He hit out at Dotcom and his estranged wife Mona who testified against him, saying: "The witnesses told bare-faced lies, innuendo and half-truths in the knowledge they came to court to destroy me."
However, in his open letter, Dotcom is adamant he "never lied about our meeting at the mansion where you asked for a donation and I agreed".
"Irrespective of your claim about not asking me to do this, I am sure that most people will wonder how anyone would come to write two cheques without a request to do so, when one would be enough."
He warned Mr Banks that if he continued to claim Dotcom had lied, "my only recourse would be defamation proceedings".
Instead, Dotcom suggested they "allow the public ... to make a judgment call right now about your credibility and mine", and challenged Mr Banks to an on the record interview.
He suggested they give an independent interviewer all the relevant evidence, followed up with both of them being interviewed, either live or recorded, and that other journalists could also be present.
He ends by saying that if Mr Banks does not want to take up this offer that he may want to retract his statements. If so, Dotcom said he would "accept that, and we can move on".
"If you decline the offer to go on the record, but persist in making such statements, the public will have all they need to know who is speaking the truth," Dotcom said.
This morning, Mr Banks said he had not seen the letter from Dotcom, but said he would not be responding to the challenge to front up in an open interview.
"All I would say is the three distinguished judges from the Court of Appeal have had the last say," he said.
"Dotcom clearly hasn't learned the old adage: 'If you're explaining, you're losing'."
Mr Banks said he would not retract his comments about Dotcom despite the threat of defamation proceedings.
"He's always trying to intimidate people and I'm not worried."
Asked whether he had made up the threat that Dotcom would "destroy" him, Mr Banks referred to the evidence that Mark Mitchell, MP for Rodney, gave at the High Court trial last year.
Mr Mitchell said he was approached by Dotcom at a BBQ.
"Towards me he was quite aggressive. It didn't offend me so much but it certainly had an impact on my wife, and he stated to me comments like, 'I've got the information, I'm going to destroy John Key, I'm going to take down John Banks and I'm going to take down this National Government. I can and I will."
The parliamentary career of the former Act leader ended after he was convicted in the High Court last year for not disclosing two $25,000 donations from internet mogul Kim Dotcom to his Auckland mayoralty campaign in 2010.
The Court of Appeal then quashed the conviction after the detective work of hie wife Amanda Banks, who was stung by the trial judge's opinion of her credibility when he preferred Mona Dotcom's evidence about a lunch, which was crucial to the case.
Mrs Banks tracked down two witnesses from America who corroborated her version of events and whose evidence the three appellate justices said was "likely to have changed the outcome of the trial", if accepted.
- additional reporting: Jared Savage of the New Zealand Herald
