Residents of the tiny Channel Island of Sark stumbled upon a lucrative line of business many years ago. The activities of many of the 550 islanders, who make themselves available to act as company directors for an annual fee, is known as the "Sark Lark". By becoming nominee directors of internationally registered companies, they effectively put themselves forward to disguise the true identity of the beneficial owners of the companies involved.

In the past, visitors to the island were met off the ferry by locals volunteering themselves as potential directors. Relationships are now forged in a more discreet fashion but the "Sark Lark" remains a money spinner for the community.

Up to 25 Sark residents are directors of thousands of Irish registered companies and attention here has been directed at them as part of the wider focus on the activities of non-resident companies registered in Ireland.

Some 40,000 such companies are believed to have been formed here. Many have legitimate purposes, but others have been set up to facilitate money laundering activities and widescale tax evasion by investors in Russia and Eastern Europe anxious to shelter money from their own authorities.

Mr James Brannam, chairman of the Sark Association of Corporate Administrators which has 25 full and 22 associate members, says about half of them have a business association with Irish registered non-resident companies. They also hold similar directorships in companies registered throughout the Channel and Caribbean islands.

The association, he says, is a professional body that has adopted a code of conduct for its members. It also organises training courses for members.

Mr Brannam says at any one time, he is a director of around 100 Irish registered companies, most of which have been purchased from company formation specialists and accountancy firms operating in Ireland.

He insists his association's members only accept new business from established intermediaries - such as a bank or accountancy firm - and do not undertake directorship roles for dubious individuals. "We expect the intermediary to tell us what the companies are being set up to do."

In most cases, the individual setting up the company is already a client of a bank.

Mr Brannam says once the financial intermediary can vouch for the company's beneficiaries and its proposed activities, the Sark group of directors will continue with their role in that company.

"We don't accept business off the street. We would make enquiries with our advisers about who was behind the company. We don't have a public office where we deal with walk-in clients," Mr Brannam says.

Generally, the association's members are involved with two types of companies, listed as directors of either holding or trading firms, he says.

"Holding companies tend to have the shortest life span. These are often used by individuals to purchase an asset, for example. They later sell it on, make a profit, and wind up the company. Holding companies typically have a duration of between one and three years," he says.

Companies set up for trading purposes, have a longer duration, generally existing for anything between three and five years, Mr Brannam says. In many cases, these companies will be restructured after that period and start trading again under another name, but often with the same directors.

Acting as professional directors for thousands of clients is a highly profitable industry for Sark residents. Mr Brannam estimates the average resident involved in the island's "financial industry" earns between £20,000 and £40,000 sterling a year in fees. "A couple would earn £100,000 a year, but nobody would make more than this." He points out that such earnings are relatively modest by financial services sector standards.

One of Sark's most appointed directors is Mr Phillip Croshaw. He is a director of hundreds of Irish registered companies. When The Irish Times requested information on his directorships from the Companies Registration Office in Dublin, the document ran to 10 pages.

The names of many of the companies he is involved with suggest they are financial services-type businesses, operating as part of Dublin's International Financial Services Centre, where companies are regulated by the Central Bank.

Some are reinsurance companies, none of which have applied for a license to operate such a business from Ireland and are not regulated here. Two such companies in which he holds a directorship are Central European Transit Reinsurances and Metropolitian Reinsurance.

The surge in the number of companies which may appear to be linked to the flagship IFSC poses the greatest problem for the Government amid fears that they could tarnish the reputation of the centre overseas.

Mr Croshaw shares an office on Sark with business consultant, Mr James Grassick, who is also a director of Central European Transit Reinsurances. Mr Croshaw's former wife, Mrs Belinda Croshaw, is a director of Metropolitan Reinsurances and hundreds of other Irish companies.

Mr Croshaw refused to discuss his Irish directorships with The Irish Times during a visit to his office at "Vine Cottage", a small building which sits close to the ferry port beside the main tea shop and a small branch of the Midland Bank.

He insisted that while he didn't want to appear to be rude he had nothing to say on the subject.

Mr Crowshaw is currently at the centre of British High Court action taken by the Department of Trade and Industry, (DTI). The DTI is seeking his disqualification as a director following the collapse of a Manchesterbased firm, Oldham Vehicle Contracts. The DTI alleges Mr Croshaw, though registered as a director of OVC, acted as a front for the real director, who was disqualified.

The case was adjourned last week and is due to be heard again in August. If the DTI is successful, Mr Croshaw will be forced to resign at least 2,041 British company directorships. The DTI may then consider disqualification proceedings against other Sark directors, where companies become insolvent while they are members of the board of directors.

Mr Brannam says while Mr Croshaw is a full-time resident of Sark, he is not a member of his association. "He is not a member and has never applied to be. Nobody operating from that particular office is a member."

He also states he has never been approached to become involved with a financial services-type company in Ireland. When asked how he became involved with Irish registered companies, Mr Brannam says he was invited to become a director by intermediaries. Refusing to be more specific, he notes he is aware of two Irish company formation agents, one in Dublin and one in Cork.

He is also well briefed about proposed changes to Irish company law designed to weed out the undesirable element of the 40,000 or so non-resident companies now registered in the Republic. Mr Brannam says he received details of the proposed amendments from Irish-based accountants and solicitors associated with companies he is involved with.

The Government is examining changes to the Republic's tax and money laundering provisions while trying to ensure that companies which legitimately use the non-resident company structure, such as Irish-based multinational corporations, will continue to enjoy their current tax advantages.

The issue is being examined by a working group, made up of representatives of the Revenue Commissioners, the Department of Enterprise, Trade and Employment, the Central Bank, IDA Ireland and the financial services sector. They have now issued their recommendations.

It has been suggested the Government should consider following the actions of the British government which in 1988 brought all non-resident British companies into the tax net.

"If the Irish Government decides to implement such a structure, a number of Sark directors would vanish virtually overnight," says Mr Brannam.

He maintains the Government should refrain from taking a "sledgehammer" to crack this particular nut, suggesting it should simply require companies registering in Ireland to disclose the identity of the beneficial owners.

But, even if the Government effectively outlawed non-resident company structure, it would not necessarily be bad news for Sark's professional directors' club.

"The business would just move to another jurisdiction. The biggest impact would be felt by Irish company formation agents and accountancy firms who provide registered offices for these companies and company secretary functions."

The thriving directorship business on Sark has long been a major concern for the regulatory authorities in Guernsey. Those involved in the financial sector there believe the practice is doing a major disservice to the entire Channel Islands offshore business.

Mr Peter Crook, director general of the Financial Services Commission on Guernsey, has control over banking, insurance and investment activity on Sark but has no control over company law on the island.

Speaking to The Irish Times, he stressed that Guernsey had recently introduced new legislation to stop company directors using Sark as an address and hoped it may soon be able to make further changes to curtail the use of Sark directors. Mr Crook says it is very difficult to prevent individuals in any jurisdiction from taking up directorships. "The use of the same directors in hundreds of companies could happen anywhere. How many people in Dublin are directors of thousands of companies around the world? The fact that it operates as a business in Sark is the problem."

Commenting on the Irish concerns he says the Financial Services Commission would try to help the Irish authorities in any way to tackle the more dubious companies. To date, the Commission has not received any requests for assistance or complaints from Irish regulatory bodies, he says.