SAN JUAN, Puerto Rico (AP) — U.S. financial analyst Peter Schiff told The Associated Press on Friday that he will fight to be able to sell a bank he established in Puerto Rico even though authorities have suspended its operations as part of an investigation.
Euro Pacific International Bank obtained a license in 2017 to operate in the U.S. territory and built up some 15,000 accounts two years later, but its deposits have dropped to $150 million and it lost customers after the Joints Chief of Global Tax Enforcement — a multi-government group fighting tax crimes and money laundering — said it acted two years ago “to put a stop to the suspected facilitation of offshore tax evasion and money laundering by the bank.”
“We lost a lot of things because people were afraid,” Schiff said.
He added that while he doesn’t like anti-money-laundering rules, or regulations or taxes, he does abide by them.
“The fact that I’m so willing to publicly criticize rules, you better believe I’m doing all I can not to break them,” he said.
The so-called J5 agency, whose members are the U.S., the UK, Canada, Australia and the Netherlands, said Thursday that an investigation into the bank is still ongoing, although it declined to provide details.
Schiff said that was a lie, that the bank has never been investigated. He said agents with the Internal Revenue Service visited the bank in 2020 and told him they were investigating customers of the bank.
“Our compliance is so rigorous, and we close accounts so quickly,” he said, adding that he never took clients related to cryptocurrency, cannabis or other fields. “I did everything by the book, and it cost me a fortune.”
A spokeswoman for J5 did not return a message for comment Friday.
Schiff said he also was upset that the bank’s operations were suspended by Puerto Rico’s Office of the Commissioner of Financial Institutions, which announced the move on Thursday and accused the bank of a lack of internal controls, a lack of compliance and a level of insolvency. Officials noted it was separate from the J5 probe.
“It’s a huge shock that they’ve done this,” Schiff said of the bank’s suspended operations.
Schiff said that while he didn’t realize the bank was undercapitalized until it was audited, he stressed it was not a matter of solvency but regulatory minimum capital requirements. He said the bank always has had a positive net worth and that while there was a deficiency based on deposits, the commissioner told him not to worry because a buyer had appeared.
Schiff said a Houston-based bank wanted to buy Euro Pacific International Bank and that he submitted an application in January to start the process.
“They were going to rename it, rebrand it, so it would no longer have that stigma,” he said.
Natalia Zequeira, commissioner for Puerto Rico’s Office of the Commissioner of Financial Institutions, told The Associated Press on Friday that she doesn't understand why Schiff was surprised by the agency action since the office met with him in October and he signed a consent form to make the changes required.
She added that the bank submitted a business plan, capital plan and strategic plan that her office did not approve, and said the bank did not refile those or correct deficiencies.
“Surprises like the one Mr. Schiff had yesterday are a result of not reading the fine print of your regulator,” she said.
Zequeira said the consent order he signed required changes in management and strategy that did not happen, and that those processes are separate from a change in ownership.
“A regulator has the right to request the best of its institution, and just because you filed something doesn’t give you the right to conclude that you’re in compliance,” she said. “Regulators are not babysitters.”
The office's cease-and-desist order stated that the bank had a net loss of nearly $751,000 in 2019 and overall accumulated losses of nearly $4 million. It added that at the end of 2020, the bank had a capital of negative $1.3 million: “As such, the entity is classified as insolvent.” In the first trimester of 2022, the bank had a net loss of nearly $550,000, the order stated.
Meanwhile, Schiff said he has invested $7 million of his own money to keep the bank afloat and that all customers can get 100% of their money back.
“Right now, not a single customer is in jeopardy,” he said.
Zequeira, however, said Schiff's personal money does not represent the capital of the institution, adding that the financials show “a very high risk” for his clients. The cease-and-desist order also called for a $765,000 penalty to be paid to Puerto Rico's Treasury Department.
Zequeira said an administrative officer is scheduled to hear the case on July 7 and could decide on whether to appoint a new manager or liquidate the bank, adding that Schiff has the right to go to an appeals court if he disagrees.