic diversity.

If something happens to the company or the manganese deposits, naru will be back where it started and if it doesn't work out, naru will continue to be one of the poorest countries in the world. Alright guys that wraps it up for this video. If you like, the content, make sure to smash that like button and subscribe for future videos also leave a comment saying what you think about naru's journey from riches to rags. In the meantime.

Thank you so much for watching and we'll see in the next video wall street millennial signing out.