Chairman of the Revenue Commissioners Mr Frank Daly has warned that Bank of Ireland and other Irish financial institutions could face penalties if they are found to have aided customers to evade tax through offshore investments.

The Revenue said yesterday it was stepping up efforts to catch individuals who have hidden funds and income in offshore locations such as the Channel Islands and has said they will be caught.

Mr Daly said the Revenue was examining information related to one Irish financial institutions with an office in the Isle of Man which was released on foot of a High Court order. "We are concentrating on Bank of Ireland in Jersey at the moment and on one or two other areas and are in the process of starting discussions with other banks."

It began an investigation into funds held in trusts by Bank of Ireland customers in Jersey this month. In the last three weeks 281 Irish people came forward voluntarily to the Revenue Commissioners to own up to having evaded taxes through offshore investments. Some 254 of these were Bank of Ireland customers and a small number of these individuals have lodged €8 million with the Revenue as a payment on account in a bid to reduce the amount of interest they will eventually have to pay on those monies.

Mr Daly refused to speculate on the amount of money it would eventually collect from this investigation other than to say that he believed it would be substantial.

The affair may yet also prove expensive for Bank of Ireland if the Revenue established that it facilitated tax evasion for these customers. "The bank had a responsibility in relation to making a disclosure to the Revenue. If someone is found guilty of tax evasion and they were shown to have been aided and abetted we would have to find out who did that." He added that this investigation was still at a very early stage.

A spokesman for Bank of Ireland said it had not made a provision for any financial penalty and said it agreed with the Revenue chairman that anyone who aided tax evasion should face the consequences. "Individuals opening these accounts are obliged to disclose them to the Revenue Commissioners in their annual tax returns," he said.

The Revenue has the power to make what it described as a "John Doe" application to the High Court seeking access to bank records once it can prove that it believes certain of its customers are evading taxes.

Commissioner Mr Michael O'Grady explained that the Revenue could make such an order by identifying a "class of person who may be evading tax offshore" rather than specific individuals and that this had proved a very fruitful way of collecting information.

Presenting its annual report yesterday, Mr Daly said people were wrong to think their concealment would not be discovered. "Our new powers are increasingly extending their reach offshore, and money-laundering legislation and co-operation between tax jurisdictions are proving to be very effective in identifying offshore evasion."

Within the next two years he is confident the Revenue will know about any money deposited by Irish citizens in almost any part of the world.

In 2002 the Revenue collected €29 billion in taxes and duties for the State. Some €700 million came from special investigations such as those into bogus non resident accounts, Ansbacher and National Irish Bank's unauthorised sale of offshore investments.

The Revenue has collected €634 million from from its investigation into bogus non resident accounts. A further 40,000 of these accounts have been identified and the Revenue will be contacting individuals associated with them over the coming months. Mr Daly has said he expects all of these account holders will have been contacted by the end of the year.

The inquiry into the Ansbacher Deposits is continuing. So far just 11 of the 289 cases have been settled and the Revenue has received €23.6 million in payments from 73 cases.

Mr Daly is hopeful that it will be able to make a breakthrough in a lot of these cases next year and it is preparing assessments of the amount of money it believes certain of these individuals now owe.