A furore has erupted in Bermuda's business community over two amendments which make tax evasion overseas a criminal act under Bermuda's money laundering legislation.

Critics claim the amendments as proposed are too onerous and will kill Bermuda's thriving financial services industry, driving good business away to other less stringent jurisdictions.

They are also concerned that the amendments will make them criminally liable for personal and corporate taxation matters, an area over which they say they will be unable to properly monitor.

Proponents say the amendments are necessary if Bermuda is to continue as an offshore centre in the face of a crackdown on tax havens by the UK and the Organisation for Economic Cooperation and Development.

Donald Lines, president of investment holding company Millpoint Ltd. and chairman of Lines Overseas Management, said among those businesses at risk were those in the trust, investment and mutual fund sectors.

"There is no question these amendments will harm Bermuda,'' he said yesterday. "It's a question of how big the harm will be.'' A Bermuda International Business Association (BIBA) members' meeting was due to be held today to discuss the issue with Government. The meeting was postponed yesterday until next week so Finance Minister Eugene Cox could attend. BIBA has in turn called a board meeting to discuss what to do about the issue. Many members are apparently upset at the broad implications of the amendments and are calling for changes.

The Proceeds of Crime Amendment Act 1999 and The Taxes Management Amendment Act 1999 will be introduced in a first reading in Parliament on Friday. The amendments are expected to be pushed through within two weeks. A separate related amendment to Bermuda's tax treaty with the US has also been tabled as part of the package.

Mr. Cox and BIBA chairman Glenn Titterton were not available for comment yesterday. UBP Shadow Finance Minister Grant Gibbons said while the party supported the amendments in general there was a need for Government to look more closely at how it went about achieving its aims.

"We recognise the need to prevent money laundering in Bermuda and the need to be in step with international standards but we have significant concerns with the amendments in their present form,'' he said. "We are discussing with the business community suggestions for further changes.'' Controversy erupts over tax evasion clampdown Jan Spiering, chairman of the International Business Forum (IBF), an advisory body to Government, defended the amendments as a response to international requirements.

He said the amendments were necessary for Bermuda to maintain its position as a premier offshore jurisdiction. He disputed claims that most of the financial industry were against the amendments as they stood. The IBF was one of the bodies advising Government on the amendments.

"We recognise this is something that we must do,'' he said."There may be some business that is going to go elsewhere, but where are they going to go? Eventually all places will come to this position. Bermuda's greatest advantage is its reputation. The nub of the amendments is `know your customer'.'' The Proceeds of Crime Act makes it a criminal offence for anyone to knowingly help a money launderer and requires them to report on any suspicions they may have that someone is attempting to launder money.

Critics say the addition of tax crimes to the Act makes it more difficult and expensive for them to operate in Bermuda.

Mr. Spiering admitted that the difference between tax avoidance, which is legal, and tax evasion, which is not, had become more difficult to determine.

He said much of the controversy surrounding the amendments would be allayed once accompanying "guidenotes'' for the various sectors in the financial services industry were drafted.

The guidenotes to the Proceeds of Crime Act lay out what procedures companies must follow in protecting themselves from being on the wrong side of the law if their clients are convicted of laundering money.

Mr. Spiering said the guidenotes would provide protection in court if followed by individuals and companies. Currently the guidenotes for the mutual fund industry relating to tax offences have been drafted. Other sectors are following suit.

The Taxes Management Amendment Act adds fraud and tax evasion as a criminal offence to current Bermuda legislation originally drafted for those who deliberately avoid paying Government pension and payroll taxes. The amendment is intended to work in conjunction with the proposed changes to the Proceeds of Crime which now make any money laundering activity a criminal act even if the crime occurred in another jurisdiction.

A Bermudian who is a partner in an international management company predicted that about 50 percent of the financial services industry would leave Bermuda over then next two years.

He said Bermuda was currently one of the most stringent jurisdictions in the world in relation to ensuring that clients were using the Island for legitimate purposes. "There's plenty of good business out there but a tremendous amount will leave and avoid Bermuda because they don't want to get involved in an expensive and onerous tax audit,'' he said. "The banks are going to face some fairly major problems, particularly in the mutual fund industry.'' He also claimed that the changes were being pushed though under pressure from Bermuda's insurance sector which was afraid the international crackdown on tax havens would hurt their business.

"We are putting all our eggs into the insurance basket,'' he said.

"Government has made the trust, investment and banking business the sacrificial lamb for the good of the insurance industry.'' He wanted to remain anonymous claiming that anyone criticising the bill could be attacked as supporting tax evasion.

"If you talk about it then people will assume you're are involved in tax evasion,'' he said.

A Bank of Bermuda spokesman said the bank supported the inclusion of fiscal offences in the Proceeds of Crime Act and stated so in May in comments on the UK White Paper on granting Bermudians citizenship.

The amendment to the tax treaty with the US clarifies that the US Government must indicate how the information being sought about a client relates to an investigation into a taxpayer.

Jan Spieling Grant Gibbons