PayPal ruling will help India during FATF review of its anti-black money regime, claim insiders

A recent Delhi High Court ruling that declared American online payment gateway PayPal a 'reporting entity' under the anti-money laundering law will boost India's efforts to show that its financial systems, currently under a FATF review, are becoming "robust", financial investigators have said.

The court of Justice Yashwant Verma on July 24 ruled that PayPal was liable to be viewed as a payment system operator under the Prevention of Money Laundering Act (PMLA) even as it quashed a Rs 96 lakh penalty imposed on the firm imposed by the Financial Intelligence Unit (FIU) in December 2020.

The Financial Action Task Force (FATF), a Paris headquartered global body, leads action against money laundering and terrorist financing crimes. A review of the Indian anti-money laundering systems is currently underway and a visit of the FATF team is expected to commence in November.

Also Read | As many as 5.83 crore ITRs filed for 2022-23 fiscal

Top officials in financial law enforcement agencies told PTI that the categorisation of PayPal as a reporting entity under the PMLA will ensure that all such big payment gateways and platforms are regulated and they share the stipulated suspicious transaction reports (STRs) and cross-border wire transfer reports with the FIU under the PMLA.

The FIU, as per its mandate, disseminates these reports to various probe agencies which investigate money laundering, tax evasion, and other serious financial frauds.

All such payment gateways and payment system operators enable transactions worth crores of rupees and it is very essential to know what is happening where, a senior officer working with a probe agency, who did not wish to be named, said.

Financial investigators say that the recent HC judgement will help the FIU bring operations of about a dozen more such payment gateways under the 'reporting entity' regime even as a number of payment gateways operating in the country are already reporting STRs to the FIU.

While the HC judgement in the PayPal case may not give India additional points during the FATF review, it will surely underline that Indian anti-money laundering agencies are leaving no stone unturned to ensure that the country's economic channels are clean and the risks of financial crimes minimum, the officer said.

A legal tussle between the FIU and PayPal began in March 2018 when the former asked the company to register as a reporting entity for keeping "record" of all transactions, reporting suspicious transactions and cross-border wire transfers, and identifying beneficiaries of these funds.

An order issued in December 2020 by the then FIU Director, Pankaj Kumar Mishra, had held the company guilty on three broad counts, the fundamental one being its failure to register itself as a "reporting entity" with the federal agency as mandated under the PMLA.

Paypal told the HC during the hearings that functions performed by it "would also not extend to money transfer operations since it at no stage of the entire transaction handles funds which move between the Indian exporter and the overseas buyer."

The company argued that it cannot be said to be a payment system operator as being claimed by the FIU.

The FIU counsel told the court that the nodal account maintained by PayPal in India with Citibank "witnessed export transactions of a combined value of more than Rs 12,000 crore in 2021."

The grievance of the FIU-IND essentially is, and in its own words, described to be that of an "impaired visibility" with respect to transactions which are completed on PayPal's platform, the HC noted in its order.