Paytm Payments Bank Limited (PPBL) faced yet another setback after the Financial Intelligence Unit-India (FIU-IND) on March 1 imposed a penalty of Rs 5,49,00,000 on it for violations of its obligations under the Prevention of Money Laundering Act (PMLA), 2002.
The agency said that PPBL failed to detect and report suspicious transactions carried out using its services, did not carry out due diligence of its customers, and relied on a non-compliant and unregulated entity to carry out know your customer (KYC) processes.
“The penalty pertains to issues within a business segment that was discontinued two years ago. Following that period, the bank has enhanced its monitoring systems and reporting mechanisms to the Financial Intelligence Unit (FIU),” PPBL said in a statement in response to the fine.
This penalty comes a month after the Reserve Bank of India (RBI) restricted PPBL from carrying out various financial and payment activities after it found “persistent non-compliance and continued material supervisory concerns in the bank.” These restrictions on PPBL also severely hurt its associate company, Paytm, which is now looking for other banking partners to provide the various payments and banking services on the Paytm app.
Paytm has also started distancing itself from PPBL in light of the current negative spotlight on PPBL. On the same day as the FIU-IND order, Paytm informed investors that it had discontinued its agreements with PPBL.
What irregularities did FIU-IND find at PPBL?
FIU-IND said that law enforcement agencies reported that PPBL was part of “extensive illegal activity conducted by multiple businesses under the syndicate of individuals connected to a foreign state.”
As per complaints filed with the Cyber Crime Station of Hyderabad, certain entities and their network of businesses engaged in several illegal acts, such as organizing and assisting online gambling, and the money obtained from these illegal operations was channelled through bank accounts maintained by these entities with PPBL.
In a further investigation carried out by FIU-IND, 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 using the services of PPBL.
FIU-IND ultimately concluded that PPBL failed to discharge its obligations under Chapter IV of the PMLA for the following reasons:
- Failure of PPBL to put in place an internal mechanism to detect and report suspicious transactions in the manner, and within timelines, prescribed under the PMLA and PML Rules.
- Failure of the bank to exercise ongoing due diligence for its Payout service and accounts of entities in question as well as accounts of 34 beneficiaries who received proceeds from the entities in question in violation.
- Reliance on third-party KYC by relying on a non-compliant or unregulated entity in violation of Section 12 of PMLA.
Previous penalties faced by PPBL
This is not the first time PPBL has faced a fine:
- Fine for KYC and cybersecurity violations: In October 2023, RBI imposed a fine of Rs 5.39 crore on Paytm Payments Bank for non-compliance with the central bank’s Know Your Customer (KYC) directions, licensing guidelines, and cybersecurity framework.
- Fine for providing false information: In October 2021, the central bank imposed a penalty of ₹1 crore on Paytm Payments Bank for providing false information when applying for a Certificate of Authorisation (CoA).
For more on what’s going on with Paytm and Paytm Payments Bank, here’s our detailed coverage:
- All You Need To Know About RBI’s Restrictions On Paytm Payments Bank
- Startup Founders Urge Government To Reassess Actions Against Paytm Payments Bank
- RBI Breaks Silence On Paytm Issue, Will Release FAQs On This Next Week
- RBI Issues Clarifications On Restrictions Placed On Paytm Payments Bank And Its Impact On Paytm
- RBI Allows Paytm To Migrate @Paytm UPI Users To Other Banks Once NPCI Gives Approval
- Paytm Sets Up New Committee To Advise On Compliance Matters
- Vijay Shekhar Sharma Resigns From Paytm Bank Board
- Paytm Discontinues Its Agreements With Paytm Payments Bank
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