In May, Binance had registered with the FIU as the exchange sought to resume operations, after the watchdog FIU issued show-cause notices to nine offshore exchanges operating in violation of rules.
| Photo Credit: Reuters

Financial Intelligence Unit (FIU) has imposed a fine of ₹18.82 crore ($2.25 million) on the crypto exchange Binance for operating in violation of anti-money laundering regulations. Binance did not immediately respond to an email seeking comment.

Virtual digital asset service providers such as crypto exchanges are required to be registered with the FIU as a reporting entity and comply with its anti-money laundering rules.

In May, Binance had registered with the FIU as the exchange sought to resume operations, after the watchdog FIU issued show-cause notices to nine offshore exchanges operating in violation of rules.

What Binance’s $4 billion fine and CEO resignation mean for crypto | Explainer

The watchdog had also asked the Ministry of Electronics and Information Technology (MeitY) to block online access to the exchanges. Crypto exchange KuCoin had registered with FIU in March but faced a smaller penalty amount of ₹34.5 lakh.

Canada’s anti-money-laundering agency had also imposed a fine of $4.38 million on Binance in May for violation of anti-money laundering rules. Changpeng Zhao, the former chief executive of Binance, was sentenced to four months in prison in May by U.S. District Judge Richard Jones in Seattle after pleading guilty to violating the country’s laws against money laundering.

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

“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.

Also read: Paytm Payments Bank meltdown, its meaning | Explained

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.

Also read: Vijay Shekhar Sharma | Embattled entrepreneur 

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.

The Financial Intelligence Unit-India has slapped a ₹5.49 crore penalty on Paytm Payments Bank Limited (PPBL) for violations of the Prevention of Money Laundering Act (PMLA).
| Photo Credit: GIRI KVS

The Financial Intelligence Unit-India has slapped a ₹5.49 crore penalty on Paytm Payments Bank Limited (PPBL) for violations of the Prevention of Money Laundering Act (PMLA), after finding substantial proof of money generated from illegal activity being routed through accounts held by some entities with the bank. 

The FIU-IND had initiated a review of the PPBL’s operations after receiving “specific information” from law enforcement agencies about a few entities and their network of businesses engaging in “a number of illegal acts, including organising and facilitating online gambling”, the agency said in a statement on March 1 about the penalty order issued on February 15. 

The Paytm Payments Bank debacle | Explained

“Further, the money generated from these illegal operations, i.e. proceeds of crime were routed and channelled through bank accounts maintained by these entities with the Paytm Payments Bank Ltd,” it said.

Documents pertaining to such activity were scrutinised and a Show Cause Notice was served on the bank for violating multiple regulations laid down in the Prevention of Money Laundering (Maintenance of Records) Rules, 2005. These included breaches of the rules pertaining to safeguards to be adopted for Anti-Money Laundering, Counter-Terrorism Financing and Know Your Customer or KYC processes for beneficiary accounts and payout services.

“After considering the written and oral submissions of the Paytm Payments Bank Ltd, Director, FIU-IND, based on the voluminous material available on record, found that the charges against Paytm were substantiated,” the agency said, adding that a monetary penalty of ₹5.49 crore was imposed in an order passed under Section 13 of the PMLA.

Paytm Payments Bank meltdown, its meaning | Explained

The FIU is India’s national agency responsible for receiving, processing, analyzing and disseminating information relating to suspect financial transactions to enforcement agencies and its foreign counterparts.

A PPBL spokesperson said, “The penalty pertains to issues within a business segment that was discontinued two years ago. Following that period, we have enhanced our monitoring systems and reporting mechanisms to the Financial Intelligence Unit (FIU).”

The Financial Intelligence Unit-India has slapped a ₹5.49 crore penalty on Paytm Payments Bank Limited (PPBL) for violations of the Prevention of Money Laundering Act (PMLA).
| Photo Credit: GIRI KVS

The Financial Intelligence Unit-India under the Union Finance Ministry has slapped a ₹5.49 crore penalty on Paytm Payments Bank Limited (PPBL) for violations of the Prevention of Money Laundering Act (PMLA), after finding substantial proof of money generated from illegal activity being routed through accounts held by some entities with the bank. 

The FIU-IND had initiated a review of the PPBL’s operations after receiving “specific information” from law enforcement agencies about a few entities and their network of businesses engaging in “a number of illegal acts, including organising and facilitating online gambling”, the agency said in a statement on Friday about the penalty order issued on March 1, 2024.

The Paytm Payments Bank debacle | Explained

“Further, the money generated from these illegal operations, i.e. proceeds of crime were routed and channelled through bank accounts maintained by these entities with the Paytm Payments Bank Ltd,” it said.

Documents pertaining to such activity were scrutinised and a Show Cause Notice was served on the bank for violating multiple regulations laid down in the Prevention of Money Laundering (Maintenance of Records) Rules, 2005. These included breaches of the rules pertaining to safeguards to be adopted for Anti-Money Laundering, Counter-Terrorism Financing and Know Your Customer or KYC processes for beneficiary accounts and payout services.

“After considering the written and oral submissions of the Paytm Payments Bank Ltd, Director, FIU-IND, based on the voluminous material available on record, found that the charges against Paytm were substantiated,” the agency said, adding that a monetary penalty of ₹5.49 crore was imposed in an order passed under Section 13 of the PMLA.

Paytm Payments Bank meltdown, its meaning | Explained

A PPBL spokesperson said, “The penalty pertains to issues within a business segment that was discontinued two years ago. Following that period, we have enhanced our monitoring systems and reporting mechanisms to the Financial Intelligence Unit (FIU).”

The FIU is India’s national agency responsible for receiving, processing, analyzing and disseminating information relating to suspect financial transactions to enforcement agencies and its foreign counterparts.

Paytm said its associate Paytm Payments Bank Limited does not undertake outward foreign remittances.
| Photo Credit: Reuters

“The Enforcement Directorate (ED) has questioned senior Paytm executives and taken submission of documents from them following the recent Reserve Bank of India (RBI) action of barring Paytm Payments Bank Limited from accepting deposits or top-ups in any customer account,” official sources said on February 15.

The Central agency, according to the sources, is conducting preliminary examination of documents before it decides to launch a formal investigation into the RBI-flagged alleged irregularities at the fintech company under the Foreign Exchange Management Act (FEMA).

“Some documents have been recently submitted by Paytm executives following which they were asked certain questions. Some more information has been sought,” the sources said.

The Paytm Payments Bank debacle | Explained

“As of now, no irregularities have been detected and a case under FEMA will only be registered once any contravention under the said law is found,” they added. “An investigation under the Prevention of Money Laundering Act (PMLA) involving Paytm is already going on for some time,” they said.

One97 Communications, which provides financial services under the Paytm brand, and its banking arm Paytm Payments Bank have been receiving notices and requests for information with respect to customers of the respective entities, an exchange filing by the company said on February 14.

Paytm said its associate Paytm Payments Bank Limited does not undertake outward foreign remittances.

“One 97 Communications Limited (OCL), its subsidiaries and its associate, Paytm Payments Bank Limited, have over time been receiving notices and requisition for information, documents and explanations from the authorities, including Enforcement Directorate (ED), with respect to the customers that may have done business with the respective entities, and provided the required information, documents and explanations to the authorities,” Paytm said in a regulatory filing.

Paytm said the company and its associate have continued to provide information, documents and explanations to the authorities as required by them.

Also read: Paytm sees ₹300-500 crore blow as customers won’t be able to top up wallets, PPBL accounts

Earlier this month, the Enforcement Directorate and the Financial Intelligence Unit (FIU) asked the RBI to share its report on the recent action taken to bar Paytm Payments Bank Limited from accepting deposits or top-ups in customer accounts, according to sources.

The Central bank, on January 31, directed it to stop accepting deposits or top-ups in any customer accounts, wallets, FASTags and other instruments after February 29.

The ED has been probing Paytm and other online payment wallets as part of its money-laundering investigation against Chinese-controlled mobile phone apps who allegedly laundered funds using merchant IDs created on these fintech platforms.

The FIU has also sought the report from the RBI to analyse whether Paytm or PPBL followed the required procedures as a “reporting entity” under section 13 of the PMLA.

Under this section of the anti-money laundering law, a financial institution, bank or intermediary has to furnish details to the FIU about maintaining records of all transactions and documents evidencing identity of its clients and beneficial owners as well as account files and business correspondence relating to its clients.