Recent developments at Enron and Arthur Andersen have shone an unfavourable spotlight on offshore jurisdictions such as Bermuda.

The phrase "offshore" is often used to generally refer to jurisdictions that offer tax and regulatory advantages to international business. Some overseas media outlets labour under the misconception that an exempted Bermuda company is a safe haven for tax evaders and those who wish to construct off balance sheet accounting to hide liabilities, thereby artificially inflating a company's value per share. In doing so, they have accused Bermuda of supporting and encouraging such supposedly dodgy business practices.

The reality is that Bermuda has a highly sophisticated infrastructure that is appealing to Fortune 500 companies and other international businesses because it enables them to reach their business objectives and to be competitive globally.

Incorporating in Bermuda results in having a business located in a jurisdiction that has been internationally recognised as being first class in quality of service, technical support and integrity. And, contrary to recent news reports, numerous safeguards exist to ensure that tax evaders and other undesirables do not set up business in Bermuda.

Foreign companies incorporated in Bermuda, known as exempted companies, are able to conduct business internationally, from within Bermuda. The term exempted simply means that the incorporated company is "exempt" from certain provisions in the Bermuda Companies Act ("the Act") concerning control and ownership.

An application to incorporate an exempted company can only be made when all necessary details regarding the intended business of the new company and the proposed owners (including all direct, intermediate and ultimate owners as applicable) have been provided and all necessary corporate authorisations have been confirmed.

The Bermuda Monetary Authority (BMA) is the regulatory body that vets potential owners of exempted Bermuda companies. In order to maintain Bermuda's reputation as a respectable jurisdiction, the BMA requires that a Personal Declaration Form (PD) be submitted for each proposed owner of the company.

The PD requires details of each individual intending to own greater than five percent of the company's issued and authorised share capital. When completing the PD the proposed owner is asked for their name (and any former names or aliases), spouse's name (if applicable), residential address, country of citizenship, passport number and date of issue, date of birth, place of birth, occupation and present employer. There are also questions regarding their interest in other Bermuda companies, involvement in bankruptcy proceedings, and any criminal offences involving fraud or dishonesty. Bermuda has always been proactive against money laundering with the result that our anti-money laundering legislation requires that proper verification procedures be conducted regarding the identity of all clients. In this regard, passports and drivers licences are reviewed, and in connection with a foreign company, certificates of incorporation, memoranda of association, proof of registered shares and bye-laws of the company and financial statements are examined.

The responsibility for identity verification does not simply rest with the BMA. "Knowing the Client" is also the responsibility of Bermuda Resident Representatives, Directors and Company Secretaries (collectively "service providers") who must be vigilant to ensure that questions are asked of these prospective clients. If any service provider is not satisfied with the answers received they must inform the client and refuse to act unless satisfactory answers are received. Service providers must know the nature of the company's business, when meetings are held and are entitled to receive appropriate notice of and attend such meetings. If a Bermuda parent company has another subsidiary or subsidiaries in other offshore jurisdictions, service providers of the Bermuda parent company should know the type of business being conducted by each subsidiary. Experienced service providers will "raise a red flag" in appropriate circumstances, such as when a company is established but nothing further is heard from the clients, apart from payment of the annual government fee or waiver of the annual audit of the company. As detailed above, the level of disclosure and the thorough manner in which those who do business in Bermuda are scrutinised is evidence that we are concerned and discriminating about the type of business we attract to our shores.

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Rachael M. Lathan is a Paralegal in the Company Department at Appleby Spurling & Kempe. Copies of Ms Lathan's columns can be obtained on the Appleby Spurling & Kempe web site at www.ask.bm.

This column should not be used as a substitute for professional legal advice. Before proceeding with any matters discussed here, persons are advised to consult with a lawyer.