The Delhi High Court has recognised PayPal as ‘Payment System Operator’.
The case involved a plea by PayPal challenging the Financial Intelligence Unit’s (FIU) imposition of a ₹96 lakh penalty for failing to register as a ‘reporting entity’ under the PMLA. PayPal contended that it operates as a payment intermediary and online payment gateway service provider, not a financial institution as defined in Section 2(1)(l) of the PMLA, and thus, should not be required to register as a reporting entity.
However, the FIU accused PayPal of deliberately and willfully evading compliance with the PMLA. It highlighted that while PayPal disregarded the Indian regulatory process, it reported suspicious transactions to foreign financial intelligence units in the USA, Australia, and the UK.
Ultimately, Justice Varma ruled in favor of PayPal, stating that the company was a ‘payment system operator’ under the PMLA. However, he found that the penalty imposed by the FIU was unjustified since PayPal had been cooperative and genuinely believed that its operations did not fall within the PMLA’s ambit.
The Delhi High Court’s judgment sets a significant precedent by affirming that PayPal is subject to reporting entity obligations as a ‘payment system operator’ under the PMLA. This decision reinforces the importance of adhering to AML measures to combat money laundering activities effectively. The ruling also underscores the need for businesses to stay vigilant and comply with the regulatory landscape to ensure a transparent and secure financial ecosystem.
Case Title: Paypal Payments Private Limited V/s Financial Intelligence Unit India
Citation: W.P.(C) 138/2021 & CM APPL. 421/2021