• Fri. Dec 1st, 2023
PayPal is a payment system operator under the PMLA;  Obligations of reporting entity to be met: Delhi High Court

PayPal and Delhi High Court

The Delhi High Court on Monday ruled that online payment platform PayPal is a ‘payment system operator’ within the ambit of the Prevention of Money Laundering Act (PMLA) and is therefore liable to comply with reporting entity obligations under the PMLA. (PayPal Payments Private Limited v Financial Intelligence Unit India & Anr).

This means PayPal will have to comply with Section 12 of the PMLA, which mandates a ‘reporting entity’ to keep records of all transactions and verify and maintain records of the identities of all its clients for ten years. This provision places several other obligations on a ‘reporting entity’.

Single Judge Justice Yashwant Verma The actual handling of funds is not determinative of whether an institution falls within the definition of ‘payment system’.

The court rejected PayPal’s contention that as it is not considered a payment system operator or a ‘reporting entity’ under the Payment and Settlement System Act, 2007 (PSS Act), it must be factual to avoid falling under the net of PMLA.

The court held that PayPal falls within the definition of “payment system” as defined under Section 2(1)(RB) of the PMLA.

The Court finds no justification for limiting the expression “payment system” to entities directly or indirectly engaged in the handling or transfer of money. Any interpretation contrary to what has been mentioned above will not only hinder and hamper the measures which are liable to be deployed but also hinder and hamper the data collection and analysis which constitute the critical elements of AML (Anti-Money Laundering) measures. said the bench.

The fact that the PayPal-based technology enables the transfer of money between various end parties and that the platform interacts with commercial banks or other payment aggregators does not deter it from being recognized as a payment-enabling, payment-related system.

“Considering the basic objectives of the enactment of the PMLA and the activities it seeks to regulate and penalize, the Court considers emphasizing that there is no legal justification for construing Section 2(1)(rb) to include only entities that directly transfer or transmit money. Verdict.

The court was hearing a petition filed by PayPal against a fine of Rs 96 lakh imposed by the Financial Intelligence Unit for not registering as a ‘reporting entity’.

It is PayPal’s case that the FIU has misinterpreted the PMLA provisions contrary to all settled principles of statutory interpretation.

The company claimed that it acts as a payment intermediary and online payment gateway service provider to customers and does not provide clearing, payment, money transfer or settlement services.

Consequently, it contended that it was not a “financial entity” under Section 2(1)(l) of the PMLA and therefore was not required to register itself as a reporting entity under Section 2(1)(va) of the Act.

The FIU said that PayPal has failed and frustrated the principles of public interest and the provisions of PMLA by not following the law.

It said these violations were “wilful and willful” as the company did not register itself as a “reporting entity” as mandated under the PMLA.

The FIU also flagged that although PayPal defies this process in India, it reports suspicious transactions to the American FIU and agencies in Australia and the UK.

After considering the case, Justice Verma concluded that PayPal is a payment system operator.

However, it ruled that FIU’s order imposing penalty on PayPal was unjustified as the company was found to be conniving with FIU and acted in good faith that its activities were not covered by PMLA.

“The instant writ petition is partly allowed. Based on the conclusions recorded herein, the Court holds that PayPal is liable to be treated as a “payment system operator” and consequently liable to comply with the reporting entity obligations placed under the PMLA. However, the imposition of penalty pursuant to impugned order dated 17th December, 2020 is hereby set aside for the above reasons,” The court concluded.

Senior Advocates Kapil Sibal, Sajan Poovaiah, Advocates Shali Bhasin, Shreya Mukherjee, Prateek Gupta, Varshini Sudhinder and Palash Maheshwari appeared for PayPal.

Advocates Soheb Hossain, Vivek Gurnani and Farheen Penwale appeared for FIU.

Senior advocate Parag P Tripathi appeared for RBI along with Ramesh Babu, Manisha Singh, Rohan Srivastava and Mishika Bajpai.

PayPal Payments Pvt Ltd v Financial Intelligence Unit India & Anr.pdf


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