Committee set as much as look at if cost gateway may be reporting entity underneath PMLA: Centre to HC


New Delhi, February 26

The Centre told the Delhi High Court on Friday that it has set up a committee, as directed by it, on whether a company like PayPal can be considered a payment system operator as well as a reporting entity under the Prevention of Money Laundering Act (PMLA).

The submission was made before Justice Prathiba M Singh by Additional Solicitor General (ASG) Chetan Sharma who said the committee held a meeting on February 23 and another is scheduled on March 4 after which it would submit its final report.

The court directed that the report be placed on record before the next date of hearing on May 20.

It was hearing American online payment gateway PayPal’s plea challenging a Rs 96 lakh penalty imposed on it for alleged violation of anti-money laundering law.

Justice Singh had on January 12 stayed the December 17, 2020 order of the Financial Intelligence Unit (FIU) India imposing the penalty on PayPal, subject to the payment gateway maintaining records of all its transactions in a secure server and depositing within two weeks in the high court a bank guarantee of Rs 96 lakh.

PayPal deposited the bank guarantee in the high court.

On Friday, Justice Singh said the interim order in favour of PayPal shall continue till the next date of hearing.

The FIU on December 17, 2020 had directed the company to pay the fine within 45 days and also register itself as a reporting entity with the FIU, appoint a principal officer and director for communication within a fortnight of the receipt of the order.      

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

PayPal has contended that only a bank or an authorised dealer of foreign exchange will be a reporting entity and it is only a facilitator of financial transactions between registered banks and only charges a small amount as a “facilitator fee”.

The FIU had told the high court that there is a provision for appeal against the December 17, 2020 order by approaching the appellate tribunal within one-and-a-half month.

It had also contended that the plea ought to have been filed in the Bombay High Court which would be the appropriate forum.

The FIU in its 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”, FIU 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.

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

The FIU analyses and shares these reports with various intelligence and investigative agencies for further action.

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

PayPal defended its action and cited 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, however, had rejected its claims and said PayPal was very much involved in handling funds in India, is 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. — PTI



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