Ties to Bermuda could be a liability for international companies, the Reuters nes agency has reported.

A Reuters report on Friday said the recent sell-offs in shares of conglomerate Tyco International Ltd. and drugmaker Elan Corp. Plc have shown investors are dubious about the merits of incorporating on the Island.

The report said: " Investors remain shell-shocked by the complex accounting schemes and offshore entities behind the collapse of energy giant Enron Corp., and have dumped shares of Tyco and Elan amid questions about their bookkeeping methods."

Tyco, which is registered in Bermuda but run from Exeter, New Hampshire, has lost $40.1 billion in market value since the beginning of the year and its stock now trades near two-year lows. Ireland-based Elan, which has established joint ventures in Bermuda, has seen $5.1 billion erased from its market value since then.

Both companies were the subject of critical stories in the Wall Street Journal last week.

"I think if you're running an operation out of Bermuda, you probably have to be that much more clear, that much more careful in stating your purpose," Erik Sirri, a former chief economist for the Securities and Exchange Commission, told Reuters.

"For an enlightened investor, I think a light goes off and they say: 'Bermuda, let's see why.'"

Reuters said Bermuda, where more than 13,000 international businesses and partnerships are incorporated, is known worldwide as a place that is both tax-friendly and lightly regulated.

While it is home to many companies with rock-solid reputations, and other tax haven islands are far less rigorous in their vetting of financial dealings, Bermuda is getting attention now that everyone from the US Congress to institutional money managers is focused on straightforward bookkeeping, Reuters said.

Another Bermuda-based company, high speed telecommunications services firm Global Crossing Ltd., last Monday filed for Chapter 11 bankruptcy, marking the fourth-largest insolvency in US history.

"Perception is often as important as reality on Wall Street, as the steep share-price declines at Tyco and Elan clearly illustrate," Reuters said.

"Despite a regulatory probe of Tyco's books and persistent reports that its accounting is fast and loose, no disciplinary action has ever been taken against the company."

Elan, for its part, has been snagged by accounting questions centred on research and development joint ventures.

Earlier this week, the company issued a statement angrily rebutting a lengthy Wall Street Journal article that analysed its revenue streams, some of which flowed through Bermuda.

"I think being based in Bermuda connotes more of an emphasis on financial engineering than on operating the business," David Tice, manager of the Dallas-based Prudent Bear Fund, which oversees about $190 million, told Reuters.

Tice has a "short" position on Tyco stock, which means he is betting the stock will fall.

"Being a Bermuda-based company today will cause some investors to recognise that there is probably a higher component of financial engineering involved in a company's business, which will cause them to discount its valuation in the marketplace," Tice added.

Reuters said investors with such views may cause firms like Foster Wheeler Ltd., an engineering and energy equipment company, or Ingersoll-Rand Co. Ltd., a diversified manufacturer, to wish they had not set up shop in Bermuda.

But Ifor Hughes, assistant financial secretary for international business at Bermuda's Finance Ministry, told Reuters the Island's credibility is intact and that its safeguards against financial deceit are sufficient to maintain that credibility.

"The due diligence that is conducted up front, before we even accept business, is quite rigorous," said Hughes, speaking from Bermuda.

"A key part of the vetting process is the identification of beneficial ownership details.

"The know-your-customer side of it is now becoming much more of an expectation but it has been a tradition here."

But so called shell-companies that serve as fronts for people or groups that wish to remain anonymous have not been the focus of investor concern about what it means for a company to be connected to Bermuda.

Rather, investors wonder about the ability to easily create complex cash relationships in Bermuda among webs of subsidiaries and other financial vehicles.

"Our focus has been very much on the front end of the regulatory process by knowing who we're dealing with ... rather than being overly intrusive and prescriptive in the way we do things thereafter," Hughes said.

With memories of Enron's demise still fresh, many investors would just as soon sell stakes in companies that have gone out of their way to call home a place known for its laissez faire approach.

"If the reason you're located in Bermuda is transparent, that is, you're looking for a benefit that people understand, I think you're OK," said Sirri, now an associate professor of finance at Babson College.

"But if you're locating yourself to create a more opaque firm, meaning that people can't see through you and you're in essence obfuscating, then I think you've got a problem."

Only a company's top management can know for sure.