Financial transactions with offshore banks in Antigua and Barbuda should be carefully monitored for money laundering, the U.S. government said Wednesday.

Treasury Under Secretary James E. Johnson said the tiny Caribbean nation is in danger of becoming a money laundering "haven" after gutting its anti- money laundering law in November. The country has just 64,000 citizens but about 50 offshore banks.

"Banks, in fulfilling their obligations to report suspicious transactions ... should give enhanced scrutiny to transactions that are going into and out of Antigua and Barbuda," Mr. Johnson said in a conference call with reporters. To reinforce the point, Treasury's Financial Crimes Enforcement Network is sending a special advisory to all U.S. banks, thrifts, and credit unions.

Diplomatic efforts to convince Antigua to reinstate its anti-money laundering laws have failed, Mr. Johnson said. The only other time Fincen issued a countrywide advisory was in 1996, when it issued warnings against Seychelles, a cluster of islands in the western Indian Ocean.

Mr. Johnson said the November amendments to Antigua's money laundering law reduced the country's authority to participate in international law enforcement efforts, expanded secrecy protections on its offshore bank accounts, and let suspicious activity reports be circulated widely within affected institutions, a move that could foil enforcement efforts.

Colin Murdoch, Antigua's secretary for foreign affairs, said the country's prime minister was expected to issue a response by day's end. He declined to comment further.

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