After a tax violation, Wise’s billionaire founder could face FCA sanctions.

The chief executive of money transfer group Wise could face sanctions from the Financial Conduct Authority including being barred from the industry over his status as a “deliberate tax defaulter”, lawyers told the Financial Times.

Kristo Kaarmann, who co-founded the company originally known as TransferWise a decade ago, was named on a September 22 list of people that HM Revenue & Customs has penalised for deliberately filling erroneous tax returns or deliberately failing to comply with their personal tax obligations.

The 41-year-old Kaarmann owns 19 per cent of Wise, which became the darling of London’s stock market when it raised £9bn in its record direct listing less than three months ago.

The potential jeopardy for Kaarmann comes from Wise’s status as a regulated firm and his personal status as an approved person under the Financial Conduct Authority’s senior managers regime, which holds senior finance executives to account and can censure individuals.

“I would say that is highly likely to be relevant as far as the FCA is concerned,” said one senior regulatory lawyer of the tax issue. “If I [held senior management functions], I would want to avoid any infringement of the law, no matter how minor or apparently unrelated to my role.”

Kaarmann’s infraction was related to an outstanding tax bill of £720,495 for the 2017-18 tax year, triggering a fine of £365,651 by HMRC.

Sara George, a lawyer at Sidley Austin, said any sanctions would be worse if Kaarmann had not voluntarily disclosed the situation to the FCA. “Failing to bring to the FCA’s attention a matter which relates to fitness and propriety is itself a failure to comply with the obligations and standards expected of a regulated person,” George said. “Lack of integrity almost always means prohibition from the industry.”

Wise would not say if Kaarmann had alerted the FCA to his tax issues but one person close to the company said he had done so.

“His tax return has since been completed, and he paid substantial late filing penalties. He has since devoted more time to keeping his personal admin in order,” the spokesperson said in a statement, noting that Kaarmann was late in submitting the return “despite sufficient reminders from HMRC”.

The FCA said: ‘We are unable to comment on individual firms but we do consider information of this type in our ongoing supervision’.

Executives of payment firms are not typically captured by the FCA’s senior managers regime, but Kaarmann is included because he is also a director of the parent company of Wise Assets, which allows its customers to invest in stocks. Several lawyers told the FT that if he was sanctioned or disbarred in his role as a senior manager of the investment firm, it would probably carry over to the main Wise company, where the FCA could question the board about his position and investigate his fitness and proprietary. “You get to the same place,” said one lawyer.

HMRC’s deliberate defaulter list is designed to act as a deterrent to people deliberately getting their tax wrong. John Hood, a tax Partner at Moore Kingston Smith, an accountancy firm, said it was “exceptional” for a high-profile CEO to appear on the list.

“Most of the businesses named are either restaurants and takeaway businesses,” he noted. “Wealthy individuals normally have advisers to minimise their exposure to being named and shamed by making sure that they qualify for the maximum penalty reduction.”

Being fined as a tax defaulter automatically enters Kaarmann into HMRC’s “Managing Serious Defaulters programme”, whose participants are closely monitored by the tax authority for up to five years to ensure they meet all their tax obligations.

Meanwhile, the financial records of any business run by a person HMRC has branded a deliberate defaulter could also be subject to increased scrutiny during the period — including announced and unannounced inspection visits, HMRC states on its website.

One tax adviser told the Financial Times that in their experience it was “standard” for HMRC to scrutinise both the personal tax and company records of a director it believes has deliberately not met their tax obligations.

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