SNP MEP Alyn Smith has issued an “unreserved” apology over his allegation that the Brexit Party is a “money laundering front”.
Brexit Party chairman Richard Tice threatened to sue Mr Smith over the claim, which he made in a TV interview.
Mr Smith has now admitted he did not have any evidence to support his claim.
He has agreed to pay a “significant” contribution to Mr Tice’s legal costs, and will also make a donation to the Help for Heroes charity.
Mr Smith was being interviewed on Sky News following last month’s European Elections when he claimed that the Brexit Party – which is led by Nigel Farage – was “a shell company that’s a money laundering front”.
He went on to claim that “the only question about the Brexit Party now is which laws they’ve broken and where their campaign finances have come from”.
Mr Tice instructed his lawyers to demand an apology from Mr Smith for his “utterly false and highly damaging” comments.
Mr Smith initially attempted to mount a defence on the legal precedent that political parties do not have the power to sue in defamation proceedings.
He also said he wanted to see a “full, open and transparent inquiry into the funding of Nigel Farage and the Brexit Party”.
But after further legal letters were exchanged, Mr Smith agreed to issue an apology and to withdraw his allegations.
In a statement published by his solicitors, he said it was “not my intention” to make allegations against Mr Tice personally, but said that “having reflected upon this” he would “apologise unreservedly to him and withdraw my allegation”.
He said: “I am happy to state clearly that I do not have any evidence to support such an allegation. I spoke in the heat of the moment and am happy to set the record straight.”
Mr Tice – who was also elected to the European Parliament in May’s elections – said he was pleased that Mr Smith had apologised and “withdrawn these wholly unfounded and damaging allegations”.
He added: “People are entitled to take a different view of Brexit and I respect their right to do so. But I will not hesitate to take action against those who make false claims about the Brexit Party, and by implication those of us who run it.”
The two sides agreed to keep their full financial settlement confidential, but the Brexit Party said Mr Smith had contributed “significantly” to Mr Tice’s legal costs as well as making a charity donation to Help For Heroes.