The Ulster Unionist peer Lord Laird has accused the Taoiseach of having "betrayed his own country" by allowing Phil Flynn remain as a close adviser while knowing he was associating with senior IRA figures.
In a speech in the House of Lords on Tuesday night, he asked why the Taoiseach had brought Mr Flynn into his inner circle despite his continuing association with senior IRA men and his history of involvement with Sinn Féin at a senior level.
He detailed the discovery of a major money laundering operation in the Republic earlier this year, and the raid and seizure of cash from a company of which Mr Flynn was a director. He asked whether there had been a deal "to allow the IRA to buy their way into respectability with stolen money".
Mr Flynn last night challenged Lord Laird to repeat his allegation without the protection of parliamentary privilege. "It would be very useful, once and for all, for me to be able to deal with this if he repeated it outside the House. Then we could establish the facts. He doesn't have to establish the facts in Parliament. Outside the House he does."
He said he would not comment on the detail of what Lord Laird had said. "Otherwise I would just be giving credence to lies."
The Taoiseach's spokeswoman said that because there was a Garda investigation under way into these matters, there would be no comment at this stage.
In a speech made under parliamentary privilege - under which MPs and Lords cannot be sued for remarks made in parliament - Lord Laird said the Garda believed Mr Flynn to have been the IRA's chief finance officer in the 1970s; he was prosecuted for IRA membership in 1974; he was a senior Sinn Féin figure in the 1980s; and he continued to associate with senior IRA figures in the 1990s. Yet he was appointed by Labour finance minister Ruairí Quinn to chair ICC Bank in 1996, and he later became a senior troubleshooter and adviser for Mr Ahern.
When Bank of Scotland bought ICC from the State he became chairman of Bank of Scotland (Ireland). This had led to "the most serious breach of financial security by terrorists that has ever occurred within the UK".
He said the Taoiseach had also put Mr Flynn in charge of the Civil Service decentralisation programme, "which made available for sale hundreds of millions of pounds worth of property in Dublin, and required the purchase of tens of millions of pounds worth of property in the provinces".
Yet gardaí had seen Brian Keenan, "currently an active member of the IRA army council", staying for some time at Mr Flynn's home in Dublin. "They also observed Slab Murphy, the IRA army chief of staff, meeting Flynn on a regular basis."
He said that in 2004, Mr Flynn became a "management consultant to Sinn Féin".
"It seems to matter not that a man handling billions of pound of public money was also restructuring a criminal organisation, dedicated to the destruction of the Irish Republic and its Government."
He said the Northern Bank money "was immediately smuggled into the Irish Republic, to be cleaned in a well-established laundering operation".
The Minister for Justice Mr McDowell had then acted, he said. "In the week of February 18th, his police launched a series of raids, without Ahern's knowledge, against the money laundering 'state within a state'.
"A company of which Flynn was a director was found with £2 million in plastic bags in a wheelie bin in the managing director's garden. Men are found with tens of thousands of pounds in a car in Dublin. In Cork another man was caught burning tens of thousands of pounds, all believed to be part of the Northern Bank haul. Mr Flynn resigned all his posts."
Lord Laird said the Government had not yet given any explanation as to why Mr Flynn was on the board of government bodies "long after they knew he was back associating with his old IRA friends".
He claimed Sinn Féin "want a peace in which their gunmen rob banks and invest the proceeds with impunity. That would be a criminal peace in which their intelligence-gathering operation can continue under the brazen public cover of the Centre for Public Inquiry run by Frank Connolly, brother of one of the Colombia Three." Mr Connolly declined to comment on Lord Laird's remarks when contacted last night.
Sinn Féin Assembly member Alex Maskey accused Lord Laird of hiding "behind the farce of British parliamentary privilege".