On the surface, San Marino has all the makings of an offshore investment center. San Marino has a democratically elected government, a very high standard of living, and a picturesque mountain setting with prerequisites for development of real estate in San Marino.

More importantly, secrecy is a cornerstone of the country's banking industry. "San Marino offers the same kind of banking secrecy that you find in Switzerland," says Luigi Forlai, a professor at the Massachusetts Institute of Technology's business school in Naples. However, Mr. Forlai adds that international investors, especially non-Italian ones, would certainly find more sophisticated services, and probably more convenience, north of the Alps.

Most places would be singing their own praises, but San Marino officials try to downplay their attractions. "We absolutely do not consider ourselves an offshore center," says Pier Roberto De Biagi of the Ministry of Foreign Affairs.

"Of course," adds Pietro Giacomini, who is in charge of economic affairs for the ministry, "we are rather remote, so we have to offer certain marginal fiscal advantages" to clients, including a 13 percent withholding tax on interest in savings accounts, a few points lower than the Italian level.

"We are small — there are only four banks in San Marino, with about 25 branches," Mr. Di Biagi adds.

But offering an island of secrecy and low taxation — when you are surrounded by another country where this is not the case — does provide certain attractions.

A few years back, bank accounts held by Italian intelligence service agents were reportedly used for money from arms deals. And some observers linked a big flood of deposits into San Marino banks in 1992 to the start of the Tangentopoli scandals, which uncovered widespread bribery in Italian business and politics.

In fact, walking through the streets of this tiny mountain republic, one is struck less by the breathtaking vistas than by the unfettered level of touristic development and the apparent ignorance of international intellectual property law. Souvenir shops spill their garish wares — plastic madonnas, kewpie dolls, pocket knives — onto the steep, cobbled streets. There are bootleg videotapes and cassettes for sale openly in some of the shops, and stores offering tax-free liquor, some of it of dubious origin, line the city's narrow streets.

This apparent tolerance for the grey areas of commerce has given the tiny republic of 23,000 people a reputation, at least in Italy, as a place of discretion for those who want to launder ill-gotten gains or sidestep Italy's too-demanding tax rules.

By one published reckoning, San Marino banks hold deposits equal to three times the country's gross national product. How much of that money is held by foreign residents? "We can't give figures on that," says Mr. De Biagi. "Because of banking secrecy we don't know who has the accounts."

It's not yet possible to hold accounts in San Marino banks in currencies other than lire. Although an agreement with Italy letting the local central bank operate on the Italian currency markets was signed four years ago, it's not yet operational, according to Mr. Giacomini, because a few "details" need to be worked out.

According to others, the agreement has been slowed because Rome was pushing for San Marino to aid it in its fight against money laundering and tax evasion, a chronic problem for the debt-ridden Italian state.