The Financial Intelligence Unit-India (FIU-IND), the national agency responsible for safeguarding the financial system from money laundering and terrorist financing, levied a significant penalty of ₹5.49 crore on Paytm Payments Bank Ltd on March 1, 2024. This action stemmed from the bank’s non-compliance with the Prevention of Money Laundering Act (PMLA) and related regulations, highlighting the importance of robust anti-money laundering (AML) and counter-terrorist financing (CFT) safeguards in the financial sector.
The FIU-IND initiated an investigation triggered by specific information received from law enforcement agencies. This information pointed towards suspicious activity involving certain entities and their associated businesses suspected of engaging in online gambling, a known channel for illicit activities. Further investigation revealed that funds generated through these illegal operations, constituting “proceeds of crime,” were being channelled through bank accounts maintained with Paytm Payments Bank.
The FIU-IND’s investigation identified several instances where Paytm Payments Bank had failed to adhere to the PMLA and its associated regulations, potentially exposing the bank and the financial system to significant risks:
- Inadequate Transaction Monitoring and Recordkeeping: The bank was found to be non-compliant with Rules 7(3) and 2(1)(g) of the Prevention of Money Laundering (Maintenance of Records) Rules, 2005 (PML Rules). This implies that Paytm Payments Bank failed to maintain proper and comprehensive records of certain transactions, making it difficult to track suspicious activity and identify potential money laundering attempts. This lapse hinders the FIU-IND’s ability to effectively monitor and combat financial crimes.
- Failure to Report Suspicious Transactions: Another critical violation involved non-compliance with Rule 8(2) read with Rule 3(1)(D) and Rule 2(1)(g) of the PML Rules. These regulations mandate financial institutions to report any transactions deemed suspicious to the FIU-IND. Paytm Payments Bank’s failure to report suspicious transactions in this instance hindered the FIU-IND’s ability to investigate and take appropriate action to prevent money laundering, potentially allowing illicit funds to flow through the system undetected.
- Lax Customer Due Diligence (CDD): The bank also breached provisions related to customer due diligence (CDD) outlined in Rules 9(12) and 9(14) of the PML Rules. CDD refers to the process of verifying the identity and understanding the nature and purpose of customer relationships to assess potential money laundering risks. By failing to conduct adequate CDD on both senders and receivers of funds, Paytm Payments Bank exposed itself to the risk of being unwittingly involved in facilitating money laundering activities. This can have serious consequences, not only for the financial institution’s reputation but also for the integrity of the entire financial system.
After considering the written and oral submissions from Paytm Payments Bank and examining the available evidence, the FIU-IND determined that the charges of non-compliance with PMLA regulations were substantiated. Consequently, exercising its powers under Section 13 of the PMLA, the FIU-IND imposed a penalty of ₹5.49 crore on the bank.
This case serves as a stark reminder of the importance of financial institutions adhering to AML/CFT and KYC (Know Your Customer) safeguards. These regulations form the bedrock of a robust financial system that is less susceptible to criminal misuse. The FIU-IND’s decisive action against Paytm Payments Bank sends a strong message to all financial institutions, emphasizing their critical role in safeguarding the financial system and upholding the integrity of financial transactions. By ensuring strict adherence to AML/CFT and KYC norms, financial institutions can contribute significantly to curbing money laundering and terrorist financing activities, fostering a safer and more secure financial landscape for all stakeholders.
