References to Bermuda and the Bermuda Monetary Authority (BMA) in a new book that characterises the Island as a known money-laundering jurisdiction were dismissed by Finance Minister Grant Gibbons and BMA general manager, Malcolm Williams.

The book, F.I.A.S.C.O., is written by former derivatives trader Frank Partnoy and published by Profile Books.

Extracts of the book -- which also includes a reference to investment bank Morgan Stanley -- have been published by The Sunday Times , most recently on November 2.

The article was head-lined "Shoot-out On Wall Street'', with the sub-heading: "Guns, booze, and bloodlust: the truth about high finance''. Dr. Gibbons said, "I would not normally dignify such statements with a response, but since you ask, I would say that the excerpts taken from this book smacks of sensationalism and seems to be more of a novel than the truth.

"It is sensationalistic at best and his description of Bermuda bears no resemblance to the Bermuda I know. His description is of a haven for all kinds of dysfunctional financial behaviour. But that is clearly not the stable financial centre that has grown up here over the last 30 years.

"He is just trying to sell as many books as possible. There is no doubt that there are a number of funds set up for sophisticated investors. But Morgan Stanley is a blue-chip company. But the book is potentially libellous, the way he has described Bermuda. I would expect that Morgan Stanley would be upset at the way they are portrayed, as well.'' Mr. Williams said, "The reference to Bermuda and the BMA is verging on the scurrilous. As Oscar Wilde said, there is no such thing as a moral or immoral book. Books are well-written or badly-written. That is all. Mr. Partnoy's book appears to be badly-written.'' He added, "Now we have a well-written book called `Coins of Bermuda', which the BMA has just published. It is something that has taken years to write and I would hope that The Royal Gazette readers would find more interest in this book than in Mr. Partnoy's book.'' The extracts from F.I.A.S.C.O. describe a highly successful derivatives division of investment bank Morgan Stanley, where sales people sold derivatives to insurance companies, mutual funds and state pension funds, even though they knew that the US Treasury-backed derivative trades were not just highly speculative, but extremely risky.

Partnoy wrote: "I had discovered a shadier part of investment banking that mirrored the gambling institutions in Atlantic City before gambling had been legalised; the sign on the door might say government agency, but inside a craps game was going on.'' Morgan Stanley, he said, achieved legendary status with a derivative called PLUS (Peso-linked US Dollar Secured) Notes that offered Mexican banks and American buyers an investment they never imagined was possible.

He said, "If you owned a mutual fund in the past five years, especially one that invested internationally, it is very likely that you owned a piece of this Mexican deal or one just like it.'' Partnoy begins the PLUS Notes story in 1993, saying Banco Nacional de Mexico (Banamex) asked several American investment banks to do the impossible -- remove some undervalued inflation linked bonds called Ajustabonos from its balance sheet, without actually selling them. The bank wanted the cash for other investment purposes, but did not wish to sell the bonds, because it would have had to book a loss from the sale.

Only Morgan Stanley's derivatives product group, out of all the Wall Street competition, said it could accomplish this impossible mission. Partnoy said, "The first trick was to split the ajustabonos into two pieces. The most basic way to do this was to form a new company to buy the ajustabonos. To create such a company without incurring the wrath of Mexican and American regulators, Morgan Stanley looked to sunny Bermuda.

"Bermuda was known as a haven for all kinds of dysfunctional financial behaviour and money laundering, first by drug dealers, then by the Mafia, and last by investment banks. Morgan Stanley was behaving like the mob.

"It hired several politically connected Bermuda lawyers to incorporate a special Bermuda company and provide crucial political contacts.

"Next, to avoid negative tax consequences, Morgan Stanley needed to find an appropriate charitable institution to purchase the company's stock. Finally, to obtain the permission of the Bermuda Monetary Authority for the new company to issue $1.5 billion of bonds backed by the ajustabonos, Morgan Stanley -- again through its investors -- had to commit itself to pay $1,600 a year to the Bermuda Government. From an outsider's perspective, these payments looked like kickbacks.

"Overall, its actions were barely distinguishable from those of a drug kingpin seeking an appropriate tax haven to launder money. Morgan Stanley was taking precisely the same steps that drug dealers took to evade American regulators.

"Once the Bermuda regulatory details were under control, Morgan Stanley would need to arrange with at least one of the US rating agencies to receive an investment grade rating of AA-minus for the new Bermuda company's bonds.'' The book said the rating was obtained through Standard & Poor's and Morgan Stanley eventually sold $1 billion worth of PLUS Notes to mutual funds and insurance companies and investors lost their money when the Mexican peso collapsed on Tuesday December 20 1994.

Mr. Partnoy writes: "Looking back, I believe derivatives are the most recent example of a basic theme in the history of finance: Wall Street bilks Main Street. Since the introduction of money thousands of years ago, financial intermediaries with more information have been taking advantage of lenders and borrowers with less. Bankers have a knack for surviving century after century of scandal, and there is no evidence of their profession disappearing any time soon. If anything, the financial services industry is flourishing and is seeking more victims, more blood.'' KEY EXTRACTS `Bermuda was known as a haven for all kinds of dysfunctional financial behaviour and money laundering, first by drug dealers, then by the Mafia, and last by investment banks.' `Morgan Stanley was behaving like the mob. It hired several politically connected Bermuda lawyers to incorporate a special Bermuda company and provide crucial political contacts.' Malcolm Williams Grant Gibbons BOOKS BKS GOVERNMENT GVT