LONDON -- Some business leaders in Bermuda fear e-commerce could compromise the Island's reputation for straight financial dealing, the Financial Times reported yesterday. The top UK newspaper said there are concerns about the quality of businesses -- pornography and Internet gambling, for example -- that seem to be attracted to e-commerce, the current buzzword in Bermuda. And Bermuda becoming a data haven as well as a tax haven could alarm the European Union even more than the issue of offshore financial centres.

The Financial Times put the spotlight on Bermuda as part of its Survey Series reports. On the bright side it said business continues to boom in Bermuda in spite of the change of government and the growing European threat to offshore financial centres.

However, the FT's reporting team wrote, "Some business leaders privately question whether, given the current regulatory threats to offshore centres from organisations such as the OECD and EU, it is politically sensible for Bermuda to be trying to clamber aboard the bandwagon of e-commerce -- which alarms the main tax collecting countries even more than the issue of offshore financial centres.'' Bank of Butterfield chief executive Calum Johnston told the FT: "I share the interest and enthusiasm for (e-commerce) legislation. But I worry a little about how we are dealing with it. We have just closed the account of one company that turned out to be involved in Internet gambling. The last two queries were from companies offering adult entertainment.'' The FT report also quoted Premier Jennifer Smith as saying Independence was not one of her Government's priorities -- yet. While the FT said international business is Bermuda's golden goose, it was concerned the sector's success is not all good for Bermuda and its population of 62,000. The newspaper noted that the Island's international finance and insurance sector employed fewer than 3,000 people directly -- representing just eight percent of all jobs in Bermuda, and only six percent of all jobs held by Bermudians.

International business overtaking tourism as Bermuda's engine of growth has also made Bermuda more costly, especially in the area of housing by making rents unaffordable to the average Bermudian. By forcing up salaries and costs in an already expensive destination, the international business sector has increased the structural problems of tourism, which was for many years the economy's mainstay, The FT said.

Another concern of the FT reporting team was international business and tourism's reliance on the North American economy. Should Wall Street fall sharply, or if interest rates continue to decline, the investment returns earned by the industry would also suffer, the FT said, further noting that during the 1991-92 recession visitor spending fell 10 per cent. The FT noted Bermuda's two largest revenue raisers are customs duty (29 percent of total revenue) and payroll tax (26.6 percent).

On the topic of severing colonial ties with Britain, Premier Smith is quoted as saying: "Independence is not now a priority for us. It is one of our party's aims but this is not an issue which we will deal with in this term in office. It is on the backburner. Whether Bermuda is independent or not, we have to be doing a good job in administration.'' Opposition leader Pamela Gordon contended: "It is a touchy subject, but it is definitely on the PLP's agenda. The Government will go back to the electorate in two years on the issue...'' The FT said Bermuda's UK ties are seen by the business community as fundamental to the Island's image as a jurisdiction for international business. The newspaper noted the Independence debate has been given an impetus by the UK's white paper on Overseas Territories offering citizenship in return for tightening financial regulations and changing certain human rights laws.

Worries about e-commerce push the renewed debate will not change the Government's decision to consider Independence in its current term.

International Business Forum chairman Jan Spiering echoed other members of the business community by saying: "These are still early days, but so far international business is happy with the new administration.'' Bank of Bermuda chief executive Henry Smith said: "We have shown the world that we have a very stable environment.'' CHANGE OF GOVERNMENT On the change of Government, Premier Smith said: "We have been on the cusp of an election victory since 1980, but this time there was a fundamental change in that Bermudians overcame their fear of the unknown. We gained from a change in perception by Bermudians, and they now feel justified that they have made the change.'' She added: "We have sensitised people to the institutionalised biases of which they were not aware. There has been an immediate change in the perception of Bermudians -- they now all feel that they have a fair chance.'' Ms Gordon told the FT complacency and internecine squabbles contributed to the UBP's defeat. "The electorate...concluded that we were more interested in ourselves than in our country,'' Ms Gordon said. An unnamed UBP person said: "The UBP can be rebuilt but it can not be in the same mould. Similarly the incumbents will have to reach out to that section from which it had very little support. This favours labour, because if it does things well in its first term, and appeals to a cross section of Bermudians, it will always have greater appeal than the UBP.

EU/OECD (Organisation for Economic Cooperation and Development) THREAT TO OFFSHORE CENTRES Bermuda is under attack, Bank of Butterfield CEO Calum Johnston is quoted as saying. "This move is very unfair and we are not clear what they are after...This Island has found a way to balance its budget and produce a high standard of living without taxing its people to death.'' Premier Smith said: "We are concerned about these developments but we are not fearful. There is no need for panic. We consider Bermuda to be a reputable offshore financial centre that has nothing to fear from legitimate attempts to introduce sound regulatory financial standards...Our reputation is good and this has been made clear by the (Foreign & Commonwealth Office) to the OECD and the EU.'' "The Government gets $500m per year in consumption taxes from a population of 60,000, so it is hard to see how Bermuda can be called a tax haven,'' said XL Capital vice president Paul Giordano.

David Ezekiel of the Chamber of Commerce said: "If low tax jurisdictions are being described as harmful then we will be affected. If the tax regime is changed, some companies will be able to deal with it while others will look for another location.'' Partner Re CEO Herbert Haag is quoted as saying many international companies had reached a stage where they did not need to be managed from the Island and consequently there would be no value to staying in the Island except for the tax benefit. Finance Minister Eugene Cox said: "If our arguments are not accepted then it could be destructive to us. If the OECD move is allowed to go unchallenged we will be in danger.'' THE INSURANCE INDUSTRY While the industry continues to enjoy remarkably few large catastrophe claims, last year's combination of soft premiums and a stream of events such as Hurricanes Georges and Mitch, the Swissair crash, ice storms in Canada and riots in Indonesia made 1998 a tough year. Nevertheless, Bermudian insurers still achieved what Standard Poor's described as an "extraordinary'' average return on equity of 18 percent -- down only modestly from the 20 percent returns of the past few years.

"Alternative risk financing'' is being hotly developed in Bermuda. The film industry, for example, can be offered a product which pays out if a portfolio of films fails to meet its minimum profit expectation, which makes it easier for film production companies to raise financing.

THE LOCAL PROPERTY MARKET The FT said: "Rents are at the kind of level unseen anywhere else in the world outside the most sought after districts of large cities, with a two bedroom condominium typically renting for between $2,700 and $3,000 per month.

Workers for international businesses armed with relocation allowances, have bid up prices to a level which normal Bermudians cannot afford. The benefits have gone disproportionately to already wealthy locals, who are using the high rents they receive to bid up rents elsewhere still further.'' According to Bermuda Realty, non-Bermudians spent $40m on private property in Bermuda last year. The US Consul General's official residence on Grape Bay is going for $15m through Christie's; there is plenty of interest and it could prove thus to be the most expensive property yet sold on the Island.

BERMUDA STOCK EXCHANGE The BSX is concerned about plans for the NYSE to extend its trading hours and trade Nasdaq stocks. BSX CEO William Woods said a key advantage of the BSX is that it opened 90 minutes before New York because of time zone differences allowing members to cross trade securities while Wall Street is closed.

TOURISM Air arrivals are up 15 percent for March, according to Tourism Minister David Allen. Bermuda wants to exploit new markets but is concerned about inadequate air access.

"There are five airlines serving the Island from the US, all with high load factors,'' Mr. Allen said. "This is not enough competition to drive fares down. Air fares to Bermuda are too high, and we are talking to some charter companies.'' FORMER MILITARY BASES Premier Smith told the FT: "There is now a possibility of a settlement following the US-Canada agreement. We are not trying to tie the US' hand in the matter, but as the UK and Canada had cleared up this matter, why not the Americans?''