The BVI also happens to be the single biggest investor in Hong Kong, outstripping the mainland - its nearest rival - by HK$165 billion in 2003, says the government agency InvestHK (see table).

Capital flight investigators say a large percentage of the money washing out of the mainland illegally goes to the BVI, Bermuda and the Cayman Islands before returning via Hong Kong.

Geng Xiao, a professor at Hong Kong University's School of Economics and Finance and deputy director of the Institute for China and Global Development, has studied mainland round-tripping, as the technique is called.

He contradicts the World Bank estimates that up to 25 percent of foreign direct investment (FDI) in the mainland could be round-tripping capital. The figure is too low, he says.

``Round-tripping FDI is likely to be in the range of 30 percent to 50 percent,'' says Xiao.

``Hong Kong plays an important role in each of the three stages of [flight] capital's journey: The original creation of new capital in the PRC [People's Republic of China], the flight out of the PRC, and the round-tripping FDI back to the PRC.''

Once upon a time the Virgin Islands were home to pirates who harried Spanish galleons carrying home gold plundered from South America.

Half of the 100 or so tiny, verdant islets scattered in the Caribbean today form the American Virgin Islands; the other half make up the BVI.

It's the British half that interests today's pirates.

The British dependency has just 22,180 permanent residents. Most of tis 9,000 workers are engaged in tourism or agriculture. But there are more than 400,000 companies registered in the sleepy capital of Road Town , population 9,400, located on the sun-splashed island of Tortola.

We asked the BVI Financial Services Commission's director of the registrar of companies, Myrna Herbert, to say how many BVI companies have links with Hong Kong, but she did not respond.

But just this week, there was a development that threatens the BVI's close financial links with Hong Kong - the opening of the Cayman Islands Investment Bureau in the city.

The Caymans, which invested HK$53.1 billion in Hong Kong in 2003, aims to ``provide a one-stop shop for investors'' said InvestHK director-general of investment promotion Mike Rowse.

Hong Kong risk investigator Peter Gallo says: ``There are many legitimate reasons for the use of offshore companies, but the secrecy that makes them so popular for concealment and money-laundering purposes remains an obstacle to meaningful know-your-customer procedures.''

The elected Road Town government - presided over by a British-appointed governor - says it has cleaned up its image of money-laundering following pressure from bodies such as the International Monetary Fund.

Many companies using the BVI and similar tax havens do operate honestly - as demonstrated last month by China's second-richest businessman, Chen Tianquiao. His online game company Shanda Interactive Entertainment bought a 19.5 percent stake in Sina Corp, China's leading Internet news portal, for US$196 million (HK$1.53 billion) in a highly secret surprise shares raid which legitimately used four BVI shelf companies as cover.

However, the ease with which off-the-shelf companies can be bought there and the camouflage that can be quickly drawn over financial transactions makes the BVI attractive to the less-than-honest.

Says Gallo: ``The demand for limited companies, particularly offshore companies, has given rise to a whole industry of company incorporation agents and company secretarial firms. Many of these adopt a `no questions asked' attitude that extends to providing layers of deliberately misleading information to financial institutions.''

The BVI can provide shelf companies that were incorporated 10 or more years ago - ideally suited for fraudulent use such as backdating agreements or sales of assets.

American multimillionaire Walter Anderson went on trial in Washington earlier this month on charges that could make him the biggest tax dodger in United States legal history. He's accused of hiding up to US$450 million offshore - much of it in the BVI.

It is perhaps ironic that one of the slogans the British Virgin Islands uses to promote its other industry, tourism, is: ``The secret that has to be told.''