Ever since the Money Laundering Regulations 2007 became law last December, regulated business such as law firms, financial services and tax advisers have been working to put their compliance houses in order. By now, one would expect these firms to have put in place robust processes and procedures to ensure that they are fully compliant.

These regulations may only be UK law, but their impact is likely to be felt widely. Law firms with clients involved (either directly or indirectly) in businesses or individuals registered in offshore markets have a particular vantage point from which to observe the effect the new laws will have on the small economies of places such as Bermuda, Jersey, Guernsey and the Isle of Man.

It is generally accepted that the secrecy surrounding business entities registered in tax havens around the world works against efforts to combat money laundering. However, I would argue that the opposite is becoming increasingly true: anti-money laundering (AML) laws will, over the coming years, diminish the secrecy in these territories to the detriment of criminal activity such as the financing of terrorists, money laundering, and other fraud. The owners of legitimate companies need not be concerned.

The Money Laundering Regulations 2007 differ from their previous iterations in 2001 and 2003 by being less prescriptive and more risk-based. In other words, they permit 'simplified customer due diligence procedures' in low risk activities, while requiring 'enhanced customer due diligence and on-going monitoring' in higher risk areas of activity. For example, the regulations impose stricter requirements than ever before for identifying the true beneficial owner(s) of trusts and company shares.

Ultimately, it is up to the individual law firm to interpret the legislation before putting in place its own procedures for taking on new customers. These should include details of how to identify the business or individual; how to confirm the identity of a business or individual; similar checks for any beneficial owners and those with a controlling interest in a business; and how to carry out checks against relevant sanctions lists.

A large number of law firms will have enlisted the help of online electronic databases for carrying out this customer due diligence. However, regardless of what method is eventually chosen, the process of accessing the necessary information about business entities registered in offshore jurisdictions, to undertake risk assessments and third-party checks, is a key challenge for law firms as, indeed, it is for any regulated businesses.

Perhaps the biggest obstacle to checking and verifying the identity of a business entity registered offshore is the lack of reliable and up-to-date registries. The UK has Companies House, one of the most advanced registries in the world. It maintains and provides names and addresses for all UK companies, in its own words "helping business, informing the public and benefiting the economy".

However, the approach to business filings varies widely from jurisdiction to jurisdiction. It may come as a surprise to learn that in the US there is no equivalent to Companies House. Instead, US companies make the necessary declarations (filings) at stock exchanges only if they are publicly listed. Consequently, there are only about 175,000 company filings in the US, out of more than 20 million businesses. This situation has led to the commercial agency Dun & Bradstreet (D&B) being used as the de facto central registry in the US.

D&B's position is such that the US Government will only do business with companies that possess a D&B D-U-N-S Number (the unique nine-digit identifying number given to all 120 million companies on D&B's worldwide database).

Developments in technology, including the internet, mean data is more widely available to businesses and the public than ever before. AML compliance places a premium on accurate data.

German secret investigators were recently prepared to pay this premium in order to access data on account holders at Liechtenstein Global Trust banking group, partly owned by Liechtenstein's royal family. In what has turned out to be Germany's largest fraud scandal in living memory, Berlin revealed last month that the German secret service reportedly paid an informant between €4m (£3.06m) and €5m (£3.8m) for a DVD of 'secret' data listing details of hundreds of Germans who had set up accounts with the bank. The German finance minister Peer Steinbrueck has used the Liechtenstein tax evasion scandal to show how tough he intends to be on any European tax havens that fail to cooperate in the fight against tax fraud. This is a challenge to banking secrecy, not only in Liechtenstein but also in Switzerland, Luxembourg and Austria.

It is this secrecy that makes it difficult for any organisation, credit reference agencies included, to obtain data on registered companies in those territories. For these offshore economies it is less of a priority to maintain up-to-date registries than it is to maintain levels of privacy N one of the two factors (alongside tax benefits) that drive people to register themselves or their companies offshore in the first place. So small is the incentive to modernise that many of these offshore registries still have paper filings and regularly cite the cost of updating these systems as their biggest barrier. How long will they be able to hold up their tiny size as a flag of convenience when the costs of technology, web publishing and xml feeds are now so small?

This paucity of company filings makes life (or at least compliance) very difficult for any regulated business in the UK wishing to do business N indirectly or directly N with an individual or business that is registered offshore. If UK law firms or other regulated businesses cannot satisfy themselves that they have properly identified their clients in tax havens, as well as all beneficial owners (defined as owning 25% or more of the business), and all individuals with a controlling interest, they may be unable to do business with them.

However, a firm that is registered offshore will encounter the same burdensome identity-checking requirements when it tries to deal with a UK registered business.

The new legislation will clearly force a greater openness onto offshore jurisdictions, and it is welcome news to hear reports that Guernsey is moving to implement a new technical solution for the filing of its company information.

Whether or not Guernsey's actions will set a precedent, the new legislation will undoubtedly force a greater openness onto offshore jurisdictions. It is then only a small leap in logic to assume that the disappearance of one of the key advantages (i.e. privacy) of having a businesses regulated offshore will impact on the numbers of people moving their businesses and money offshore.

AML regulations will only proliferate and grow in strength. Other European Union countries such as Italy and Denmark have followed the UK's lead in implementing the third money laundering directive; some, including the Republic of Ireland and France, are yet to put it into law. While the tax leniency that is one of the defining characteristics of offshore markets will certainly be allowed to continue, the procedures required by new AML legislation will mean that current levels of secrecy may not be sustainable.

Information -which is, after all, the antithesis of secrecy -allows businesses to grow globally, helping quantify the risk of doing business with particular companies. It is difficult to conduct business with individuals registered in tax havens. The solution – and the certain outcome of new AML legislation – is for tax havens to make their data more accessible. From the perspective of the offshore economies, all they then need to do in order to redress any potential loss of business that results from this loss of privacy is to either reduce their administrative costs or to provide incentives to legitimate businesses and individuals in the form of – and why not – an even more favourable tax regime.

Malcolm Parker is international programme director for D&B UK and Ireland.