PayPal registers under the anti-money laundering law with the FIU.

PayPal, an American online payment gateway service provider, has registered its operations with India’s Financial Intelligence Unit, some six years after the two institutions engaged in a protracted court struggle. The company has recently finished the formal process of being designated as a reporting entity under the Prevention of Money Laundering Act (PMLA) and has submitted the necessary documentation to the Financial Intelligence Unit (FIU), according to official sources who spoke with PTI.

In compliance with the anti-money laundering legislation, PayPal has designated a main officer to facilitate formal correspondence with the Federal Bureau of Investigation (FBI). Meanwhile, the law is now in the process of appointing a director.

“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 is applicable to the PA-CB industry,” a spokesperson for PayPal responded to a PTI inquiry.

The multinational online payments corporation was hit with a Rs 96 lakh penalty by the federal anti-money laundering agency in December 2020. The agency claimed that by failing to register as a reporting entity under the PMLA, the company was “frustrating” the provisions of the law.

A Delhi High Court bench of one judge overturned the FIU’s punishment against PayPal in July 2023.

However, the court decided in the same ruling that the business must abide by the reporting requirements of this statute since it may be considered a payments system operator for the purposes of the PMLA.

In an attempt to overturn the high court’s ruling, PayPal filed an appeal with a two-member Delhi High Court bench in August 2023. The company claimed that the court used a “arbitrary and impractical” interpretation of “payment system” under the PMLA to reach its decision, which referred to it as a payments system operator.

While the matter is scheduled for a follow-up hearing on March 7, PayPal notified the Delhi High Court panel on December 15 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.”

This circular, released by the Reserve Bank of India (RBI) in response to the Federal Investigation Unit (FIU) fining PayPal Rs 96 lakh, aims to control payment aggregators that enable cross-border online import and export of approved goods and services.

The FIU demanded that PayPal register as a reporting entity in order to keep “record” of all transactions, report suspicious transactions and cross-border wire transfers to the agency, and identify beneficiaries of these monies. This request marked the beginning of the legal battle between PayPal and the FIU in March 2018. The California-based business started doing business in India in November 2017.

The Federal Bureau of Investigation (FBI) claimed in its December 2020 order that PayPal was “defeating” the anti-money laundering law’s basic goal and “frustrating the tenets of public interest in India” by rejecting its direction.

“This non-cooperation, coupled with clear understanding of the vulnerability and risks involved in its operations, clearly proves PayPal’s repeated violations of the PMLA obligations,” it had stated.

The order stated that PayPal’s refusal to register was “not only concealing suspect financial transactions but is also abetting in the disintegration of India’s financial system” and posing “enhanced risk to the financial system of India.” The FIU’s ability to share such information with Indian law enforcement agencies was made possible by PayPal’s “crucial” sharing of reports on suspicious transactions.

PayPal then defended its decision to not register with the FBI as a reporting entity, claiming that it 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” and that it only acts as an Online Payment Gateway Service Provider (OPGSP) or a payment intermediary in India. The claims were made citing then-current RBI guidelines.