Story highlights

House Oversight Chairman Darrell Issa asks Puerto Rico's governor to respond

Bank says Puerto Rico nullified an agreement that would have meant a big tax refund

Issa concerned that decision could put taxpayer funds at risk

CNN  — 

As Puerto Rico struggles with a massive debt crisis, a top congressional investigator has questions about the island government’s decision to nullify an agreement that would have returned about $230 million in overpaid taxes to a major bank.

House Oversight Committee Chairman Darrell Issa sent a letter last month to Puerto Rico Gov. Alejandro Garcia Padilla asking for a briefing on his administration’s decision to unilaterally nullify the agreement between the Puerto Rico Treasury Department, known as Hacienda, and Doral Financial Corporation, the second largest mortgage provider on the island.

Doral has said the Padilla administration’s decision to pull out of the agreement could hurt its financial condition.

Because Doral Bank’s deposits are insured by the Federal Deposit Insurance Corporation, Issa wrote that the Puerto Rican Treasury’s “actions place federal dollars … at risk.”

“To enable the committee to better understand the nature of this risk, and the consequences of Hacienda’s actions, I respectfully request that appropriate Puerto Rico administration officials provide a briefing to committee staff,” Issa wrote.

Read Issa’s letter (PDF)

Issa’s letter comes as Doral battles Puerto Rico for a $230 million tax refund it says it’s owed. After Puerto Rico decided not to refund the money, the FDIC essentially told the bank it could no longer count the $230 million toward its capital requirements.

Deadline imposed

The regulator gave the bank 120 days to find other ways to meet its capital requirements or face possible sale, merger or liquidation.

An Oversight Committee aide said that one of the questions the California Republican wants answered is whether the FDIC would have to expend federal taxpayer money in the event the bank liquidates and isn’t able to make all its depositors whole. The FDIC declined to comment.

For its part, the Democratic governor’s office argues that the agreement, signed under a previous administration, is null because Doral’s supporting paperwork did not prove that the bank had overpaid its taxes.

Just last week, debt rater Moody’s downgraded the U.S. territory’s credit rating further into junk status – a theme Doral hit in a statement to CNN.

“The government’s decision to nullify its agreement with Doral was unexpected,” the bank said, and “comes at the very time that the island teeters on financial insolvency. Nevertheless, the government’s financial situation should have no bearing on its willingness to fulfill its obligation to honor a legally binding agreement with Doral or any other business.”

In the statement, Doral spokeswoman Miriam Warren said while bank officials had not seen Issa’s letter, “We believe that an inquiry from the chairman and his committee represents a significant step in making the government of Puerto Rico accountable for its troubling behavior in this case.”

Barbara Morgan, a spokeswoman for the governor’s administration, said in a statement that the Treasury Department determined there had been no overpayment and Doral’s allegations “are without merit.”

“Doral’s financial situation was not caused by the Commonwealth of Puerto Rico, and its regulatory issues began many years before the Treasury’s determination to nullify the 2012 closing agreement,” she said, adding that administration officials are working with Issa’s staff to provide the information he requested.