Kristo Kaarmann, CEO and co-founder of Wise.
Eoin Noonan | Sportsfile | Getty Images
LONDON — Kristo Käärmann, the billionaire CEO of money transfer firm Wise, was slapped with a £350,000 ($454 million) fine by financial regulators in the U.K for failing to report an issue with his tax filings.
Käärmann, who co-founded Wise in 2011 with fellow entrepreneur Taavet Hinrikus, was on Monday ordered by the Financial Conduct Authority (FCA) to pay the sizable penalty due to a breach of the watchdog’s senior manager conduct rule.
The FCA said that Käärmann failed to notify the regulator about him not paying a capital gains tax liability when he cashed in on shares worth £10 million in 2017.
The watchdog found him in breach of its Senior Management Conduct Rule 4, which states: “You must disclose appropriately any information of which the FCA would reasonably expect notice.”
It comes after the Wise boss was hit with a separate £365,651 fine by U.K. tax collection agency Her Majesty’s Revenue and Customs (HMRC) in 2021 for being late to submitting his tax returns during the 2017/18 tax year.
Käärmann’s name was added to HMRC’s public tax defaulters list. His tax liability for that year was £720,495, according to HMRC. He has a net worth of $1.8 billion, according to Forbes.
‘High standards’ expected
The FCA said Monday that, between February 2021 and September 2021, the tax issues were relevant to its assessment of Käärmann’s fitness and propriety as a senior director of a financial services firm.
Käärmann failed to consider the significance of the issues and notify the FCA despite being aware of them for over seven months, the regulator added.
“We, and the public, expect high standards from leaders of financial firms, including being frank and open,” Therese Chambers, joint executive director of enforcement and oversight, said in a statement Monday.
“It should have been obvious to Mr Käärmann that he needed to tell us about these issues which were highly relevant to our assessment of his fitness and propriety.”
Käärmann said in a statement Monday that he remains “focused on delivering the mission for Wise and achieving our long-term vision.” “After several years and full cooperation with the FCA, we have brought this process to a close,” he said.
“We continue to build a product and a company that will serve our customers and owners for the decades to come,” Käärmann added.
The chair of Wise, David Wells, said that the company’s board of directors “continues to take Wise’s regulatory obligations very seriously.”
Wise’s board found that Käärmann was “fit and proper” to continue in his role at the firm after an internal investigation in 2021.
As a result of that review, Käärmann was required by the board to take “remedial actions” to ensure his personal tax affairs were appropriately managed.
Less severe than feared
The value of the FCA’s fine is substantially lower than the potential maximum fine he could have faced.
Käärmann could have been fined as much as £500,000 for his tax failings, but qualified for a 30% discount because he agreed to resolve the issues.
News of the fine comes after Wise earlier this month reported a 17% increase in “underlying income,” which consists of cross-border revenue, card and other revenue, and interest income.
Wise reiterated its target of achieving an underlying profit before tax margin of 13% to 16% over the medium term thanks to investments in pricing, and added that meant it wouldn’t have to make “further material investments in reduced pricing” in the second half of the year.
In a note Monday, analysts at British investment bank Peel Hunt boosted their expectations for Wise’s full-year profit before tax by 15%. They have a £1,000 price target and a “buy” rating on the stock.
“While Wise made no changes to the guidance set in June 2024, we expect a significant near-term beat,” Peel Hunt analysts Gautam Pillai and Barun Singh wrote in the note.
Käärmann and Hinrikus, both Estonian tech entrepreneurs who immigrated to the U.K., took Wise from a scrappy startup to a payments disruptor now worth £7.4 billion.
They created Wise to offer a low-cost alternative to banks charging hidden fees for moving money across borders.