SUMMARY
However, the court said that PayPal is a 'payment system operator' within the framework of Prevention of Money Laundering Act (PMLA)
As a ‘reporting entity’, it is mandatory to verify and maintain records of all transactions and identities of all its clients for a period of ten years
PayPal moved Delhi High Court to challenge the FIU penalty in 2021
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 (FIU) for allegedly violating India’s anti-money laundering law.
However, the court said that PayPal is a ‘payment system operator’ within the framework of Prevention of Money Laundering Act (PMLA). Hence, it is obliged to follow the reporting entity obligations under the PMLA.
The court contended that the penalty imposed upon PayPal was “clearly unjustified” as PayPal was under the bona fide belief that its operations did not fall within the ambit of the PMLA.
“The Court holds that PayPal is liable to be viewed as a “payment system operator” and consequently obliged to comply with reporting entity obligations as placed under the PMLA. The imposition of penalty in terms of the impugned order dated 17 December 2020 is, however and for reasons aforenoted, quashed,” the order said.
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 a period of ten years.
PayPal-FIU Tussle
After PayPal was hit with an INR 96 Lakh fine by the FIU in 2020, it moved Delhi High Court to challenge the penalty.
The US-based company had also been accused of “concealing” doubtful financial transactions and abetting “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 Online Payment Gateway Service Provider (OPGSP) or a payments intermediary which is not covered under the PMLA.
