PayPal India Accused Of Hiding Suspect Financial Transactions: Slapped With ₹96 Lakh Fine!

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Paypal, the U.S. online payments giant has been slapped with a humongous penalty in India. What went wrong? Let’s find out.

The Indian Government’s Financial Intelligence Unit aka FIU slapped an Rs. 96 lakh penalty on PayPal on the grounds of allegedly contravening the country’s anti-money laundering law along with accusing them of ‘concealing’ suspect financial transactions and in turn abetting the ‘disintegration’” of India’s financial system.

In a response to the penalty, PayPal (PayPal Payments Private Limited), which started operating in India from November 2017, said they are completely committed to following all the due process and is currently reviewing the matter carefully.

The FUI has also charged the American payment gateway provider with defeating and frustrating the provisions of the Prevention of Money Laundering aka PMLA Act whose purpose is to keep India’s financial system safe from events such as economic crimes, black-money transactions, and terrorist funding.

GOI’s Financial Intelligence Unit, in a 27-page long order issued on 17th December, held PayPal guilty on three broad counts, the core of which boils down to the fact that the company failed to register itself as a reporting entity with the Indian federal agency as the PMLA Act mandates.

The FUI issued order has directed PayPal to pay the fine within a time period of 45 days along with registering itself as a reporting entity with FIU and appointing a principal officer and director of communication within a fortnight from the time they received the order.

A Paypal spokesperson, in a statement about this order, said that the company takes its regulatory compliance obligations very seriously over the 200 markets wherein it currently operates. Therefore, without further reviewing the matter with the utmost attentiveness, they cannot comment further at this point.

Now while this is the first time the FIU has taken such punitive action against an online payments giant operating in the country, it is not the first time PayPal and federal agency locked horns.

As per the order issued, the legal battle between the PayPal and FIU began in March 2018 wherein the latter asked the American payments giant to register as a reporting entity with the agency to keep a record of all transactions and reporting suspicious transactions.

But, back then PayPal refused to comply with the FIU’s directive which then led to a show-cause being issued to them in September 2019.

After that, the U.S origin payments’ giant went on to defend their action by citing the RBI guidelines and stating that they only operate as a payment intermediary or Online Payment Gateway Service Provider aka OPGSP. Thus, they should no be included under the definition of a payment system operator or financial institution.

Along with this, PayPal also stated that they had “submitted” their decision to cease domestic payment aggregator business in India before June 2020 to the RBI.

To this, the FIU responded by rejecting their claims and saying that PayPal is very much involved in the handling of funds in India and therefore qualifies as a ‘financial institution’ which further requires them to be a reporting entity under the PMLA.

Now, it remains to be seen how this new development plays out for the ongoing battle. Only time will tell if PayPal chooses to finally give in to the FIU’s demands or counter the move by filing an appeal against the order before the Appellate Tribunal of the PMLA. We will keep you updated on all future developments. Until then, stay tuned.


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