Bermuda is not part of an investigation by the US Internal Revenue Service (IRS) that aims to catch thousands of US citizens taking part in a tax dodging scam through offshore jurisdictions resulting in a $70 million drain on federal revenue.

The Wall Street Journal reported last week that the IRS and the Justice Department were close to an agreement with American Express Co. to turn over records from customers who pay their bills through banks in the Bahamas, the Cayman islands and other tax havens.

A spokeswoman for MasterCard International said the company was also in negotiations with the IRS.

In an effort to ascertain whether Bermuda was included in the investigation, The Royal Gazette spoke to representatives from MasterCard International and American Express without success, but was told definitively by an IRS spokesman that Bermuda was not named in the legal proceedings.

He said the case was filed in the United States District Court of Southern Florida Miami Division and was summarised as: "In the matter of the tax liabilities of: John Does, United States taxpayers who, during the years ended December 31, 1998 and 1999, had signatory authority over American Express or Mastercard credit, charge or debit cards issued through, or for which payment was received from, banks or other financial institutions in Antigua and Barbuda, the Bahamas or the Cayman islands, or issued to persons or entities in Antigua and Barbuda, the Bahamas or the Cayman islands."

The Wall Street Journal outlined how the simple and increasingly popular tax evasion scheme worked saying: "A taxpayer hires a lawyer in an offshore tax haven to create a sham corporation to hide the taxpayer's identity. Then the corporation obtains a credit card from a local bank and opens an account there. The taxpayer puts a bunch of unreported income into the account, thereby both hiding that sum from the IRS and avoiding taxes on the interest. The card is then used for purchases, and the lawyer pays the card balance from the corporate account, or the bank simply deducts the money itself. In some cases, the cardholder never even gets a monthly bill, leaving no incriminating paper trail."

Despite Bermuda not being included in the initial investigation, the Wall Street Journal said that the IRS was likely to expand its scrutiny to additional years, other tax havens and other card companies.

The IRS spokesman did not say yesterday if Bermuda would be included in an expanded future investigation.

Offshore financial websites offering a multitude of services number in the hundreds, and with names like offshoresecrets.com, paynoincometax.com, escapeartist.com and caribbeansecrets.com, many of which offer "100 percent legal" anonymous credit or debit cards, policing this virtual financial underworld of tax evasion may prove to be almost impossible.

The special offer this week on the Offshore Secrets Network was for 'Anonymous ATM Cards'. The website also listed countries in which offshore accounts could be held in Barbados, Belize, BVI, Costa Rica, Nevis and Panama amongst others. Bermuda was not listed.

None of the websites perused yesterday by this reporter offered anonymous credit cards or similar through Bermuda, although the Island was featured prominently on many more reputable websites touting the Island as an excellent place in which to carry on business.