Paytm Payments had seen its wings clipped last month, and had then been slapped with a Rs. 5.49 crore penalty, but there’s now more information about what caused these actions in the first place.
India’s Financial Intelligence Unit has said that “extensive illegal activity” perpetrated by multiple businesses managed by “a syndicate of individuals connected to a foreign state” was the chief reason behind the fine imposed on Paytm Payments Bank last week. The FIU didn’t specify the “foreign state” in question. This illegal activity had involved promotion of fraudulent services which included prohibited gaming activities and dating services, and cheated lakhs of Indians. The money was eventually moved abroad after being routed through Paytm Payments Bank.
The FIU also revealed that the investigation into Paytm Payments Bank had begun two years ago when the Cyber Crime Station of Hyderabad had lodged FIRs under relevant sections of the Indian Penal Code and the Telangana State Gambling Act. The FIRs had flagged certain business entities and their network of businesses engaging in a number of illegal acts such as organising and assisting online gambling and were routing the proceeds of such criminal activities through bank accounts with Paytm Payments Bank.
“In the course of such investigation, certain entities were found to have cheated lakhs of Indians through the offering of fraudulent services including prohibited gambling activities, dating services, and streaming. The proceeds of these fraudulent activities were subsequently remitted abroad,” the FIU noted.
During its investigation, the FIU found that Paytm Payments Bank had had violated the law by failing to exercise ongoing due diligence with reference to the accounts of 34 beneficiaries, and failed to file suspicious transaction reports in respect of those accounts. The agency also listed out payout-related charges against the bank, which included its failure to put an internal mechanism in place to detect and report suspicious transactions in the manner prescribed under the Prevention of Money Laundering Act rules. The bank also failed to “satisfy the requirements with respect to reliance on third-party KYC [Know Your Customer] by relying on a non-compliant/unregulated entity”, which was a violation of the rules. The FIU had also hauled up PPBL for failing to “exercise ongoing due diligence with respect to its payout service and accounts of entities in question.
Bits and pieces of this information had come out in the media in the last few weeks. It had been reported that Paytm was being probed for facilitating money laundering, and that KYC procedures at the bank had been less than adequate — over 1,000 accounts were found that were linked to the same PAN card. The FIU had also slapped the bank with a Rs. 5.49 crore penalty. But the body has now provided extensive details around what Paytm’s infractions were — it appears that the bank had been asleep at the wheel while illegal activities were carried out through its accounts, and that isn’t the best look for a financial institution that’s in charge of thousands of crores of customer deposits.
The matter first came to light over two years ago with the Cyber Crime Station of Hyderabad lodging First Information Reports (FIRs) under relevant sections of the Indian Penal Code and the Telangana State Gambling Act.
The FIRs flagged certain business entities and their network of businesses engaging in a number of illegal acts such as organising and assisting online gambling, routing the proceeds of such criminal activities through bank accounts they maintained with the payments bank.
The FIU, as per a summary of its March 1 order against PPBL, said the inception of its probe into the troubled payments bank stemmed from law enforcement agencies “identification” of this illegal activity. As part of the FIU’s mandate to ensure effective implementation of the Prevention of Money Laundering Act (PMLA), it regularly examines compliance levels of reporting entities like PPBL in the wake of any criminal conduct or fraud coming to light.
“In the course of such investigation, certain entities were found to have cheated lakhs of Indians through the offering of fraudulent services including prohibited gambling activities, dating services, and streaming. The proceeds of these fraudulent activities were subsequently remitted abroad,” the FIU noted.
Based on the bank’s responses to its show-cause notices, the FIU concluded that it had violated the law by failing to exercise ongoing due diligence with reference to the accounts of 34 beneficiaries and failed to file suspicious transaction reports in respect of those accounts.
The agency also listed out payout-related charges against the bank, which included its failure to put an internal mechanism in place to detect and report suspicious transactions in the manner prescribed under the PMLA and PML rules.
The bank also failed to “satisfy the requirements with respect to reliance on third-party KYC [Know Your Customer] by relying on a non-compliant/unregulated entity in violation of Section 12 of PMLA read with Rule 9(2)(c) and Rule 9(2)(f)”, as per the FIU order summary. It also hauled up PPBL for failing to “exercise ongoing due diligence with respect to its payout service and accounts of entities in question…”
The order refers to “extensive illegal activity conducted by multiple businesses under the syndicate of individuals connected to a foreign state” but does not indicate which foreign state was involved.