industry could be excused for feeling a little defensive.

From the Channel Islands to the Netherland Antilles these centres, which specialise in big ticket banking and fund management services, are under increasing scrutiny from governments concerned about lost tax revenue, money laundering and fraud.

"The tolerance of the offshore activities by the governments of the major economies is at an all time low,'' KPMG partner and Gibraltar financial services development director Anthony Fisher told a conference.

"Harmful tax competition is now identified as a global issue. Europe, via Brussels, the US and the Organisation for Economic Development and Co-operation (OECD) are a powerful alliance that cannot be ignored.'' A recently published report commissioned by the British government, while praising many aspects of the regulation and financial infrastructure of the Channel Islands and Isle of Man, also made tough new recommendations for tighter controls.

Growing calls for tax harmonisation within the European Union could put new pressure on British and other European offshore centres.

France and Germany have issued a call for speedy tax harmonisation, which many believe could eventually lead to a unified withholding tax on investment income.

This would put the pinch on private banking in offshore centres, bankers said, and throw a spanner into the eurobond market beloved by that archetypal tax-evader the "Belgian dentist''.

This would cause immediate problems for Luxembourg.

"It is all politics,'' said a banker from Luxembourg who asked not to be identified. "These countries want to blame someone for their own high taxes.'' The Channel Islands, not members of the EU and with their complicated relationship with Britain would be in a less clear situation.

Past EU tax agreements have included provisions for member countries to try to persuade their dependent territories to act in a similar manner within the existing constitutional framework.

Britain has studied this issue, said Richard Pratt, Jersey's Financial Services Commission director general designate, and concluded that it would be "unprecedented'' for Britain to dictate tax policy for the islands.

The move to harmonisation is a potential threat nonetheless.

"The legislative position is not so important as the economic pressure that might well come from within the EU if they were to move along within the tax harmonisaton route,'' Pratt said.

Pressure on the world's offshore centres may also come from the OECD, which is studying tax havens and tax practices.

The get-tough attitude by international authorities was shown by an anecdote told by an offshore centre regulator about a recent meeting with U.S.

officials.

"They told me 'You guys have to decide if you are partners or pariahs','' she recounted.