Rival jurisdictions in the Caribbean are poised to capitalise if the Island's reputation becomes undermined by the Bermuda Housing Corporation affair, an international finance expert warned last night.

David Marchant believes the arrest of Auditor General Larry Dennis was the latest in a string of events which are jeopardising Bermuda's name as a reinsurance paradise.

Mr. Dennis' detention at the Hamilton Police Station was reported to a worldwide audience yesterday by industry publication Global Reinsurance, which described the whole investigation as a "scandal that is rocking the island".

Mr. Marchant said the arrest of Mr. Dennis — the sole independent watchdog over Government's financial affairs — would contribute to a "gradual erosion of confidence" in Bermuda.

Places such as Cayman Islands, where international business has grown significantly in recent months, are now well placed to take advantage, he said. Some major companies based in Bermuda already have strong ties with the Caymans.

"If Bermuda continues to be driven to the edge of the cliff, the Cayman Islands is going to be rubbing its hands in glee in anticipation of picking up Bermuda's reinsurance companies," he said.

Mr. Marchant said four decades ago Bermuda itself began building its blue chip reputation as a financial jurisdiction by capitalising on controversy in the Bahamas, which had previously led the field. He said he could see "remarkable parallels" with the situation facing the Island today.

Mr. Marchant, a former Royal Gazette journalist, is now based in Miami as an investigative reporter and publisher of Inside Bermuda, which sells in more than 100 countries all over the world.

In his May 31 edition, he wrote that Bermuda's portrayal as the "clean" face of offshore finance was rocked by the corruption allegations.

Global Reinsurance's website reported on Mr. Dennis' arrest yesterday: "This is the latest in a series of political issues threatening the reinsurance paradise.

"New time limits on work permits, which could force out 10,000 guest workers, unpopular policies governing car ownership and concerns over freedom of speech have plagued the island over the past year."

Earlier this month, The Mid-Ocean News ran a story from a leaked Police dossier centring on allegations of corruption at BHC.

The documents reportedly revealed that Premier Ewart Brown, former Premier Jennifer Smith and former Ministers Renee Webb and Arthur Hodgson were all investigated by Police looking into the BHC allegations.

When the investigation finished in 2004, then Acting Director of Public Prosecutions, Kulandra Ratneser, said many of those investigated could only be accused of bad ethics.