After Six-Year Battle, PayPal Registers With FIU Under Anti Money Laundering Law

US-based online payment gateway PayPal has officially registered its operations with the Financial Intelligence Unit of India, six years after a legal battle between both the entities.

PTI reported that the company has completed the formal procedure of being designated as a reporting entity under the Prevention of Money Laundering Act (PMLA) recently and has submitted the requisite documents to the Financial Intelligence Unit (FIU).

PayPal has also appointed a principal officer to communicate with the FIU, as required by the anti-money laundering law.  The appointment of a director, as per the same law, is in process.

“PayPal has registered as a reporting entity with the Financial Intelligence Unit-India, in compliance with the Reserve Bank of India’s recent regulatory framework governing cross-border payment aggregators (PA-CB), which applies to the PA-CB industry,” a PayPal spokesperson told PTI.

The FIU serves as a national agency responsible for receiving, processing, analysing and disseminating information concerning suspicious financial transactions within Indian economic channels to various enforcement agencies and foreign FIUs.

In December 2020, the federal anti-money laundering agency levied a penalty of INR 96 Lakh against the global online payments giant, alleging non-compliance with the PMLA by failing to register as a reporting entity.

Earlier, PayPal refused to register itself as a reporting entity under the provisions of the PMLA, arguing that it only operated in India as an Online Payment Gateway Service Provider (OPGSP) or a payment intermediary, and therefore, does not come under the definition of a payment system operator under the PMLA provisions.

The Delhi High Court has set aside a penalty of INR 96 Lakh imposed on online payment major PayPal by the finance ministry’s Financial Intelligence Unit-India for allegedly violating India’s anti-money laundering law.

However, the court said that PayPal is a ‘payment system operator’ within the framework of the Prevention of Money Laundering Act (PMLA). Hence, it is obliged to follow the reporting entity obligations under the PMLA.

As per the court order, PayPal will have to comply with Section 12 of the PMLA. As a ‘reporting entity’, it is mandatory to verify and maintain records of all transactions and identities of all its clients for ten years.

The US-based company had also been accused of “concealing” doubtful financial transactions and abetting the “disintegration” of India’s financial system by the FIU.

In further serious charges, PayPal was said to be “defeating and frustrating” the tenets of public interest and the provisions of the high-profile Prevention of Money Laundering Act (PMLA), which targets economic crimes, terrorist financing and black money rackets.

The FIU had asked PayPal in March 2018 to register as a reporting entity to record all its transactions in India, while also reporting suspicious transactions and cross-border wire transfers, which were then analysed by the FIU’s financial investigators and other agencies for further action.

However, despite the order, PayPal declined to register as a reporting entity, saying that it was compliant with the Reserve Bank of India guidelines for an Online Payment Gateway Service Provider (OPGSP) or a payments intermediary which is not covered under the PMLA.

As per Inc42’s State Of Indian Fintech Report, Q3 2023, the fintech sector has garnered over $27 Bn in funding from 2014 to mid-2023. Moreover, the future of fintech remains exceptionally promising, with a colossal market opportunity estimated at $2.1 Tn on the horizon

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