McGuinness's tie to arrested activist shown

Footage of Sinn Fein's chief negotiator, Martin McGuinness, speaking to Tom Hanlon, a republican activist who has been questioned by police who are investigating a huge IRA money-laundering scam, was broadcast last night.

Mr Hanlon was released by police in the Republic after being arrested as part of the extensive operation in which more than £2m has been recovered in Co Cork.

Although Mr McGuinness said that he did not know Mr Hanlon, the footage showed the two men chatting during a 2002 election count, when Mr Hanlon stood for the Irish parliament.

The broadcast was one in a series of extraordinary twists in an episode that has placed Sinn Fein and the IRA under mounting pressure.

In another development, money suspected of having been stolen during December's £26m Northern Bank robbery in Belfast turned up at a police sports complex in the city. Police immediately described it as "an effort to distract police investigating the robbery and to divert attention away from events elsewhere".

In Co Cork, a man was arrested after reports that he had been seen burning banknotes in his backyard. Ammunition was also said to have been found.

Meanwhile, a senior advisor to the Taoiseach, Bertie Ahern, stepped down from two important positions as police moved in on a company he joined last year. Phil Flynn, a one-time Sinn Fein vice-president who is now a substantial and respected business figure, resigned as head of a government decentralisation committee and as head of the Bank of Scotland's Irish division.

He said: "I have no involvement with money-laundering, full stop - for the republican movement or anybody else. The sensible thing is to step aside. This will sort itself out and when it does you'll see me back."

Earlier, Don Bullman, 30, from Wilton in Cork, was charged with Real IRA membership. A Dublin court hearing was told that, on the back seat of a car, police had found €94,000 (£64,000). The court heard that the cash had been concealed in a box of Daz washing powder.

The Irish Justice Minister, Michael McDowell, accused the republican movement of being a "colossal crime machine" laundering huge amounts of money. He declared: "The mask has slipped - the balaclava has been pulled off their heads."

Police on both sides of the border are co-operating on the question of whether the money found includes any of the £26m stolen from the Northern Bank last year. The IRA and Sinn Fein deny republican involvement in the robbery but both the Irish and British governments say the IRA did it. Irish police are examining Northern Bank notes worth £60,000 that were recovered in Co Cork.

Detailed searches continued in several parts of the Republic, at the homes of known republicans and at the offices of financial firms. In Londonderry, meanwhile, a policeman was struck by a stone and concussed during searches of republican homes.

Police confirmed that a Cork businessman had gone to a police station and handed in a bag containing £175,000 which he said he had been asked to keep.

The Sinn Fein president Gerry Adams, who interrupted a visit to Spain, said people should not rush to blame republicans. He added: "I would urge people to be very measured. They should not make knee-jerk judgements or try to beat up on Sinn Fein."

The Garda Commissioner, Noel Conroy, said some of the seven people originally arrested were believed to have "subversive" connections.