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Foreign state actors stashed illicit funds in Paytm bank accounts: Financial Intelligence Unit

The interface of Indian payments app Paytm is seen in front of its logo displayed in this illustration picture. File
| Photo Credit: Reuters

“Extensive illegal activity” perpetrated by multiple businesses managed by “a syndicate of individuals connected to a foreign state” who cheated lakhs of Indians by offering “fraudulent services including prohibited gambling activities and dating services” was the trigger for the ₹5.49 crore fine imposed on Paytm Payments Bank Limited (PPBL) by India’s Financial Intelligence Unit (FIU) last week.

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.

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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.

The agency added that it also came to light that several of the involved entities had used payment intermediaries to implement their fraudulent designs within India.

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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.

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