Paytm Payments Bank Fined for Anti-Money Laundering Violations

Preeti Bali / 11:52 am / March 7, 2024


Paytm Payments Bank was slapped with a ₹5.49 crore fine for anti-money laundering (AML) violations. The Financial Intelligence Unit (FIU) discovered the bank lacked a system to identify and report suspicious transactions, as mandated by AML regulations.

Following a four-year investigation, FIU substantiated accusations against Paytm Payments Bank under the Prevention of Money Laundering Act (PMLA). A notice was issued in February 2022, and the penalty imposed after Chairperson Vijay Shekhar Sharma’s resignation.

A Paytm Payments Bank spokesperson clarified that the penalty stemmed from issues in a discontinued business segment. They assured that monitoring systems and reporting procedures have been strengthened since then.

FIU Investigation Launched in 2020

Contrary to reports, Paytm Payments Bank’s troubles began well before the Reserve Bank of India’s (RBI) deposit restriction in January 2024. FIU initiated proceedings in 2020 based on law enforcement referrals. These referrals highlighted “extensive illegal activities” by a network of businesses connected to foreign individuals. The Hyderabad Police cyber crimes unit subsequently filed FIRs under various IPC and Telangana State Gambling Act sections.

Investigations revealed that certain entities and their businesses were involved in illegal activities like online gambling. Money obtained from these operations was allegedly “funneled” through bank accounts held by the same entities with Paytm Payments Bank.

Public reports, according to FIU, indicated these entities had defrauded numerous Indians through illegal gambling, dating, and streaming services. “The proceeds from these fraudulent activities were then sent abroad, and some involved entities used payment intermediaries to carry out their schemes within the country,” the FIU order stated.

FIU Accusations Against Paytm Payments Bank

The FIU accused Paytm Payments Bank of failing to implement an internal system to detect and report suspicious transactions as mandated by PMLA and PML rules. This failure applied to their payout service and the accounts of the implicated entities.

The bank was also charged with neglecting to conduct ongoing due diligence on their payout service and the accounts linked to it.

Finally, FIU accused them of violating PMLA Section 12, which mandates proper record-keeping by reporting entities. The bank allegedly relied on a non-compliant or unregulated third-party for KYC (Know Your Customer) procedures.

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