Pressure continues to mount against American companies that move to Bermuda but leave operations on US soil.

Auditors may lose the right to advise such companies on moves offshore, certain US states are lobbying that offending companies be taken off the S&P 500 Index and at least two pension funds are telling two Bermuda companies to move back to America or they won't invest in them.

The US Securities and Exchange Commission (SEC) may move to halt auditing firms from advising companies on setting up tax shelters, with claims that offering that service could constitute a conflict of interest.

Reuters yesterday reported that the SEC regulators have proposed forbidding accounting firms from providing their audit customers with certain tax services, such as setting up tax shelters, as part of its effort to improve auditor independence.

Assuring an auditor's independence has become a hot topic after a wave of accounting scandals rocked Wall Street.

The SEC said in a report this week that an accounting firm advising on tax issues as well as offering audit services could be acting in an advocacy role for its client and could end up auditing its own work - thereby hindering its ability to carry out an objective audit.

"Where an accountant provides representation before a tax court the accountant serves as an advocate for his or her client and the accountant's independence would be impaired. Another example would be the formulation of tax strategies designed to minimise a company's tax obligations," the report said.

But Reuters said the limit would dry up a lucrative source of income for accounting firms. The report cited Bermuda-based company Tyco International which reportedly paid $18.1 million to its auditor, PricewaterhouseCoopers, in 2001 for tax services alone.

That figure was said to compare with $13.2 million it paid in audit fees, according to a regulatory filing.

On a separate front, ten US states - led by California Treasurer Phil Angelides - were campaigning against companies that reportedly moved offshore - and listed ten companies they thought should be removed from the S&P 500 index.

Although Standard & Poor's agreed to examine the request, S&P spokeswoman Rebecca Hill told the San Francisco Chronicle that it will resist the pressure to delist the firms.

"We believe these companies are leading companies in the US market and it would be a disservice to investors if these companies were to be excluded," she said.

Being listed in the S&P 500 has a major effect on a company's stock price because the index is used as a baseline by 97 percent of American money managers and pension plans. About $1 trillion in overall US investments is indexed to the list.

Ms Shoven estimated that being delisted would cause at least a ten to 15 percent drop in share price.

Meanwhile, Mr. Angelides said the move was needed because many US companies have moved their legal address to offshore tax havens such as Bermuda and the Cayman Islands - while keeping their primary operations stateside. He cited the moves as the company's method of avoiding "scrutiny for sleazy corporate-governance practices".

"This is about ten renegades who have chosen to set up a phoney mailbox for only two purposes - to avoid paying US taxes and to weaken the rights of shareholders to collect judgements against corporate boards in US courts. It's a poster child for the kind of corporate behaviour that repels most US citizens," Mr. Angelides said.

Other state officials to put their name to the campaign were from Connecticut, Maine, Massachusetts, Wyoming, Kentucky, Colorado, Oregon, Iowa, and New York. Eight of the ten state officials are Democrats and two are Republicans.

Companies named in the request were: Noble Drilling Corp., Cooper Industries, XL Capital Ltd., ACE Limited, Tyco International and Ingersoll-Rand, Schlumberger, Carnival Corp., Transocean Inc., McDermott International.

The first six companies on the target list are in Bermuda although both XL and ACE are incorporated in the Caymans, and were never domiciled in the US.

In addition to demands that the S&P remove these companies, Mr. Angelides was also reportedly leading a campaign to have companies move to the US or lose out on pension fund investments.

Last month, the $137 billion California Public Employees Retirement System decided to co-sponsor shareholder resolutions at Tyco, Ingersoll-Rand and McDermott to demand that the companies return to the United States.

This week the fund's $95 billion sister, the California State Teachers Retirement System, decided to support the resolutions.