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Around 100 Fin-tech Companies’ Accounts Frozen By Enforcement Directorate

The Enforcement Directorate (ED) froze accounts of over 100 fintech companies but has not provided reasons or an FIR yet, as per media reports

The notice to banks and payment gateways did not provide a reason for the decision.

As reported by Mint, the Enforcement Directorate (ED) has directed banks and payment gateways (PG) to freeze the accounts of around 100 fin-tech companies. The notices do not provide a reason for the same. 

Who Is Affected by the Order?

Affected fin-tech companies include:

  • Pagarbook: a staff attendance and payroll management software. 
  • Kredily: a free Human Resources and Payroll management software.
  • Progcap: developing a full-stack, retailer-focused bank catering to Small and Medium Businesses.
  • Propelld: an education loan financing service.
  • Pocketly: a short-term, instant personal loan service, targeted at students.
  • Krazybee: a ‘non-deposit’ taking Non Banking Financial Company offering loans.

Progcap, Krazybee, and Pagarbook have been reportedly reprieved from the order, along with approximately 15 other companies.

What Questions Did the ED Ask?

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The ED also summoned some of the companies affected. One such founder said the agency broadly asked questions about the company’s investors, the funding raised, and its net worth. The company’s account was unfrozen after it submitted its answers to the ED. The same founder also suggested that the larger question on the agency’s mind was whether the company lent Chinese money. 

Why is the ED Concerned About Chinese Links?

The ED’s actions, in this case, may reflect a long-term trend of shutting down predatory fin-tech companies offering short-term loans at extremely high-interest rates. Some investigations into these companies revealed links to Chinese entities.

  • These platforms’ methods of pursuing repayment are often violent. On January 8th, 2021, a 24-year-old man died by suicide in Telangana after repeated harassment from a predatory digital lender to repay his loan—the latter went to the extent of harassing his family as well. This is only one story among many from across the country. 
  • In January 2021, the ED and various state Criminal Investigation Departments began inquiries into at least 24 fake or predatory digital lending platforms—some of which were backed by Chinese entities. At the time, over 30 such arrests had been made. 
  • However, despite these efforts, the pattern continues. In March of this year, the Hyderabad Police arrested two Bengaluru residents for allegedly operating six predatory lending apps supervised by a Chinese national. Threats were made to those unable to pay back, and morphed pictures of the victims were also posted online.

Under What Laws Does the ED Charge ‘Predatory’ Fin-Tech Companies?

Over the last two years, after initial police complaints were filed, predatory fin-tech companies have been largely charged by the ED under the Foreign Exchange Management Act, 1999, and the stringent Prevention of Money Laundering Act, 2002 (PMLA). 

  • While this may certainly curb the actions of fraudulent payment services, it can have a negative effect on the operations and prospects of companies that are swept into the same bracket that may be compliant. Those affected by the ED’s latest raid said that legal consultation was difficult in the absence of an FIR.  
  • Multiple challenges to the provisions of the PMLA are currently pending at the Supreme Court—and include questions on the expansive powers it grants the ED in charging individuals in alleged money laundering cases, often at the expense of the accused’s right to a free and fair trial. 

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