PayPal Joins India’s FIU, Upholds Anti-Money Laundering Law

PayPal, the American online payments gateway service provider, has finally registered its operations with the Financial Intelligence Unit of India (FIU-IND), after a long legal battle over its compliance with the Prevention of Money Laundering Act (PMLA). The company has appointed a principal officer and is in the process of appointing a director, as required by the law, to communicate with the FIU-IND and report suspicious transactions. The FIU-IND is a national agency that monitors and analyses financial transactions for money laundering and terrorist financing activities.

Background of the Legal Dispute

The legal dispute between PayPal and the FIU-IND started in March 2018, when the FIU-IND asked PayPal to register as a reporting entity under the PMLA and to keep record of all transactions, report suspicious transactions and cross-border wire transfers, and identify beneficiaries of these funds. PayPal refused to comply, claiming that it was not a payments system operator under the PMLA and that it only provided technology services to its customers. The FIU-IND then imposed a Rs 96 lakh penalty on PayPal in December 2020, accusing it of frustrating the intents of the PMLA and concealing suspect financial transactions. PayPal challenged this penalty in the Delhi High Court, which quashed it in July 2023. However, the court also ruled that PayPal was indeed a payments system operator under the PMLA and had to comply with its reporting obligations. PayPal filed an appeal against this judgment in August 2023, arguing that the court had employed an arbitrary and impractical interpretation of payment system under the PMLA.

PayPal Compliance with RBI’s Regulatory Framework

While the appeal was pending, PayPal informed the Delhi High Court on December 15, 2023 that it was in the process of registering itself with the FIU-IND under the RBI’s recent regulatory framework for cross-border payment aggregators (PA-CB), which was issued on October 31, 2023. This framework is meant to regulate payment aggregators who facilitate cross-border transactions for import and export of permissible goods and services in online mode. It requires such payment aggregators to register with the FIU-IND as reporting entities under the PMLA and to comply with its provisions. PayPal stated that it had registered as a reporting entity with the FIU-IND in compliance with this framework, which is applicable to the PA-CB industry.

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