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Delhi High Court Stays ₹96 lakh FIU penalty on PayPal

The Delhi High Court on Monday stayed a penalty issued by the Finance Ministry’s Financial Intelligence Unit (FIU) against PayPal Payments Private Limited, the global payments giant’s Indian arm, according to LawStreet India. In December 2020, the FIU imposed a ₹96 lakh penalty against PayPal India over non-compliance with norms laid out in the Prevention of Money Laundering Act, 2002 (PMLA).

PayPal filed a case with the Delhi High Court challenging the FIU penalty earlier this year. While the court has stayed the penalty, subject to PayPal providing a bank guarantee, it has asked the Reserve Bank of India and the Ministry of Finance to clarify its stance on companies like PayPal’s reporting to the FIU.

The bone of contention in this case is that PayPal failed to register itself with the FIU for several years. While PayPal says that it is a payments intermediary and not a payments system operator, the FIU says that the PMLA does not “distinguish between ‘payment systems’ and ‘payment services’, and has similar definitions for ‘payments systems’ and ‘payments operators’ as under RBI regulations.” Therefore, PayPal is not just a payment intermediary but also operates a payment system, the FIU said.

“PayPal wilfully violated law”

In its order, the FIU said that “there is ample evidence of the wilful violation of the law and, therefore, PayPal cannot be let off with a penalty that should normally be imposed for minor violations.” It directed the company to pay the fine with 45 days and register itself as a reporting entity with the FIU, as well as appoint a principal officer and director for communication within a fortnight of the receipt of the order.

On January 12, the high court issued a notice (read order here: Delhi High Court 12/1/2021 PayPal vs FIU) to the FIU and sought its stance on PayPal’s plea by February 26, this year. The court also directed the Reserve Bank of India and the Ministry of Finance to constitute a committee to clarify the policy stance on whether entities like PayPal need to be considered as reporting agencies under the PMLA.

Further, the court said that PayPal has to maintain electronic records of all transactions that fall under the ambit of the PMLA, submit a bank guarantee of ₹96 lakh within two weeks to Registrar General of the Court, that PayPal’s managing director submit an undertaking to the court that the company will abide by any orders passed in this petition including furnishing data.

“PayPal not operating payment system”: RBI

Senior advocate Mukul Rohatgi, appearing for PayPal, said that the cannot be deemed to be a “reporting entity” under the PMLA since no foreign exchange is actually collected or paid by the platform. “He categorically submits and assures the Court that in the transactions facilitated by the Petitioner, no actual money is received or disbursed by the Petitioner – except for the payment of the nominal facilitator fee,” the order said.

Further, in an affidavit submitted to the court, the RBI said that PayPal does not fall under Payments and Settlements Act, 2007. “It is further submitted that currently PayPal Payments Private Ltd. is not operating or participating in, a payment system and hence this scheme is not applicable to it,” the RBI said.

“The RBI and Union of India ought to take a clear stand after due consultation as to whether they consider platforms such as that of the Petitioners as being within the purview of the PML Act. Accordingly, the Secretary, Ministry of Finance, is directed to constitute a Committee with a nominee of the RBI and the Ministry of Finance, to clarify their position as to whether companies like the Petitioners who claim to be facilitators of monetary transactions, both in foreign exchange and in Indian Rupees, ought to be categorised as “payment system operators” and hence “reporting entities” under the PML Act.” Delhi High Court order dated January 12, 2021

It directed that the committee meet within ten days of the order and that its views submitted by way of an affidavit to the court, within two weeks.

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