PayPal lists with Financial Intelligence Unit for anti-money laundering regulation

PayPal has listed its operations with the Financial Intelligence Unit of India after a six-year legal dispute between them.

The US-based payments gateway is done with the formal procedure which designates it as a reporting entity under the Prevention of Money Laundering Act (PMLA), according to official sources. 

The necessary documents required by the Financial Intelligence Unit (FIU) have also been submitted, they added.

A principal officer has also been designated by PayPal, as part of requirements in the anti-money laundering law. The officer will be responsible for official correspondence with the FIU.

PayPal will also be appointing a director to comply with the directives of the same law, as per the officials.

PayPal is a California-based global payments company, which proceeded with its India operations in November 2017.

Months later, a legal battle between PayPal and the FIU started in March 2018 after the national agency sought the global payments company’s registration as a reporting entity.

This was proposed to maintain a record of all transactions and report dubious transactions as well as cross-border wire transfers to the FIU. 

This was also to identify the beneficiaries of these funds. The California-headquartered company began its India operations in November 2017.

Notably, PayPal was faced with a Rs 96 lakh penalty by the FIU towards the end of 2020 over allegations of “frustrating" the tents of the PMLA, by not registering with it as a reporting entity under the PMLA.

“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 responded to PTI. 

The FIU is a national agency which is in charge of receiving, processing, analysing and sharing information about doubtful financial transactions in Indian economic channels to several enforcement agencies and foreign FIUs.

The national agency’s penalty against the global payments company was dismissed by a single-judge bench of the Delhi High Court in July last year.

The court in its ruling had nevertheless directed PayPal to comply with reporting allegations, since it was liable to be seen as a payments system operator under the PMLA.

PayPal had appealed against the Delhi High Court judgement the next month, in front of a two-member bench for dismissing the single-bench order.

The American company said terming it a payments system operator was an "arbitrary and impractical" interpretation of the "payment system" under the PMLA. 

The next hearing for this case is on March 7, but PayPal approached the Delhi High Court last month that it was "in the process of registering itself with FIU-IND (Financial Intelligence Unit - India) under the PA-CB Circular No.RBI/2023-24/80 dated 31st October, 2023." 

The Reserve Bank of India circular followed the Rs 96 lakh penalty against PayPal by the FIU, which was to regulate payment aggregators facilitating cross-border transactions for import and export of permissible goods and services online.

FIU said in its December 2020 order that PayPal was defeating the purpose of the anti-money laundering law by refusing the directive, as well as "frustrating the tenets of public interest in India." 

The non-cooperation is coupled with a clear understanding of the vulnerability and risks involved in its operations, which proves PayPal's repeated violations of the PMLA obligations, FIU added.

Paypal sharing its suspicious transaction reports was important for enabling the FIU to share such information with Indian law enforcement agencies. The refusal to register was not only hiding dubious financial transactions but also “abetting in the disintegration of India's financial system, posing an enhanced risk to the country’s financial system, as per the order. 

PayPal defended its position of not registering as a reporting entity with the FIU, referring to RBI guidelines that were followed during that point in time. It stated operating solely as an Online Payment Gateway Service Provider (OPGSP), or a payment intermediary in India.

This is not part of how either a payment system operator or financial institution is defined, which is thereby not part of the definition of a reporting entity that must register under the PMLA, it added.

PayPal’s US parent, PayPal Inc reports suspicious transactions to the Financial Crimes Enforcement Network, FIU said, while the Indian entity defies the process in the country.

PayPal also reports to similar agencies in Australia and the UK.

(With PTI inputs)