Eugene McErlean, AIB's former chief internal auditor turned whistle-blower, has been approached to give evidence against the bank by Bank of America (BofA) defending a $480m lawsuit involving the John Rusnak rogue trading losses.

Legal sources in New York and Dublin say that McErlean, who worked as AIB's most senior internal watchdog before his controversial departure in 2002, was approached in recent weeks by a law firm in Dublin working for Bank of America (BofA).

McErlean is now expected to become a 'star witness' in the case which is the biggest litigation involving AIB.

BofA and Citibank are defending AIB claims that they knew about and helped Rusnak conceal his losses for a number of years. AIB is suing the banks for $480m of the $691m Rusnak lost in huge foreign exchange bets he took while working at Allfirst, the Baltimore bank that AIB formerly owned outright.

The approach to McErlean, a former AIB employee, by one of the banks defending the huge lawsuit is a significant development. It comes as documents from the Manhattan court room show the case this summer generated a flurry of legal activity on both sides of the Atlantic. It is believed that the lawsuit is heading for a full trial or a late-hour settlement.

Separately, speculation continues to grow in New York that Rusnak, who was released from prison in January, will be requested to give evidence in the case. In 2006, Judge Deborah Batts of the Southern District New York Court ruled that BofA and Citibank had a case to answer. But a year later the US banks won a significant victory when Judge Gabriel Gorenstein allowed the banks full discovery of thousands of emails, documents and telephone transcripts that AIB staff, its auditor at the time PwC, and law firm Wachtell Lipton Rosen and Katz assembled for AIB's internal investigations into Rusnak. The PwC report commissioned by the AIB board was never published.

Contacted this weekend, McErlean, a corporate lawyer by training, said he would "neither confirm nor deny" he had been approached by BofA.

AIB erroneously linked McErlean to the Rusnak scandal when it announced his departure in a press release on the same day the bank published its 62-page investigation, the so-called Ludwig report, into the trading scandal.

It was well known inside the bank that successive internal auditors at AIB in Dublin were barred from properly supervising its US unit, and the Ludwig report acknowledged slack controls over Rusnak by Allfirst staff.

Asked about its approach to McErlean, a BofA spokeswoman in New York said that that "it was not something we would comment on". A spokesman for Citibank in London said it would not comment on the case and an AIB spokesman said the bank would not comment because of the ongoing litigation.