steer clear of Bermuda because of new financial laws aimed at trapping drug dealers.

Lawyer Timothy Marshall said the proposed Proceeds of Crime Act would deter legitimate businesses from setting up on the Island.

He told the Pennsylvania Bar Association that overseas tax authorities would be able to probe Island-based bank accounts for "fishing expeditions''.

The new laws, still to be debated by MPs, would require financial industry insiders to report suspicious circumstances to Police.

But Finance Minister Grant Gibbons and Home Affairs Minister Quinton Edness said only suspected drug smugglers would have their accounts examined.

A joint statement, issued last night, said: "Investigations are permitted only in cases where offences involving drug trafficking -- not tax offences -- are suspected, and then only with the approval of the Attorney General.

"The requirement that people involved in financial operations must make a report to the Police if they suspect money is being laundered relates only to drug-trafficking offences.

"Mr. Marshall should be aware that very extensive consultation has taken place with stakeholder groups, including representatives of the international business sector.

"All are in agreement with the need for the bill and the method of its implementation.

"The bill is designed to maintain Bermuda's reputation as a respectable offshore jurisdiction, while avoiding some of the more extreme obligations which some have suggested offshore jurisdictions should undertake.'' The statement also said foreign confiscation orders would only be recognised after a criminal conviction.

But Tony Goodfellow, former President of the International Companies Division of the Chamber of Commerce, warned Government to take business concerns seriously.

He said: "The international community accepts that the bill is necessary but there has never been total agreement with the way it's been put together.

"One obviously needs to make sure that what's contained in that bill does not in any way prohibit the free flow of business into Bermuda.''