The Cayman Islands are in turmoil over the revelation that their head of financial regulatory affairs was selling banking secrets to British intelligence. Colm Keena reports.

Banking secrets from the supposedly highly secretive Cayman Islands financial sector were being sent to a British intelligence agency, believed to be MI6, by the head of the islands' Financial Reporting Unit (FRU).

The head of the unit, the main regulatory authority for the islands, was a former British policemen, Det Insp Brian Gibbs, who moved to the islands to work as a policeman there and was subsequently appointed director of the FRU, despite having none of the usual qualifications one would expect for someone in such a position.

Mr Gibbs, according to a ruling by the Cayman Chief Justice, Mr Anthony Smellie, had a relationship with a British "agency" since 1990. Mr Justice Smellie said the nature of this relationship was known to successive governors, attorneys general and commissioners of police during the period, but was not known to the members of the local council.

The fact of the relationship emerged during a money laundering trial involving a Cayman bank, Eurobank.

The trial collapsed when it emerged that Mr Gibbs had a relationship with an unnamed assistant manager at the bank and that information supplied by this person to Mr Gibbs was being supplied to the British intelligence agency.

Mr Gibbs was found to have destroyed evidence which had been in his possession and which was relevant to the trial.

According to the Miami-based Offshore Business News and Research, Mr Gibbs conveyed banking and other secrets concerning Cayman clients to MI6. He was paid a monthly fee for his service.

The revelation raises the possibility that the financial secrets of the former Taoiseach, Mr Charles Haughey, could be known to British intelligence. Mr Haughey has had a secret bank account held in the name of the Cayman bank Ansbacher Cayman since the 1980s.

The secret banking service now known as the Ansbacher deposits was operated since the early 1970s by Mr Haughey's close associate, the late Mr Des Traynor. It was discovered in 1997, when Mr Gibbs was head of the FRU in the Cayman Islands and was supplying confidential information to the British intelligence agency.

Following the revelations concerning Mr Gibbs, particularly the fact that the head of the agency which should be prosecuting cases of alleged money laundering had in fact destroyed evidence in relation to such a case, the islands have been thrown into political crisis.

Mr Gibbs left the islands and the governor of the Cayman Islands, Mr Bruce Dinwiddy, issued a statement on behalf of the British government. He said Mr Gibbs was no longer on the islands "because of a potential risk to his personal safety"; that Mr Gibbs had tendered his resignation "in the spirit of public service"; and that the "UK government authorities concerned acted properly" in relation to the Eurobank case.

He also said Mr Gibbs had a "long and honourable career in the public service" and deserved appreciation.

The statement led to an angry response from the leader of government business on the Cayman Islands, Mr McKeeva Bush. The Cayman Islands are a British dependent territory, with the local governor and attorney general appointed by London running the islands with a locally elected government, or council.

In his response Mr McKeeva Bush said: "The government of the Cayman Islands has an obligation to defend the integrity and the reputation of our country and the people of the Cayman Islands. Therefore, with the greatest of respect to the governor, the statement that Mr Gibb's personal safety was ever at risk in the Cayman Islands is completely untrue in addition to being unwarranted and highly irresponsible in respect of the reputation of this country."

He said his government took strong and serious objection to any statement that a person was not safe in the law-abiding Cayman Islands, "regardless" of the origin of the statement.

A British government minister has now become involved in an attempt to dampen down the row. Overseas territories minister Baroness Amos has said it was "quite untrue to suggest, as some have done, that \ agencies have been operating in the Cayman Islands with the intention of interfering with, and causing damage to, its finance industry".

The baroness also came out in support of the Cayman attorney general, Mr David Ballantyne. Five members of the eight-member executive council that runs the islands have called for the removal of Mr Ballantyne and all members of the Cayman FRU.

Baroness Amos dispatched a top civil servant from the Foreign Office to the islands to discuss the affair. She said a British agency may have helped the investigation into the alleged money-laundering operation but did not hinder it.

The Eurobank trial concerned a number of bank officials who allegedly helped a man from California launder millions of euros taken from the credit cards of people who were signed up for pornographic websites. As well as raising questions about the islands' relationship with Britain, it has also raised concerns about the quality of the islands' commitment to combat money laundering.