A bill introduced by US legislators to crack down on offshore corporations benefiting from US tax treaties stands little chance of going anywhere ? unless regulatory probes uncover serious misconduct.

A year-long intensive probe of the US insurance industry has turned up evidence of widespread problems, and abuses, from allegations of illegal bid-rigging to evidence that offshore units may have been used to massage earnings.

US authorities are currently scrutinising the business that commercial insurance giant AIG conducted with offshore units, to see if the company dumped losses in Bermudian, Barbadian and Irish companies it controlled.

There has so far not been any bi-partisan response from Capitol Hill to mounting concerns on widespread abuses in the US insurance industry.

But there has been a sweep of Democratic representatives signing on to a bill designed to ?prevent corporations from exploiting tax treaties to evade taxation of United States income and to prevent manipulation of transfer prices by deflection of income to tax havens?.

In specific, the bill would make it so that a foreign corporation could not be entitled to any benefits of an income tax treaty with the US unless it was predominately owned by the residents of that country.

Bermuda inked its own tax treaty with the US in the mid 1980s, but the legislation on the table could have a negative impact on the the Island?s exempt companies ? corporations in Bermuda owned predominately by non-Bermudians for the purpose of conducting business outside the Island from within the Island.

The bill, introduced to the House of Representatives in mid-March by Texas Democratic Representative Lloyd Doggett, has a whopping 74 co-sponsors, but those close to the legislative front in Washington say it can?t go anywhere in the Republican-controlled Congress.

But if regulators discover serious misconduct in the US insurance industry?s offshore ties, it could prompt Republicans to join Democrats in their longstanding call for a crack down on ?tax havens?, according to one who closely watches Washington developments that could impact Bermuda.

The official said: ?I don?t think it is actually a very serious legislative enterprise. What it is is a political effort for the Democrats to continue to go after the ?tax havens?.

?They tried this in the Kerry campaign and in the Congressional election two years before that. It has been spectacularly unsuccessful as an issue that voters care about. But the Democrats continue to talk about it, whether it be outsourcing or tax havens.?

One of the co-sponsors on the bill, Massachusetts Representative Richard Neal, has long called for legal changes to crack down on what he calls offshore tax ?loopholes?, including Bermuda-based firms.

?Doggett and Neal have been in the forefront of the effort, and they have been unsuccessful,? the official said.

However, if US regulatory probes of offshore abuses turn more serious, both Republicans and Democrats could be singing the same call for laws that could seriously impact offshore corporations, including those in Bermuda.

The official told ?If these investigations actually turn up something, perhaps the Republicans will have to come up with an alternative to this legislative effort [by Doggett. But this legislation per se has zero chance of passage right now.

?You have to watch what is going to happen and hope it does not stir things up in Washington, but right now this is a partisan political effort by a very partisan Democrat Lloyd Doggett.?

So far, the 75-strong Democratic bill is the only legislation introduced that would likely have any serious impact on Bermuda?s $50 billion insurance sector.

Although there has been widespread calls for a shift to a federal system of insurance regulation in the US ? with regulation currently being governed on a state-by-state basis ? lawmakers have not advanced beyond the draft legislation stage. And, a move to a federal system of insurance regulation is something that numerous Bermuda-based firms writing business in the US have called for through the years.