business.

Banks in the Cayman Islands, which has the fifth largest banking sector in the world, may soon follow the route taken by Bermuda's two largest banks and apply for status as qualified intermediaries in an effort to protect their non-US clients from being taxed on any US securities they might hold.

The US Internal Revenue Service will enact new rules in January that require international offshore banks to report details of accounts and companies for whom they are holding U.S. securities, or automatically face a 30 percent withholding tax.

To avoid the penalties, banks can apply to become "qualified intermediaries'' if they are based in approved jurisdictions.

Bermuda received approval from the IRS several months ago. On Monday a Cayman Islands association said that it has now been approved as well. Approval has also been granted to Barbados while the Bahamas awaits a decision.

The Cayman Islands' offshore banking sector, thrives on its secrecy laws. The qualified intermediaries agreement makes allowances for those countries that have secrecy laws as long as they follow guidelines.

The Cayman Islands and the Bahamas were on an international blacklist of 15 alleged money laundering havens released in June by the Paris-based Financial Action Task Force. One-third of the countries on the list were located in the Caribbean, including St. Kitts and Nevis, St. Vincent and the Grenadines and Dominica.