A US Senator has become embroiled in a bitter business dispute -- claiming the Bermuda Government is punishing American investors.

Now Sen. Richard Shelby is demanding that Bermudian companies should not receive favourable treatment from America.

He is also calling for a licence for a new telephone cable linking Bermuda to the States to be blocked until the dispute -- going though the court system -- is settled.

However last night Finance Minister Grant Gibbons hit back saying said Sen.

Shelby was making untrue allegations and it was impossible for Government to get involved in a court case.

Bermuda businessmen also criticised Sen. Shelby's stance as outrageous and backed Dr. Gibbons saying the Bermuda Government could not interfere with the court system.

Last week in a speech to the Senate, Sen. Shelby said: "Mr. President, I rise today to inform by colleagues in the Senate of another case where a foreign government is punishing an American company for no legitimate reason.

"The United States must stand up against such actions by foreign governments and end such unfair and unwarranted treatment of our citizens.'' Alabama Senator Shelby intervention relates to a long-running court dispute between the American McDonald Group and the Bermuda Telephone Company over Bermuda Cablevision.

In 1987 the Alabama-based McDonald Group pumped money into Cablevision and worked out a deal where it received 60 percent of the profits as "consultancy fees''.

Later Telco bought a block of shares in Cablevision and last year launched legal action claiming the consultancy payments were in breach of the rule that companies on the Island must be 60 percent Bermudian owned.

As a result of the court case, which is to go before the Privy Council, the Bermuda Monetary Authority became aware of the payments and last March effectively froze them by deferring a decision granting permission to convert from Bermudian dollars.

Last week the BMA, an independent body, gave the go-ahead to move the cash out of Bermuda -- a decision made before Sen. Shelby's intervention and after the BMA sought legal advice.

However, it is unclear why the decision was deferred and why permission was finally granted last week.

Sen. Shelby told the Senate that the McDonald Group, run by two of his constituents, was encouraged to make the investment by the Bermuda Government.

"The McDonalds devoted not only sizeable amounts of time and energy to this effort, but they also invested sizeable amounts of their own money to upgrade the cable television system,'' said the Senator.

He added that when the company began to do well some Bermudians tried to wrest control away from McDonald's.

"These Bermudian citizens, with the help of their Government, are determined to take control of the company away from the McDonalds now that the company is doing well,'' he told the Senate.

"My question to the Senate today is: Will the US Government let this happen.'' TeleBermuda has won permission from the Bermuda Government to compete in the Island's telephone business.

It wants a licence from the US Government to begin the process of laying a new telephone line from the States to Bermuda.

But Sen. Shelby wants to block the move and has called on the US Secretary of State to withhold permission until the situation with McDonalds is resolved.

Ironically it is US-owned TeleBermuda International LLC, a part of the TeleBermuda group, that is applying for the licence.

"Any harm that the McDonald people may cause to TeleBermuda by attempting to pressure Bermuda will be caused to a US company which surely the US State Department will not condone,'' said TeleBermuda president Mike Kedar.

"We are talking to the US State Department and they understand this and they have not taken any action yet. Our lawyers in Washington are looking into this.

"This thing is before the courts and what can we or the Bermuda Government do to help? It is totally outrageous,'' added Mr. Kedar.

A spokesman for TeleBermuda added: "As far as I am concerned this is a matter that is before the courts and is being decided civilly and that is the way it should be.

US Senator angry at Govt.

"It is not governments' role to influence the courts and the Bermuda Government is acting responsibly and neutrally.'' Last night Dr. Gibbons said the Government had stayed away from the dispute because it was in the hands of the courts.

He said he was looking into Sen. Shelby's allegations and would be making representations through US Consul General Robert Farmer.

"The allegations include Bermuda Government support for Bermudian control of Cablevision. That is totally untrue. Government has not helped either side.

"It is also untrue that we are punishing American investment which is clearly contrary to our policy,'' added Dr. Gibbons.

"It is important for me to state that the Bermuda Government sees this as a commercial litigation matter between two groups of shareholders.

"We recognise that it is before the courts and Government has stayed away from that court action.'' Mr. Farmer said last night that before McDonalds invested in Bermuda two top Island legal firms went through the matter in detail.

"The McDonald Group did not seek this out, they were invited to come in with what they thought was the full approval of the Government and the BMA. They did what they promised and turned Cablevision around.

"I convened meetings with McDonalds and Telco about six weeks ago in an attempt to bring the two parties together and avoid protracted legal battles.'' He said he was aware Sen. Shelby might get involved. "I was aware that this might happen which is why I tried very hard to bring the two parties to the table and engage in serious negotiation.

"I have shared my concerns with a number of leading business figures in the community and with the Premier and Finance Minister in an attempt to try and avoid this situation,'' added Mr. Farmer.

"I do not think it is good for US Bermudian relationships. It is a concern to me and I have talked to a number of people to see if there can be a resolution to this.'' TELEVISION TV BUSINESS BUC