American online payments gateway PayPal filed a complaint in the Delhi High Court on Wednesday against an order that ruled that it was a “payment system operator” within the meaning of the Prevention of Money Laundering Act (PMLA). ) acts and must therefore comply with its “reporting obligations”.
A senior PayPal attorney argued before a bench chaired by Chief Justice Satish Chandra Sharma that the order issued by a single Supreme Court Justice was “wrong.”
Lead counsel Mukul Rohatgi, who represented the appellant, also said that the single judge’s order could not be upheld given a recent Supreme Court ruling on the payment system operator issue.
The chamber, which included Judge Sanjeev Narula, submitted the appeal for a further hearing in September.
On July 24, the single judge overturned a Rs.96 lakh fine imposed on PayPal by the Financial Intelligence Unit (FIU) – India for allegedly failing to comply with “reporting requirements” under the Anti-Money Laundering Act.
It had also decided that PayPal can be considered a “payment system operator” within the meaning of the PMLA and must therefore comply with its “reporting obligations”.
The single judge’s order came on the basis of a petition by PayPal against the fine imposed by the FIU.
On December 17, 2020, the FIU ordered the company to pay the fine within 45 days and also to register as a reporting company with the FIU because it is a “payment system operator” and a managing director and director for communications within a year to appoint two weeks after receipt of the appointment.
By law, a reporting company must report to the authorities all foreign exchange transactions that take place in its system.
Financial Intelligence Unit (FIU) – India is an organization under the Ministry of Finance of the Government of India which collects financial information related to crimes under the Money Laundering Prevention Act 2002.
The single judge had stated that the PMLA was not only a criminal law but also aimed at detecting and preventing fraudulent and suspicious transactions and that its salutary aims must be kept in mind when clarifying the intent and scope of its various provisions.
In its December 2020 order, the FIU-India had accused PayPal of violating the PMLA, “concealing” suspicious financial transactions and facilitating the “disintegration” of the Indian financial system.
According to the order, the litigation had started in March 2018 when the FIU required PayPal to register as a reporting entity to record all transactions, report suspicious transactions and cross-border transfers to the FIU, and identify beneficiaries of those funds.
Pursuant to the order issued under Section 13 of the PMLA, PayPal had rejected the FIU’s direction and therefore issued an allegation notice against the company in September 2019.
PayPal had defended its lawsuit, citing the Reserve Bank of India’s guidelines, in which it stated that the company only operates as an Online Payment Gateway Service Provider (OPGSP) or payment agent in India and “does not fall under the definition of a payment system operator or financial institution falls”. Institution and in turn do not fall under the definition of a reporting entity under the PMLA.
“Therefore, payment intermediaries like PayPal are currently not required to register as such with the FIU-India,” it said in its response to the agency.
However, the FIU had dismissed their claims, stating that PayPal was heavily involved in handling funds in India, was a “financial institution” and therefore qualified as a reporting entity under the PMLA.
The FIU order also states that while the company is resisting the process in India, its parent company in the US – PayPal Inc. – reports suspicious transactions to the US FIU and also to similar authorities in Australia and the UK.
(This story was not edited by NDTV staff and is auto-generated from a syndicated feed.)