The tiny Pacific island of Nauru has enjoyed extraordinary wealth over the past few decades exploiting a precious natural resource--fossilized bird droppings. But these phosphate deposits are nearly depleted, and strip mining has turned most of the island's eight square miles into an arid, pitted desolation. Now Nauru is cultivating a new source of income.

It is reinventing itself as an offshore banking center and selling foreigners the means to cloak transactions.

Over the past two years, tens of billions of dollars appear to have flowed from Russia's troubled economy through banks and other companies registered in Nauru, Russian and U.S. government officials said.

In 1998, $70 billion was transferred from Russian banks to accounts of banks chartered in Nauru, primarily to evade taxes, Victor Melnikov, deputy chairman of the Russian central bank, said in an interview yesterday.

A senior U.S. official said: "The central bank of Russia has come to us and confirmed that large amounts of Russian capital are flowing into and out of Nauru, and that has raised concerns on their part and on ours and certainly raised suspicions."

International authorities say Nauru is increasingly providing cover for Russian organized crime.

Melnikov's $70 billion figure is near the middle of a wide range of estimates. The very nature of offshore banking makes it difficult to measure the amount of money transferred through companies registered in Nauru. It would be surprising if any of the money actually touched the island; it merely moves through accounts the Nauruan banks maintain at other faraway institutions.

The emergence of this speck in the Pacific as a major offshore player is a recent phenomenon, fueled in part by the growth of the Internet, and it illustrates how difficult it is for international authorities to keep up in the war on money laundering. Even as law enforcers persuade more established offshore havens to let them peek behind the veil of secrecy, suspicious money moves somewhere else.

To the frustration of international law enforcement, the Republic of Nauru provides even stricter secrecy than such legendary havens as Switzerland and the Cayman Islands.

"Nauru's current offshore banking regime . . . is an open invitation to financial crime and money laundering," the State Department said in a 1998 report published this February. While Nauru's banking-secrecy legislation has been in place since the 1970s, Nauru was listed as having "no priority" on State's annual list of money-laundering trouble spots as recently as 1996.

The general manager of the Nauruan agency that registers the offshore businesses said secrecy is a matter of state policy. But S.B. Hulkar said the Nauru Agency Corp. maintains "very rigorous documentary requirements" and "that in itself ensures that responsible, reliable people apply."

Asked if the Nauru Agency Corp. verifies the information submitted by applicants, Managing Director Kelly Emiu answered, "No comment."

Nauru's president, Rene Harris, also declined to comment on the island's offshore services. "What's it got to do with you?" he asked angrily before hanging up.

Less than one-seventh the size of the District in land area, with a population estimated last year at 10,850, Nauru might seem an unlikely focal point for global finance. The coral atoll, which was admitted to the United Nations last month, is one of the smallest nations in the world. Located near the equator, between Australia and Hawaii, its closest neighbors include Banaba and the Nukumanu Islands.

Nauru's economic diversification is a lesson in the ways of offshore finance, a vast, far-flung industry routinely used to hide ill-gotten gains, dodge taxes and shield assets from creditors.

Phosphate may be finite, but Nauru is mining an unlimited treasure: its national sovereignty. The island is using its status as an independent state to charter offshore banks and corporations. For a price, clients gain access to the international financial system with the comfort that Nauruan law conceals their identities.

Unlike the rock that made Nauru rich, this export is ethereal--a corporate name, an out-of-the-way mailing address, the aura of legitimacy.

"They're selling the hole in the doughnut," said a representative of Baltic Banking Group in Latvia, which helps clients register offshore businesses.

How easy can it be to open a bank on Nauru? From the Internet, promoters shout the answer. The World Wide Web site of the Offshore Secrets Network, for example, shows clients where to click to get right down to business: "YES! I WANT TO ORDER MY OWN BANK NOW!"

Nauru profits by charging fees: for example, $5,680 to establish an offshore bank and as much as $4,980 every year after that to keep the registration active. With markups, the prices advertised by middlemen run about $20,000 to get started.

Nauru's total profit from the enterprise is undisclosed. "It's a significant contribution . . . to the national revenue," said Mathew Batsiua, chief secretary of the Republic of Nauru.

Simply getting to Nauru is a challenge: From Fiji, for example, Air Nauru flies only twice a week. The phone system is so unreliable that calling the agency that oversees offshore businesses can be an exercise in futility.

Where jungle once grew, only coral spires rise from the mined fields' dusty depths, like giant stalagmites. A thin fringe of greenery surrounds the largely barren central plateau. Much of the bird life has disappeared.

But for a certain clientele, the island's obscurity is its charm.

The newly appointed U.S. ambassador to Nauru, who is based in Fiji and serves as emissary to Tuvalu and Tonga as well, asked whether the island is being used for money laundering when he traveled to Nauru last week to present his credentials.

"They don't know if there is any extensive network of money laundering" using the island, Ambassador M. Osman Siddique said. "They said they have no way of figuring out what is good or bad."

The Nauruan government's chief secretary offered a similar assessment. "It is not in our best interest to be perceived as being easily exploitable, however, I for one can see that we are extremely vulnerable given our inherent structural weaknesses," Batsiua said by e-mail. The island lacks the resources, expertise and experience "to undertake a credible and comprehensive screening process" for offshore businesses, "and we desperately want to achieve this," Batsiua said.

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

The estimated volume of Nauru's Russian capital flow is so staggering as to strain credulity, some analysts said. In comparison, Russia's total exports amounted to only $74 billion last year, according to the International Monetary Fund.

Melnikov said he believes more than 90 percent of the money transferred to Nauruan accounts was returned to Russia. "That is to say, simply, our economic entities use this method to transfer their assets, hiding them. . . . And later, when they need these funds for their work here, they bring them in as credits," Melnikov said.

"They effectively evade taxes this way," causing "great damage to the country," he added.

Over the past year, the central bank has tightened regulation of offshore transfers. With the new rules and an improved economy, transfers to offshore havens have declined by 25 percent, Melnikov said.

If Melnikov's figures are accurate, the amount of money that has moved through Nauru is about 10 times as large as the sums that moved through Bank of New York accounts now at the center of international investigations.

The Manhattan district attorney's office and federal prosecutors have expanded their investigations of accounts used by Russians at the Bank of New York to include Sinex Bank, believed to have been incorporated in Nauru, sources said. Last month, when a delegation of Russians visited Washington to confer about the Bank of New York investigation and money-laundering issues, Nauru was a topic of conversation.

To take advantage of Nauru's banking secrecy, one need not visit the island. It is easy to transact business by remote control, and intermediaries handle the initial paperwork.

On a slew of Web sites, promoters extol the benefits of establishing a bank or account in Nauru.

"Almost Like Printing Your Own Money!" the Web site for Global Privacy Management Trust says of offshore bank charters in general, adding that Nauru "is our favorite."

Universal Baltic Bank Inc. has a Russian version of its Web site and boasts of experience in the former Soviet Union.

"Many countries require their citizens to always report any time they move more than 10000 USD out of their countries," the Web site says. "These regulations are obsolette [sic] if you have offshore secret bank account . . . in Universal Baltic Bank Inc."

The Web site says the bank is based in Nauru and shares a reassuring reminder: "Banking offshore is not illegal nor representative necessarily of an immoral individual."

Tracking banks licensed in Nauru is difficult, the State Department report said, because all "have the same post office box."

The only visible presence offshore firms have on Nauru may be a wall display in a hallway of the Nauru Agency Corp., where their names are engraved in plastic.

As a practical matter, it is only in the form of ledger entries that offshore dollars ordinarily pass through Nauru. The way the international banking system works, funds are electronically transferred to and from "correspondent accounts" that the Nauru-registered banks maintain in distant money centers such as New York.

"In actual fact, there is no money there [in Nauru]," Viktor Ivanov, deputy director of the Russian Federal Security Service, said during the Russians' visit to Washington last month, according to Russia's Tass news service.

In March, after an international task force on money laundering cited "a heavy concentration of financial activity related to Russian organized crime" in Nauru and other Pacific states, Nauru's then-president ordered "a complete review" of the island's offshore financial center. Though recommendations have been prepared, no changes have been made, Hulkar said. International authorities pressing Nauru to be more cooperative say they have been snubbed.

Yet even critics in law enforcement acknowledge the difficulty of Nauru's predicament.

For a time, Nauru enjoyed the highest income per capita in the world, according to the Manila-based Asian Development Bank. The phosphate-rich rock deposited over the ages was so valuable as fertilizer that Nauru could import laborers to do the hard work of extracting it.

But years of indulgence and mismanagement have left Nauru a fiscal shambles. In 1997, the crisis became so grave that the government was unable to meet its payroll.

On the economic front, Nauru has limited options. It sells passports to foreigners and it is beginning to develop a fishing industry. There has been talk of converting sovereignty into cash by registering ships under a "flag of convenience."

As the mining industry grinds down, Nauru dreams of becoming a tourist destination, but given the ecological damage that seems dubious.

Nauru had the foresight to plow much of its profit into a national trust, saving for the day when the guano would run out. But today, Nauru's overseas holdings are worth no more than $190 million, down from a peak of more than four times that amount years ago, according to estimates by the Asian Development Bank, which is lending Nauru money.

Much of the trust's holdings have been sold or mortgaged to fund the national budget deficits. The trust has also become a swindler's mark. In the early 1990s, for example, it was induced to invest millions of dollars in phony financial instruments.

For Nauru, the scam could have served as a lesson in the dark side of offshore finance. The perpetrators included people affiliated with Commonwealth National Bank of Antigua, which "essentially was a shell corporation" with "no true banking facilities," the Manhattan district attorney's office said in 1995. The bank was based on a small Caribbean island known as a haven of financial secrecy.

Staff writer Sharon LaFraniere in Moscow contributed to this report.

CAPTION: In 1990, when this photo was published, strip mining for phosphate had left much of the tiny Pacific island of Nauru devoid of vegetation.