Paytm Payments Bank Failed To Set Up Mechanism To Detect, Report Suspicious Transactions: FIU-IND

Following the finance ministry’s statement last week about Financial Intelligence Unit-India (FIU-IND) imposing a monetary penalty of INR 5.49 Cr on Paytm Payments Bank, FIU-IND said in its order that the bank failed to put in place an internal mechanism to detect and report suspicious transactions as prescribed under the anti-money laundering law.

FIU-IND, which is the central national agency responsible for receiving, processing, analysing and disseminating information relating to suspect financial transactions, also highlighted Paytm Payments Bank’s failure to exercise ongoing “due diligence” with respect to its payout service.

In the order dated March 1, FIU-IND said that Paytm Payments Bank, by virtue of operating as a payments bank, is registered with the former. A show-cause notice, dated February 14, 2022, was issued to the bank.

“The inception of the current proceedings stems from the identification by law enforcement agencies of extensive illegal activity conducted by multiple businesses under the syndicate of individuals connected to a foreign state,” the order stated. 

While the order didn’t name the foreign country, it is pertinent to mention that a number of Chinese nationals and China-linked entities are under investigation for duping Indian citizens as well as illegally running digital lending applications.

As per FIU-IND’s order, the matter first came to light after First Information Reports (FIRs) were lodged by the Cyber Crime Station of Hyderabad under relevant sections of the Indian Penal Code and the Telangana State Gambling Act in relation to the activities of certain business entities. 

These entities and their network of businesses seemingly engaged in several illegal acts, such as organising and assisting online gambling. The money obtained from these illegal operations, which were proceeds of such “criminal activities”, were routed and channelled through bank accounts maintained by the same entities with Paytm Payments Bank, the order added.

“It came to light that several of the involved entities had made use of payment intermediaries to implement their fraudulent designs within the country. The matter, and the responses of the Bank, were examined in detail by FIU-IND and it appears to be the case that the Bank have failed to discharge its obligations under Chapter IV of the PMLA (Prevention of Money Laundering Act),” the FIU-IND order said.

Paytm Payments Bank also submitted oral and written responses in the case. After considering those submissions, the agency found the bank to have violated certain obligations under PMLA.

It must be noted that after the release of the finance ministry’s statement last week, Paytm Payments Bank said that the penalty imposed by FIU-IND pertained to issues within a business segment that was discontinued two years ago.

“Following that period, we have enhanced our monitoring systems and reporting mechanisms to the Financial Intelligence Unit,” the bank claimed.

The penalty on the bank comes at a time when the company is just a few days away from shutting all its banking operations following the regulatory clampdown of the Reserve Bank of India (RBI). The central bank is said to be mulling revoking the banking licence of the associate of Paytm.