The Government is coming under increasing pressure to close down the thousands of non-resident companies suspected of criminal links in order to protect the reputation of Ireland's financial services sector.

The Financial Services Industry Association, which represents the major Irish and international banks based in the Irish economy, said it has repeatedly urged the current Government and previous administrations to take whatever steps it believes are necessary to stamp out the fraudulent use of these companies.

FSIA director Mr Turlough Denihan said the association has never made any secret of its opposition to the presence of non-resident companies here. "We have repeatedly suggested that these companies should be closed down as soon as possible. We would like to see the matter finally clarified before it tarnishes the good reputation of the financial services industry in Ireland," he said.

Up to 40,000 of these firms are currently registered in Ireland and, because they are non-resident, are not obliged to pay tax to the Irish Revenue Commissioners. While many have been set up for legitimate purposes, a growing number are being used by foreign investors, primarily from Russia and eastern Europe, to shelter money from their own tax authorities.

In some cases, these companies are set up to appear as if they operate as part of Dublin's International Financial Services Centre, but in fact, by their non-resident status, they by-pass the stringent regulations applied to companies operating there.

FSIA members have indicated their growing frustration at the Government's inability to resolve this issue, particularly as it is generating very negative publicity internationally for the centre.

The Government is understood to favour a solution that would allow the continuation of such a company structure, which is widely used for future tax planning by multinational firms based here, but would guard against fraud.

Of the 40,000 offshore companies registered here, industry sources believe that up to 2,000 are operated by Irish-based multinational firms which use this structure to reduce their tax liabilities in the US. A number of Irish companies are also believed to avail of this facility, again as part of their tax planning strategy. A spokesman for IDA Ireland has stated that it is a much broader issue that affects companies other than the multinational sector. "The matter needs to be resolved and in a way that businesses can undertake tax planning in a clear and transparent way."

A working group, established by the Office of the Taoiseach last summer, is the second to examine this problem. It is made up of representatives from the Departments of Finance, Enterprise, Trade and Employment, the Revenue Commissioners, IDA Ireland, the Central Bank and the financial services sector, and is examining what legislative or administrative changes may be necessary to remove these companies.

The previous committee is understood to have failed to have reached agreement on the best course of action open to the Government, with some disagreement as to whether the problem lies in either company or tax legislation.