Financial regulators have launched a formal investigation into the millionaire, co-founder of money transfer group Wise, after he defaulted on a £720,495 tax bill.
The Financial Conduct Authority is investigating whether Wise’s chief executive Kristo Käärmann violated the standards required to run a major financial organization after failing to file proper tax returns in the 2017-18 tax year.
The Telegraph revealed that Mr Käärmann was fined £365,651 for HMRC’s failings last year. That fine suggested that he had either provided incorrect documents, failed to inform HMRC of his circumstances, or made an error regarding VAT or excise duties.
HMRC expressed concern about Mr Käärmann’s tax affairs when it published his name on a list of defaulters who have been addressed through civil rather than criminal proceedings.
Mr Käärmann was listed next to a Derby curry house and an adults-only venue in Worcester.
The news of the FCA’s investigation came just a day before Wise was due to release its annual results.
Wise’s board of directors said it cooperated fully with the investigation and had also handed over the findings of its own investigation into Mr Käärmann’s tax affairs to authorities. The company hired outside attorneys last year to assess tax defaults.
Wise’s chairman David Wells said the company instructed Mr Käärmann to hire tax advisers after the board of directors concluded its investigation in the last quarter of 2021.
“The board takes Kristo’s tax default and the FCA’s investigation very seriously,” said Mr. Wells.
“After reviewing the matter late last year, the board of directors demanded that Kristo take corrective action, including appointing professional tax advisers to ensure his personal tax affairs are properly managed.
“The board of directors has also shared details of its own findings, assessment and actions with the FCA and will cooperate fully with the FCA as and when needed, while continuing to support Kristo in his role as CEO.”
The FCA declined to comment.
Mr Käärmann is a multi-millionaire thanks to his 19 per cent stake in Wise, which on paper values him at around £740 million, a sharp jump from pre-float estimates last year of £229 million. Wise itself has a market capitalization of £3.82 billion.
In September last year, a spokesperson for Wise’s chief executive suggested he was late filing his personal tax returns “despite ample reminders from HMRC”, adding that the billionaire has “since spent more time keeping his personal income in order.” administration.”
The money transfer company’s share price remained broadly stable at 373p Monday after falling briefly to 365p on opening.
When Mr Käärmann failed to pay his tax debt immediately, 2.5 percent of Wise’s share price was wiped out when it first came to light in September 2021. That marked the beginning of a long decline in the company’s value.
The decline broadly followed the ongoing crash in tech stock prices in the first half of this year, driven by weakening consumer demand as lockdowns end and tech companies face higher borrowing costs as interest rates rise.
Wise was one of the most highly regarded IPOs in London last year, opening in July 2021 for £8bn and contrasting sharply with Deliveroo’s flop. IPO in March last year.
Formerly known as TransferWise, Wise’s business model grew out of Mr Käärmann and co-founder Taavet Hinrikus’ struggles with cross-border money transfers. Mr Käärmann, who worked in the UK, found it costly to return cash to his native Estonia. He and Mr Hinrikus, an early Skype employee, came up with the idea of matching euro transactions between the latter’s Estonian bank account and the former’s pound sterling account.
By avoiding transactions in different currencies, they were able to make significant savings, leading to the idea that became Wise.
The pair were founded in 2010 by Wise in London and attracted backers including Sir Richard Branson, who was an early investor.
The company now says it has more than 13 million users who transfer around £6 billion a month.
HMRC publishes its list of individual and corporate tax defaulters every three or four months, thus exposing Mr Käärmann’s problems for the first time.