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While the sum involved in this sanction violation might appear insignificant, it highlights the industry’s ongoing struggle to prevent breaches following global geopolitical events.
British financial technology giant Wise Plc (LON: WISE) has found itself entangled in controversy after unintentionally allowing an individual on the Russian sanctions list to withdraw money. The Office of Financial Sanctions Implementation (OFSI) revealed in a recent report that the individual was able to withdraw £250 ($316.63) from a Wise business account.
New Sanctions in the Wake of the Ukrainian Crisis
Following Russia’s invasion of Ukraine in February 2022, the UK government imposed new sanctions and designations on a number of banks and rich individuals.
These steps were taken in response to the ongoing situation and to dissuade more destabilizing actions. However, the Wise episode highlights the difficulty of enforcing these punishments in a fast-changing digital financial sector.
According to the OFSI, Wise reported a suspected sanctions breach on June 30, 2022. The withdrawal was made from a Wise business account held by a company linked to an unnamed designated individual, using a credit card bearing their name. This company was a customer of Wise at the time.
Despite this breach, the OFSI highlighted that Wise was cooperative and transparent throughout the investigation process, making full disclosures as required. This incident is one of the rare cases where a fintech company’s sanctions breach has been publicly disclosed.
While the sum involved in this sanction violation might appear insignificant, it highlights the industry’s ongoing struggle to prevent breaches following global geopolitical events. The British government, in this instance, chose not to fine Wise for the breach, citing its assessment that the violation was not severe enough to warrant a monetary penalty.
Previously, the OFSI fined UK payments firm TransferGo £50,000 for enabling funds to be available to a designated person without obtaining a necessary license. These cases shed light on the vulnerability of fintech companies to inadvertent sanctions breaches, even as they aim to provide efficient cross-border financial services.
Beyond Withdrawal Violation: Wise Faces Leadership Dynamics
Wise’s woes were amplified last year when UK tax authorities accused CEO and co-founder Kristo Kaarman of tax evasion. Her Majesty’s Revenue and Customs penalized the CEO £365,651 at the time, for failing to file his personal tax returns for the 2017/2018 fiscal year on time.
The fine, though subsequently covered by Kaarmann, has raised concerns about his fitness to lead a financial services company. According to guidelines from the Financial Conduct Authority (FCA), such incidents could lead to the removal of a Director if deemed unfit by financial regulators.
Adding to the intrigue, Kaarmann is set to take a three-month parental leave starting next month. During his absence, Wise’s Chief Technology Officer, Harsh Sinha, will assume the role of acting CEO. This temporary change in leadership has sparked discussions about its potential impact on the company’s trajectory.
Analysts from Jefferies have indicated that the management shake-up could be viewed as a mid-term positive development for Wise’s stock. The company’s stock performance has reportedly underperformed the broader European payments and fintech sector recently.