has been applauded by Bermuda's two clearing banks. Both Bank of Bermuda and Bank of Butterfield have real physical branches in Cayman.

Shell banks are banks that have no physical presence and do not produce accounts in the country in which they are licensed. They are used by foreign banks that use correspondent accounts to move money, and are often open to abuse through money laundering.

Cayman authorities have ordered that its 62 such banks must open and staff offices or lose their licences.

Calum Johnston, Bank of Butterfield's chief executive officer, said: "This is a good move by Cayman.

"Many of the so called `shell banks' are subsidiaries of some of the world's largest and most respected banks which took advantage of the ability to conduct some of their offshore business in Cayman, but did not have sufficient volume to maintain staff there. Such banks were managed by other banks in Cayman, such as Bank of Butterfield International (Cayman) Limited.

"In these cases the banks will have to decide either to provide their own staff or close down. In other cases much smaller banks owned shell banks in Cayman and almost certainly those will close.

"None of this will affect the services to the public in Cayman since the shell banks did not provide local services. In the case of Bank of Butterfield, which is a major player in the local Cayman market, the loss of the management of a few shell banks will not affect their business in any appreciable way.'' Barry Shailer, chief compliance officer at the Bank of Bermuda, said, "The decision of the Cayman Islands Monetary Authority to mandate a physical presence for a number of private banks that currently have none was an important step in the ongoing process of combating money laundering.

"This will serve to reduce the perception that these private banks and, by extension, the Cayman Islands themselves are a part of the problem, rather than proactively working to be a part of the solution, which is the case for many offshore jurisdictions. As far as our own operations there, this decision will have no direct impact.''