allegedly the proceeds of criminal activity, according to the Federal Bureau of Investigation in the United States.

The FBI suspects the Bank was innocently caught up in an alleged money laundering attempt by American businessman Craig McFarland.

McFarland, 54, was arrested earlier this week in Monaco after disappearing more than a year ago.

He is suspected of defrauding several Northern California banks out of more than $12 million.

Much of the money was funneled from the US to the Bank of Bermuda and banks in Europe, said the FBI.

Special Agent Mr. Rick Smith said "millions of dollars'' were wire transferred to Bermuda in the spring of 1992 from an account at Bankers Trust in New York.

"We have an affidavit stating that, on April 17, 1992, over $1.8 million was transferred from the Bank of Bermuda to Lloyd's Bank in London,'' said Mr.

Smith.

"Money was then transferred to a branch of Lloyd's in the Channel Islands, which is where we believe the alleged laundering was carried out.'' He added: "The Bank of Bermuda seems to have been an intermediary repository for the money. It was not used to actually launder the money.'' McFarland managed to convince several banks to unwittingly extend him lines of credit by showing them allegedly false documents about the source of the money, said Mr. Smith.

"He was able to convince people he had credibility when, in fact, he had none,'' he said. "It is believed McFarland transferred about $6 million to overseas accounts before he failed in an attempt to hide a portion of the money.'' Charges against McFarland were brought nine months ago alleging one count of bank fraud and 15 counts of false statements. Each charge is punishable by 30 years in prison and a $1 million fine.

The FBI said it would be making an attempt to extradite McFarland from Monaco, a principality in the south of France, where he is being held by Police.

McFarland was arrested following an international Police effort involving forces from several countries, said Mr. Smith.

Bank of Bermuda executive vice president (international) Mr. Charles Vaughan-Johnson said he could not comment on the story.

"We never discuss our customers,'' he said.