A trillion dollars in dirty money keeps island tax havens afloat

They have palm-fringed beaches, tiny populations, parasols, pina coladas - and more than $1 trillion in dirty money stashed away in their bank accounts every year. These are the offshore tax havens of the world, many of which come under British sovereignty.

The staggering estimate of annual profits from organised crime came from MI5's former top law official, David Bickford. Earlier this week Mr Bickford told a corruption conference in Cambridge that more than $1 trillion was "generated by organised crime and laundered through offshore centres using secrecy laws".

John Moscow, the New York attorney who played a leading role in bringing down BCCI, pointed out that with the exception of Liechtenstein and Switzerland, the other leading destinations for laundered cash were virtually all British run or controlled.

The main offshore centres for residents of the United Kingdom are Jersey, Guernsey, the Isle of Man, and Bermuda. Other tax havens include the Cayman Islands, Gibraltar and the British Virgin Islands.

Bill Tupman, director of Policy Studies at Exeter University, told the conference yesterday that the Channel Islands and the Isle of Man were foremost among the offshore centres into which drug barons, financial fraudsters and racketeers poured their profits, confident that they could not be touched. Such facilities, he said, had "no place in the contemporary Western banking system".

"To allow shady dealers to take advantage of what is essentially a medieval or colonial anomaly is either a demonstration of incompetence or shows a criminal disregard for what is really happening in the world," he said.

Of course, not all use of tax havens is linked to criminal activity. Although the cost of corporate tax avoidance in Britain is hard to pin down, it is widely accepted that tax planning costs the Treasury billions of pounds every year. Advice on tax is big business: it earned the top six accountancy firms alone fees in the region of pounds 650m last year.

However, not everyone would welcome the abolition of offshore banking. Dr Barry Rider, director of the Institute of Advanced Legal Studies, fellow of Jesus College and organiser of the conference, sounded a note of caution. "It might look hypocritical," he said, given the government's declared crackdown on the drugs trade and serious crime, "but the issue is whether we have the legal powers to do it".

John Whiting, a senior tax partner at Price Waterhouse, agreed: "There is a slight problem here. Can we really abolish other countries? ... It's not that easy. Can you really envisage a plane load of fiscal paratroopers - an excise hit squad - storming in and taking over whatever state we want to?"

A partner in one of the major accounting firms who has worked in Jersey for the past 20 years described the island as "one of the upmarket or certainly more reputable offshore centres". Even so, he added: "We are constantly on the lookout." There was, he said, a pecking order for offshore centres to which Mr Bickford should have made reference. Compared with the Caribbean, for example, the Channel Islands have a "better level of litigation and regulation", he insisted.

Outlawing certain offshore centres would simply mean that the money would be taken elsewhere. "All our clients would merely go to the Caribbean or other places," he said.

The population of tax-haven Jersey is a very exclusive one. The island has strict immigration controls and only a handful of applicants are granted permission to live there each year. That select band includes the pop star Gilbert O'Sullivan, the television interviewer Alan Whicker and Kevin Leech, founder of the drug company ML Laboratories. Three years ago leisure-barons David and Frederick Barclay bought the Channel island of Brechou for pounds 2.3m and the golfer Ian Woosnam lives in a pounds 1m mansion in Jersey.