Paytm failed to setup internal mechanism to report suspicious transactions: FIU

PMLA regulations: Paytm Payments Bank has been fined Rs 5.49 crore by the federal financial intelligence agency for its failure to establish an internal mechanism to detect and report suspicious transactions as required by anti-money laundering laws. The agency, Financial Intelligence Unit (FIU), stated in its March 1 order that after more than four years of investigation, it found the charges against the bank, a registered reporting entity under the Prevention of Money Laundering Act (PMLA), to be substantiated.

According to the FIU, the bank also failed to conduct due diligence on its payout service. This action follows a show cause notice issued on February 14, 2022, against the bank.

Responding to the Union finance ministry's statement on the FIU's action, a spokesperson for Paytm Payments Bank clarified that the penalty relates to issues within a discontinued business segment from two years ago. The spokesperson added that the bank has since improved its monitoring systems and reporting mechanisms to comply with FIU requirements.

The legal troubles for Paytm Payments Bank escalated after the Reserve Bank directed it to halt accepting fresh deposits from customers starting February 29, a deadline later extended to March 15. Vijay Shekhar Sharma resigned as part-time non-executive Chairman of the bank, and the board was reconstituted accordingly.

The FIU order, accessed by PTI, revealed that investigations into Paytm Payments Bank began in 2020 following a reference from law enforcement agencies about extensive illegal activities involving multiple businesses connected to a foreign state. The cyber crimes unit of the Hyderabad Police filed FIRs against these entities under various sections of the Indian Penal Code and the Telangana State Gambling Act.

The investigations uncovered that certain entities and their network of businesses were involved in illegal activities such as online gambling, with proceeds routed through bank accounts, including those maintained by Paytm Payments Bank. Reports suggested that these entities defrauded numerous Indians through prohibited services like gambling, dating, and streaming.

The FIU found the bank in violation of the PMLA for failing to establish mechanisms to detect and report suspicious transactions, and for not exercising due diligence in its payout services and beneficiary accounts. It also failed to file suspicious transaction reports and exercise ongoing due diligence on certain beneficiary accounts.

Under section 13 of the PMLA, Paytm Payments Bank was fined Rs 5.49 crore for these violations. Reporting entities under the PMLA are required to maintain transaction records, submit reports to the FIU within prescribed timelines, and keep records of client identities, beneficial owners, account files, and business correspondence. 

(With PTI inputs)