The Bank of Bermuda and the Bank of Butterfield have both had to terminate their US dollar cheque facilities.

In the past, both banks offered US dollar current accounts with cheques cleared by US counterparts such as Deutche Bank (formerly Bankers Trust).

Each sent out letters to clients recently explaining that the US Patriot Act, which was designed to track down funds of terrorist organisations, has led to bank regulations in the United States tightening significantly.

One repercussion of the heightened "know your client" climate is that US domiciled banks are no longer willing to clear US Dollar cheques drawn on third parties.

As a result, the Bank of Butterfield's "Omnicheque" and the Bank of Bermuda's "Global Cheque" can only be written until December 31, 2002.

"Bermuda Third Party Ltd" could previously hold a dedicated US checking account with, say, the Bank of Butterfield and have a separate cheque book which stated "US dollar account."

For local businesses dealing with US vendors, this was a handy service for paying their invoices.

With the termination of this service, options for US dollar payments include using credit cards, certain debit cards, wire payments and bank drafts.

Alternatively, a Bermuda company can open a direct account with a US bank and both the Bank of Bermuda and the Bank of Butterfield can assist them to do so with references.

Both bank drafts and wire payments incur a cost. Wire transfers cost $30 each (transfers over $25 million cost $100) and bank drafts cost $6.

However, with many corporate customers now moving away from paper payments and associated postal issues, the loss of US cheques may have little impact.

This is particularly true in light of the new Bank of Bermuda Global Connect and the Butterfield Direct online services.

Bank of Bermuda head of banking services, Michael W. Collins says: "It's just as easy to order a payment to the US through Global Connect using a banker's draft as it was using a payable through account such as Global Cheque."

Mr. Collins adds: "Prior to internet banking it was more difficult to order bank drafts or instruct a money transfer by fax but now you can do that through Global Connect with incredible ease and security."

Bank of Bermuda customers also have the advantage of immediate, "real-time" transfers and a lower charge of $20 if they make their wire transfer using Global Connect.

Mr. Collins says that both banks went to great lengths to try to maintain the US cheque service for their clients, but due to the new regulations, the correspondent bank part of the equation proved a stumbling block.

He predicts that the use of cheques, although still important to Bermuda companies, will gradually become less important as people become more accustomed to internet banking.