Peter Schiff, the libertarian economist and money manager who has been battling banking regulators in Puerto Rico, said Tuesday that he had reached an agreement to liquidate his troubled bank.
Mr. Schiff, 59, owns Euro Pacific Bank, an online boutique bank based in San Juan. In 2020, Euro Pacific found itself at the center of an international investigation into whether it had done due diligence on its account holders. An international group of tax authorities known as J5, which included the Internal Revenue Service, investigated whether the bank had served as a vehicle for suspected tax evasion and money laundering.
In late June, banking regulators in Puerto Rico suspended Euro Pacific, citing “serious insolvency” issues. In a deal reached Tuesday, Schiff agreed to return $66.7 million in deposits, using several million in gold to cover any cash shortfalls. He also agreed to pay $300,000 in penalties, according to a copy of the agreement.
A spokesman for Puerto Rico’s banking commissioner declined to comment, saying the agency would issue a statement in the coming days.
The bank had about 8,000 depositors and $140 million in deposits until The New York Times, working with Australian news agencies, reported on the investigation, known as Operation Atlantis. Schiff said the bank had approved less than half of the applicants and closed more than 5,000 accounts due to compliance issues and red flags. He also said media coverage made it impossible for Euro Pacific to do business, as companies like American Express refused to work with the bank. A libel suit is pending in Australia.
“There was no way those allegations were true, but once those stories broke, the bank’s business imploded,” Schiff said in an interview.
He insisted that the bank’s compliance against suspected money laundering was so strict that it turned down more accounts than it opened. “We were closing accounts all the time,” she said.
He acknowledged that two years ago the bank had a deficit of about $4 million because, he said, it had inadvertently been using customer deposits for operating expenses. He said that he had remedied the problem by investing $7 million of his own money in the bank.
“I have invested $10 million in this bank,” he said. “I’m losing everything.”
But in Mr. Schiff’s mind, the deal is a vindication of sorts, because he was not charged with money laundering or any of the other charges swirling around the news of Operation Atlantis.
His attorney, Lanny Davis, said Schiff had not been notified that he was a subject or target of a federal investigation.
Justin Cole, a spokesman for the IRS criminal investigations division, said it became clear during the investigation that the “most appropriate action” was to deregister Mr. Schiff’s bank.
Mr. Schiff had tried to sell the bank, but banking regulators in Puerto Rico did not allow the sale.
Mr. Schiff, who worked as an economic adviser to former Texas Representative Ron Paul and once ran for the US Senate, gained fame for predicting the 2008 financial crash, earning him the name “ dr Condemn.”
Mr. Schiff has a known aversion to paying taxes and lives in Puerto Rico, where many wealthy Americans benefit from special tax incentives known as Law 60.
“The federal government has never been happy with this Act 60 regime, where as they see it, tax dodgers leave the US and don’t pay their fair share in the US,” he said. Miguel A. Soto-Class, president of the Center for a New Economy, a think tank in Puerto Rico. “They have never liked it, so now banking regulators in Puerto Rico are getting a lot of questions from federal regulators about these foreign banks operating in Puerto Rico.
“They have eyes on the situation here.”