Fintech firm Wise has faced scrutiny from a UK government body after permitting a sanctioned Russian individual to withdraw funds from their account. In July 2022, a person designated under the UK’s Russian sanction regime managed to withdraw £250 from a business account using a Wise card at an ATM. However, Wise reported this breach 10 days later, prompting action from the Office of Financial Sanctions Implementation (OFSI), a regulatory arm within HM Treasury.
The OFSI reprimanded Wise for allowing the sanctioned customer access to their funds and for not blocking the debit card until four days after the transaction occurred. Interestingly, despite the relatively low value of the withdrawal, the OFSI classified the breach as “moderately severe.” Importantly, no monetary penalty was imposed on Wise for this incident.
Wise had previously implemented sanctions on Russian customers in response to Russia’s invasion of Ukraine, a significant move indicating the company’s commitment to regulatory compliance.
What’s notable is that Wise voluntarily reported the breach to the OFSI and claimed to have taken steps to enhance its sanctions compliance processes to prevent such occurrences in the future. However, the OFSI criticized Wise for their policy at the time of the breach, which did not restrict debit cards even when there was a potential name match to a designated person, deeming it inappropriate for managing sanctions risks. Furthermore, a bottleneck in reviewing sanctions alerts during weekends contributed to a delay in implementing necessary restrictions on the designated person’s account and debit card.
In response to the OFSI’s findings, a spokesperson for Wise emphasized the company’s dedication to adhering to all sanctions laws and noted that they suspended services to Russia as soon as sanctions were enacted in response to the invasion of Ukraine.
This incident underscores the importance of robust sanctions compliance measures within financial institutions, even when dealing with relatively small transactions. It also prompts questions about the effectiveness of regulatory oversight and whether regulatory bodies like the OFSI possess the requisite resources and tools to enforce sanctions compliance more rigorously. While Wise’s actions in response to the breach are commendable, their commitment to preventing future violations will be closely monitored.
What you should know about Wise
In 2011, two visionary individuals, Taavet Hinrikus and Kristo Käärmann, embarked on a journey to revolutionize the way international money transfers were conducted. This marked the inception of Wise, a financial technology company with the mission of making international money transfers cheap, fair, and simple for millions of individuals and businesses worldwide.
Both Taavet and Kristo hailed from Estonia but found themselves living in London, each facing the challenge of managing their finances across borders. Taavet, who had the distinction of being the first employee at Skype, received his income in euros, while Kristo worked at Deloitte in London, earning pounds. Complicating matters further, Kristo had a mortgage in euros back in Estonia. Their shared experience was dealing with traditional banks that imposed exorbitant fees and offered unfavorable exchange rates for international transfers.
Recognizing the need for a better solution, Taavet and Kristo put their heads together and devised an elegantly simple workaround. Each month, they meticulously looked up the real exchange rate on Reuters. Taavet would transfer his euros into Kristo’s Estonian bank account, and in return, Kristo would top up Taavet’s UK bank account with pounds. This ingenious arrangement allowed both of them to obtain the currency they required almost instantly, without incurring extra costs associated with poor exchange rates or unreasonable fees.
This frictionless process was characterized by its swiftness, ease, and cost-effectiveness. As they streamlined their cross-border money management, Taavet and Kristo realized, “There must be others like us…” Thus, the idea for a company was born. They named it TransferWise and began assembling a dedicated team with a singular focus: creating the ultimate solution for sending money between countries.
As TransferWise expanded, its founders recognized that people required more than just streamlined money transfers. To meet these evolving needs, they introduced a multi-currency account, a debit card, and a business account, reflecting a commitment to offering comprehensive financial services. Alongside these enhancements, the company decided to rebrand as Wise, reflecting its broader mission of empowering individuals and businesses to manage their international finances more affordably, quickly, and transparently.
While the company’s name transformed, its core mission remained steadfast: to help people and businesses worldwide navigate the complexities of international money management with greater ease and efficiency. Millions of individuals and businesses entrusted Wise to move their money, benefiting from substantial savings in bank fees and time. With the Wise account, users gained the ability to hold balances in over 50 currencies and utilize a versatile debit card for shopping and spending while abroad.
Wise’s commitment to innovation and collaboration also shone through as it partnered with banks and companies like Monzo, Bolt, and GoCardless to enhance international banking experiences for customers. Additionally, notable figures such as Richard Branson and PayPal co-founder Max Levchin recognized the potential of Wise’s vision, investing in the company’s mission to reshape the landscape of global financial services.
International Sanctions Imposed on Russia
In the wake of Russia’s actions, Western nations have implemented a series of sanctions aimed at curbing the nation’s financial resources, limiting its oil and gas income, targeting individuals with close Kremlin ties, and impacting Russian businesses. Here’s a comprehensive analysis of these sanctions:
Financial Measures:
To restrict Russia’s access to funds, several financial measures have been put in place:
- Asset Freezing: The European Union (EU), US, UK, and Canada have frozen assets belonging to Russia’s central bank within their territories.
- Exclusion from Swift: Major Russian banks have been removed from the international financial messaging system Swift, causing delays in payments for Russian oil and gas.
- Asset Freezing and Borrowing Ban: The UK has not only frozen the assets of Russian banks but has also prohibited Russian firms from borrowing money.
- Deposit Limits: The EU has imposed limits on the amount Russians can deposit at banks.
- Impact on Reserves: It has been reported that Western financial sanctions have effectively cut off $350 billion of Russia’s foreign currency reserves, which amounted to $604 billion.
Oil and Gas:
Efforts to reduce Russia’s income from oil and gas have been a significant focus:
- Coal and Refined Oil Ban: The EU ceased importing Russian coal and banned refined oil imports.
- Complete Oil and Gas Import Bans: The US and UK have banned all Russian oil and gas imports.
- Nordstream 2 Halt: Germany halted the opening of the Nordstream 2 gas pipeline from Russia.
- Price Controls: In December 2022, the EU and G7 established a maximum price of $60 per barrel for Russian crude oil and warned that insurers would not underwrite shipments exceeding this price.
Targeting Individuals:
Over 1,000 Russian businesses and individuals have been singled out by various countries, including the US, EU, and UK:
- Oligarchs and Officials: Oligarchs, individuals with close ties to the Kremlin, and top officials like President Putin and Foreign Minister Sergei Lavrov have seen their assets frozen.
- Superyacht Seizures: At least 16 superyachts linked to sanctioned Russians have been seized.
- Legal Charges: Russian aluminum magnate Oleg Deripaska has faced charges related to violating US sanctions.
- Visa Programs: The UK discontinued its “golden visa” program, which had previously allowed wealthy Russians to obtain British residency rights.
Impact on Russian Shoppers and Businesses:
Numerous international companies, including McDonald’s, PepsiCo, H&M, and Adidas, have ceased operations in Russia. Other measures include:
- Export Bans: The UK, EU, and US have imposed bans on the export of dual-use goods and luxury items to Russia.
- Airspace and Flight Bans: Russian flights have been banned from US, UK, EU, and Canadian airspace.
The Impact of Sanctions on Russia:
Although Western leaders initially anticipated a collapse of Russia’s economy due to sanctions and the invasion of Ukraine, the International Monetary Fund (IMF) forecasts a 0.7% economic growth in Russia for 2023. This surprising resilience is attributed to Russia’s significant daily oil exports, reaching 8.3 million barrels in April 2023, with India and China being the largest importers. However, the International Energy Agency (IEA) reports that Russia’s earnings from oil and gas exports plummeted to £6.5 billion ($8.1 billion) per month in April 2023, down from £18.2 billion ($22.5 billion), primarily due to Western sanctions.
Russia’s Response:
In retaliation, Russia has banned the export of over 200 goods from Western nations, including telecommunications, medical supplies, vehicles, agricultural products, electrical equipment, and timber products. It has also blocked interest payments to foreign holders of government bonds and prohibited Russian firms from paying overseas shareholders. Foreign investors holding Russian investments are now banned from selling them.
