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PayPal Fined By India’s Financial Regulator For Alleged Money Laundering Violation

PayPal Fined By India’s Financial Regulator For Alleged Money Laundering Violation

The Financial Intelligence Unit (FIU) has fined PayPal for allegedly violating India's anti-money laundering law and other charges

The primary charge against PayPal is the company's failure to register itself as a "reporting entity" with the FIU

The FIU had asked PayPal in March 2018 to register as a reporting entity to record all its transactions in India, which the company had declined citing various rules

Online payments major PayPal has been hit with a INR 96 Lakh fine by the finance ministry’s Financial Intelligence Unit (FIU) for allegedly violating India’s anti-money laundering law. The US-based company has also been accused of “concealing” suspect financial transactions and abetting “disintegration” of India’s financial system, in what is the first time that a digital financial services entity has been charged by the FIU, which usually looks at financial crimes at public and private sector banks.

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, according to a PTI report. In response, a PayPal spokesperson has said that the company is fully committed to follow due processes under Indian law and is reviewing the matter.

In a 27-page order issued on December 17, the FIU held the company guilty on three broad counts calling its violations “deliberate and wilful”. The primary charge against PayPal is the company’s failure to register itself as a “reporting entity” with the FIU, as mandated under the PMLA.

“The business model offered by PayPal clearly indicated that it not only acts as an intermediary but actively undertakes money transfer operations…PayPal undertakes to settle an online transaction by moving money from the customer’s account (issuing bank) to the merchant account, which ultimately transmits funds to the merchant’s bank account (acquiring bank) when the transaction is finalised,” the FIU order said.

The FIU claimed there was ample evidence of a willful violation on PayPal’s part, which is why the penalty amount is higher than what is normally imposed for minor violations. The order directs the company to pay the fine within 45 days, register itself as a reporting entity with the FIU as well as appoint a principal officer and director for communication within a fortnight or by January 1, 2021.  PayPal can appeal against the order at the Appellate Tribunal of the PMLA within 1.5 months, but the company spokesperson told the news agency that it is fully committed to regulatory compliance.

“We take our obligations seriously across 200 markets where our payments platform is present. We are carefully reviewing the matter and we cannot comment further at this point,” the spokesperson was quoted as saying.

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 are then analysed by the FIU’s financial investigators and other agencies for for further action. Despite the order, PayPal declined to register as a reporting entity, saying that it is 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.

PayPal reportedly told the RBI that it would be ceasing its domestic payment aggregator business in India before June next year, as indicated by reports earlier this month. In February, it was reported that the company is trying to enter UPI payments to bulk up its presence in the Indian market.

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