penalty on PayPal by FIU quashed by Delhi HC

The Delhi High Court set aside a penalty of Rs 96 lakh imposed on American online payment gateway PayPal by the Financial Intelligence Unit-India for alleged non-compliance with the reporting obligations under the law against money laundering.

Justice Yashwant Varma, however, ruled that PayPal was liable to be viewed as a payment system operator under the the Prevention of Money Laundering Act (PMLA) and so has to comply with reporting obligations under the law.

Justice Yashwant Varma, however, ruled that PayPal was liable to be viewed as a payment system operator under the the Prevention of Money Laundering Act (PMLA) and so has to comply with reporting obligations under the law.

In its 174-page order, the court rejected the penalty imposed upon PayPal, saying it was “clearly unjustified” as PayPal was under the bona fide belief that its operations did not fall within the ambit of the PMLA.

“The Court holds that PayPal is liable to be viewed as a “payment system operator” and consequently obliged to comply with reporting entity obligations as placed under the PMLA. The imposition of penalty in terms of the impugned order dated 17 December 2020 is, however and for reasons aforenoted, quashed,” the court ordered.
The court’s order came on a petition by PayPal challenging the Rs 96 lakh penalty imposed on it by the FIU for alleged violation of the PMLA.
The FIU had on December 17, 2020 directed the company to pay the fine within 45 days and also register itself as a reporting entity with the FIU on account of being a “payment system operator” and appoint a principal officer and director for communication within a fortnight of the receipt of the order.
Under the law, a reporting entity has to report to authorities any foreign exchange transaction which occurs on its system.
Financial Intelligence Unit (FIU) – India is an organisation under the Department of Revenue, Government of India which collects financial intelligence about offences under the Prevention of Money Laundering Act, 2002. It receives, processes, analyzes and disseminates information relating to suspect financial transactions to enforcement agencies and foreign FIUs.
The judge noted that all elements of the transaction comprised or connected with a payment being effected between two parties would appear to fall within the scope of the expression “payment system” under the PMLA, and the technology on which the platform of PayPal rests enables the transfer of money between parties at different ends.
The court said PMLA was not merely a penal statute but also aimed towards discovery and prevention of fraudulent and suspicious transactions, and its salutary objectives must be borne in mind while seeking to unravel the intent and scope of its various provisions.
The FIU-India in its December 2020 order had accused PayPal of contravening the PMLA and “concealing” suspect financial transactions and abetting “disintegration” of India’s financial system.
Terming the contravention as “deliberate and wilful”, the FIU had held the company guilty on three broad counts, the fundamental being its failure to register itself as a “reporting entity” with the federal agency as mandated under the PMLA.
The legal tussle had begun in March 2018 when the FIU asked PayPal to register as a reporting entity for keeping a record of all transactions, reporting suspicious transactions and cross-border wire transfers to the FIU, and for identifying beneficiaries of these funds.
As per the order issued under section 13 of the PMLA, PayPal had refused to accept the FIU’s directive and a show-cause notice was issued to it in September 2019.
PayPal had defended its action and cited the Reserve Bank of India guidelines to state that it only operates as an Online Payment Gateway Service Provider (OPGSP) or a payment intermediary in India and is “not covered within the definition of a payment system operator or financial institution and in turn, not covered under the definition of a reporting entity under the PMLA”.
“Therefore, at this time, payment intermediaries, such as PayPal, are not required to register as such with the FIU-India,” it had said in its reply to the agency.
The FIU had, however, rejected its claims and said PayPal was very much involved in handling funds in India, was a “financial institution” and hence qualifies to be a reporting entity under the PMLA.
The FIU order had also said while the company “defies” the process in India, its parent company in the US – PayPal Inc – reports suspicious transactions to the American FIU and also to similar agencies in Australia and the UK.

Source: MoneyControl

Rs 96 lakh penalty on PayPal by FIU quashed by Delhi HC

Justice Yashwant Varma, however, ruled that PayPal was liable to be viewed as a payment system operator under the the Prevention of Money Laundering Act (PMLA) and so has to comply with reporting obligations under the law.

The court’s order came on a petition by PayPal challenging the Rs 96 lakh penalty imposed on it by the FIU for alleged violation of the PMLA.

Under the law, a reporting entity has to report to authorities any foreign exchange transaction which occurs on its system.

The court said PMLA was not merely a penal statute but also aimed towards discovery and prevention of fraudulent and suspicious transactions, and its salutary objectives must be borne in mind while seeking to unravel the intent and scope of its various provisions.

The FIU-India in its December 2020 order had accused PayPal of contravening the PMLA and “concealing” suspect financial transactions and abetting “disintegration” of India’s financial system.

Terming the contravention as “deliberate and wilful”, the FIU had held the company guilty on three broad counts, the fundamental being its failure to register itself as a “reporting entity” with the federal agency as mandated under the PMLA.

The legal tussle had begun in March 2018 when the FIU asked PayPal to register as a reporting entity for keeping a record of all transactions, reporting suspicious transactions and cross-border wire transfers to the FIU, and for identifying beneficiaries of these funds.

As per the order issued under section 13 of the PMLA, PayPal had refused to accept the FIU’s directive and a show-cause notice was issued to it in September 2019.

“Therefore, at this time, payment intermediaries, such as PayPal, are not required to register as such with the FIU-India,” it had said in its reply to the agency.

The FIU had, however, rejected its claims and said PayPal was very much involved in handling funds in India, was a “financial institution” and hence qualifies to be a reporting entity under the PMLA.

The FIU order had also said while the company “defies” the process in India, its parent company in the US – PayPal Inc – reports suspicious transactions to the American FIU and also to similar agencies in Australia and the UK.

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Justice Yashwant Varma, however, ruled that PayPal was liable to be viewed as a payment system operator under the the Prevention of Money Laundering Act (PMLA) and so has to comply with reporting obligations under the law.

The court’s order came on a petition by PayPal challenging the Rs 96 lakh penalty imposed on it by the FIU for alleged violation of the PMLA.

Under the law, a reporting entity has to report to authorities any foreign exchange transaction which occurs on its system.

The court said PMLA was not merely a penal statute but also aimed towards discovery and prevention of fraudulent and suspicious transactions, and its salutary objectives must be borne in mind while seeking to unravel the intent and scope of its various provisions.

The FIU-India in its December 2020 order had accused PayPal of contravening the PMLA and “concealing” suspect financial transactions and abetting “disintegration” of India’s financial system.

Terming the contravention as “deliberate and wilful”, the FIU had held the company guilty on three broad counts, the fundamental being its failure to register itself as a “reporting entity” with the federal agency as mandated under the PMLA.

The legal tussle had begun in March 2018 when the FIU asked PayPal to register as a reporting entity for keeping a record of all transactions, reporting suspicious transactions and cross-border wire transfers to the FIU, and for identifying beneficiaries of these funds.

As per the order issued under section 13 of the PMLA, PayPal had refused to accept the FIU’s directive and a show-cause notice was issued to it in September 2019.

“Therefore, at this time, payment intermediaries, such as PayPal, are not required to register as such with the FIU-India,” it had said in its reply to the agency.

The FIU had, however, rejected its claims and said PayPal was very much involved in handling funds in India, was a “financial institution” and hence qualifies to be a reporting entity under the PMLA.

The FIU order had also said while the company “defies” the process in India, its parent company in the US – PayPal Inc – reports suspicious transactions to the American FIU and also to similar agencies in Australia and the UK.

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