The FBI and Bermuda Police were called in to probe fears that terrorist cash was being laundered through a Caribbean bank.

Two Bermudian executives at Swiss American Bank and an Island accountant feared IRA (Irish Republican Army) cash was being laundered through the bank and called in the FBI and the Bermuda Police Special Branch to investigate.

They and other executives at Swiss American feared the Irish terrorists would take revenge if the funds were not returned, according to a Bermuda Police Special Branch report completed in 1989 and obtained by The Royal Gazette .

The report states: "After a number of meetings between the directors and accountants it was decided to alert the Police. There was unanimous agreement that the money was the proceeds of crime and a fear that when it became known that the funds would not be returned, the IRA would take revenge.'' Company officials also found that $7 million was being laundered through the bank. The man behind the money laundering was Joseph Paul Murray, an infamous mobster from Boston who was at the time serving ten years for his part in organising the sale of arms to the IRA.

A web of accounts at Swiss American, which is based in Antigua, was used to launder the money and included one held by Murray's wife Suzanne Jay Murray, who was said to be using the name Susan Jay Reinberg. In September 1984 the American registered trawler Valhalla crossed the Atlantic and transferred weapons to an Irish ship that was later detained by Security Forces. The Valhalla returned to Boston and was detained. Murray and two other men were convicted and jailed. One of the men involved, John McIntyre, disappeared and is believed to have been killed by the IRA. Murray and others also pleaded guilty to importing about 30 tons of cannabis to the USA using a trawler carrying the drug buried beneath gravel and steel plates.

The Special Branch report said: "The directors also believed that Murray was storing the profits from his IRA gun-running and possibly other IRA funds as well. Special Branch/FBI believe the funds to be proceeds of crime until other evidence surfaces.'' The Royal Gazette obtained a copy of the Special Branch report after sections of it appeared in a US Senate report into money laundering last week.

This Senate report alleged that the general manager of Swiss American, Peter Herrington, worked with a money launderer for the mob named John Fitzgerald.

Fitzgerald was later convicted of money laundering and racketeering in the US.

And it alleged that much of the $7 million went through the Bank of Bermuda and that Herrington used "influence'' to get the Bermuda bank to accept bundles of cash belonging to criminals.

The two Bermudians are believed to have been brought into Swiss American as part of an investigation into Herrington by financier Bruce Rappaport, who at one time was a Bermuda resident and owns Swiss American Bank. The report states their attention was drawn to a deposit of $7 million in the name of Guardian Bank of Anguila. Accountants Coopers & Lybrand in Bermuda were brought in to look at Swiss American's books and the report stated: "A number of major problems were highlighted.'' These included missing documents, Mr.

Herrington being the sole signatory to accounts, strange book entries which "indicated account skimming at the very least'', unknown sources of accounts, and suspicious loans.

Mr. Herrington was formerly employed as a senior legal counsel at the Bank of Bermuda, where he worked from 1979 to 1985, when he left to work at Swiss American Bank as General Manager. His current whereabouts are unknown.