Millionaire Wise chief investigated over tax default

·4 min read
Kristo Käärmann Wise - Jake Farra
Kristo Käärmann Wise - Jake Farra

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 has breached the standards required to run a major financial organisation after he failed to submit proper tax returns in the 2017-18 tax year.

The Telegraph revealed Mr Käärmann was fined £365,651 for the failings by HMRC last year. That penalty suggested he had either handed over inaccurate documents, failed to give HMRC notice of his circumstances or committed wrongdoing in relation to VAT or excise.

HMRC announced its concerns about Mr Käärmann's tax affairs when it published his name in a list of defaulters who have been dealt with using civil action rather than criminal proceedings.

Mr Käärmann was listed alongside a Derby curry house and an adult entertainment venue in Worcester.

News of the FCA’s investigation came just a day before Wise was due to announce its full-year results.

Wise's board said it was fully cooperating with the probe and had also handed the findings of its own investigation into Mr Käärmann's tax affairs to the authorities. The company last year hired external lawyers to review the tax defaults.

David Wells, Wise's chairman, said the company ordered Mr Käärmann to hire tax advisors after the board concluded its investigation in the final quarter of 2021.

"The board takes Kristo's tax default and the FCA's investigation very seriously,” Mr Wells said.

"After reviewing the matter late last year the board required that Kristo take remedial actions, including appointing professional tax advisors to ensure his personal tax matters are appropriately managed.

"The board has also shared details of its own findings, assessment and actions with the FCA and will cooperate fully with the FCA as and when they require, while continuing to support Kristo in his role as CEO."

The FCA declined to comment.

Mr Käärmann is a multi-millionaire thanks to his 19pc shareholding in Wise, valuing him on paper at about £740m, a sharp jump from pre-float estimates last year of £229m. Wise itself has a market capitalisation of £3.82bn.

In September last year, a spokesman for Wise’s chief executive suggested he had been late filing his personal tax returns “despite sufficient reminders from HMRC”, adding that the billionaire “has since devoted more time to keeping his personal admin in order.”

The money transfer company’s share price remained broadly stable on Monday at 373p after a brief fall to 365p at the open.

Mr Käärmann’s failure to immediately pay his tax dues wiped 2.5pc from Wise’s share price when it initially came to public light in September 2021. That marked the start of a long slide in the company’s value

The decline has broadly tracked the ongoing crash in tech stock prices over the first half of this year, driven by weakening consumer demand as lockdowns end and tech firms face higher funding costs as interest rates rise.

Wise was one of London’s highest-valued flotations last year, opening at £8bn in July 2021 and providing a sharp contrast to the flop of Deliveroo.The food delivery company saw is market value collapsed by a quarter just one week after its £7.6bn flotation in March last year.

Formerly known as TransferWise, Wise’s business model grew out of Mr Käärmann and co-founder Taavet Hinrikus’s struggles with cross-border money transfers. Mr Käärmann, who worked in the UK, found sending cash back to his native Estonia costly. He and Mr Hinrikus, an early Skype employee, hit on the idea of matching euro transactions between the latter’s Estonian bank account and the former’s sterling-denominated UK one.

Through avoiding cross-currency transactions they were able to make significant savings, prompting the idea that became Wise.

The pair founded by Wise in London in 2010 and attracted backers including Sir Richard Branson, who was an early investor.

The company now says it has more than 13m users transferring around £6bn a month.

HMRC publishes its list of individual and corporate tax defaulters every three or four months, which is how Mr Käärmann’s issues first came to light.

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