According to the Brazilian press here, here and here, Transferwise illegally used clients’ accounts to send their money from Brazil to their HQ in the UK to avoid local taxes.

How did that happen?

Recently, Transferwise stopped its operations in Brazil. Some clients speculated they were finishing their operations due to Brazilian legislation which are quite messy.

But on 12th March, the Transferwise Brazilian local partner, MS Bank, published a long and detailed message on their website and a video on YouTube which explains the situation.

The whole story

The Brazilian bank MS Bank, which until February 18th was responsible for the foreign exchange transactions of the English company TransferWise (now called Wise) in Brazil, claims to have identified that the London-based company used the names and data of more than 600,000 customers to send money abroad irregularly and without paying taxes. According to the bank, the alleged fraud would involve around £12,000,000.00.

TransferWise denies that it committed any crime and says it was the target of a smear campaign by the bank that was its partner until last month.

“The company defrauded international transfers without the knowledge of the bank and users of the platform, involving their names in illegalities that can lead to up to six years in prison,” says the statement from MS Bank, released late on Friday 12th March.

As mentioned, a video released by the bank explains how the alleged fraud occurred. Users of the platform ordered a quantity in foreign currency and, in order to make the purchase, they made a transfer through Bank Transfer to MS Bank to pay for the operation and obtain the amount they intended to send abroad.

According to the bank, TransferWise “manipulated the information” and informed the financial institution that the customer had acquired a foreign currency amount greater than the volume actually contracted. The video uses a hypothetical example in which a customer orders €1,000 and TransferWise informs MS Bank that the order was €1,005. The company based in London, then, kept this surplus amount and sent it abroad without paying the taxes due, still according to MS Bank.

In the video, the bank asks customers who have made transactions with TransferWise to check the Brazilian Central Bank’s Registrato system, if the amounts reported corresponds exactly to the quantities ordered in their shipments. Otherwise, MS Bank asks consumers to report cases to the Brazilian Central Bank.

Complaints on social media

Following the statement from MS Bank, users who claim to have made international remittances via TransferWise posted on social media in which they claim to have identified differences in the Brazilian Central Bank’s system on the values ​​recorded by the authority and those on receipts provided by TransferWise.

One of these clients is Brazilian lawyer Stéphanie Leal, 26, who currently lives in Amsterdam. She says she has used the TransferWise platform frequently from 2019 to last month. Upon seeing the MS Bank video, she went to check her transfers on the Brazilian Central Bank website and found an inconsistency.

– I have always made transfers from euros to reais (BRL – Brazilian official currency), and in the Registrato‘s report, there was a transfer in dollars, dated 26 November 2020, to the United Kingdom, which I did not do. I thought it was weird and decided to search my history at TransferWise. I had no transfers on the 26th, but I had one the day before, from euros to reais in very similar amounts – she says.

Stéphanie claims to have filed a complaint with the Brazilian Central Bank’s ombudsman. She also went to social media to charge a response from TransferWise but has not received a response so far.

What do the companies say?

The president of MS Bank, Marcelo Sacomori, said that the bank identified some irregularities at the end of 2018, but considered them to be errors in the system. As the inconsistencies continued to be identified, in 2019 the institution decided to notify the Brazilian Central Bank and the Receita Federal (the “local HMRC”).

– In September 2020, the Brazilian Central Bank and the Receita Federal (local HMRC) concluded that operations were irregular. On September 17, we unilaterally imposed on TransferWise the decision to withhold taxes due on each transaction. We broke the partnership definitively by our decision on February 18 and two weeks ago we notified the Federal Public Ministry about the case because we believe that there is a crime against the financial system.

Asked why it took five months to break the partnership with TransferWise, Sacomori said the bank wanted to gather more evidence of the alleged fraud and other possible irregularities, which he does not reveal what they are.

– We had to follow some legal steps because we could not take this immediately to the MPF, we needed to collect additional evidence. Some events continued to occur. I can’t say at the moment what they are, but they took us on the 18th of February to say that there was no more – he says.

The executive states that the institution had two contracts with Transferwise: one with the head office and the other with the Brazilian subsidiary, and both did not foresee that TransferWise would be remunerated for foreign exchange operations at the beginning of the company’s business in Brazil.

– The contracts formalized that the company would not make money in Brazil, they said they wanted to increase the user base – says Sacomori.

According to him, the Receita Federal (local HMRC) fined MS Bank more than £2,000,000 last year after finding the irregularities.

– By law, banks are responsible for the acts of their financial correspondents, the fine was paid by us the day before the (due date) – he says.

Reimbursement in court

Sacomori says that MS Bank intends to go to court against TransferWise to seek compensation for losses and damages to the bank and its customers.

According to him, all alleged irregularities were, when identified, communicated by MS Bank to TransferWise, in particular to executive Diana Ávila, global expansion director of the London-based company.

“There were hundreds of emails and dozens of video calls about it,” he says. According to him, communication between companies on the subject was fluid.

On its website, TransferWise informs customers that it is not possible to make transfers involving reais (BRL) at the moment. On social media, people have reported problems making transactions since February 18th, when the contract with MS Bank ended.

The other side

TransferWise Brazil in a note stated that ” we strictly follow tax laws and local regulations in Brazil and in the more than 50 countries in which we operate”.

The company says that “it is in the process of conducting foreign exchange transactions directly, without the need for an intermediary” because it obtained a license from the Brazilian Central Bank to operate in the country in June 2020. The effective authorization was only released in January 2021.

“The company is unaware of any investigation or accusation on its behalf by any regulator or other authority, although it knows that it is currently being targeted by a defamatory campaign by a former business partner dissatisfied with the termination of the partnership,” says the note from TransferWise.

In an email sent to its customers in February, TransferWise apologized to consumers and implied that the bank was the one who had broken the contract, which goes against what the company said to the Brazilian press.

“We are sorry that we did not send notifications well in advance, but our partnership with MS Bank was suddenly terminated,” says the message obtained by the press.

In the note sent to the press, TransferWise Brasil also denied that it had committed fraudulent or improper activities and said that “it will take all legal measures – civil and criminal – applicable against those responsible for defamation acts”.