European Union Bank was chaired until last month by Lord Mancroft, an Old Etonian former heroin addict who campaigns for fox hunting and drug law reform.
He was called in yesterday by the Bank of England to explain the Antiguan bank's operations. A Bank of England spokesman said: "We raised our concerns with him."
The Bank of England's public expression of concern about Internet banking is a result of fears that the new means of communication will put large numbers of banking transactions beyond the reach of supervisors and make it easier to launder money.
The Internet allows deposit takers to solicit business anywhere in the world over an information network with no national boundaries.
The Bank said it was not illegal for a foreign bank to advertise in the UK over the Internet. However, EUB appears to have broken the advertising rules which require disclosure of the paid up share capital of a bank.
EUB's Internet pages give only its authorised capital of $10m (pounds 6.4m) and says it plans to announce a public offering of $115m of shares this month.
The Bank of England has no powers to take action against EUB for rule infringements since it is based in Antigua and the Internet is an international and not a UK advertising medium.
The Bank said it was not aware of EUB advertising in any other way in the UK and no depositor had come forward to complain. Any deposits would not be made over the Internet but by conventional money transfer.
A Bank spokesman said: "We would advise any Internet depositor to carry out appropriate due diligence in the bank and to establish what, if any, deposit insurance is available." EUB is not covered by UK deposit insurance.
Lord Mancroft is the deputy chairman of the British Fields Sports Society, chairman of two drug rehabilitation organisations and is involved in a Scratch 'n' Win card business.
He said: "I have met with the Bank of England this morning and we had an extremely friendly discussion. I have no problem with what they are saying."
He said it was "racist and irresponsible" to suggest the bank might be involved with money laundering. The idea was "fantastically improbable. If you go to the accounts it is clear at a glance that there's no question that EUB is money laundering."
According to EUB's Internet web site, the bank offers "excellent interest rates, offered in a stable, tax-free environment ... with utmost privacy, confidentiality and security".
It also says: "European Union Bank, operating fully within the law, offers tax protection to clients who seek wisely to protect their assets by using favourable Caribbean tax shelter programmes." It said that customers would be able to take advantage of EUB services via the Internet.Reuse content