Paytm Payments Bank failed to put in place an internal mechanism to "detect and report" suspicious transactions as stipulated under the anti-money laundering law and was unsuccessful in conducting due diligence of its payout service, the FIU said in its order that imposed a fine of Rs 5.49 crore on the digital entity.

The federal financial intelligence gathering and dissemination agency said in its March 1 order that these charges against the bank, a registered reporting entity with the FIU under the PMLA, were "substantiated" after more than four years of investigation and a show cause notice that was issued against it on February 14, 2022.

After the Union finance ministry issued a press statement on the FIU action, a Paytm Payments Bank spokesperson had said that 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 spokesperson had said.

The Paytm Payments Bank Ltd (PPBL) has been facing legal trouble after the Reserve Bank directed it to stop accepting fresh deposits from customers with effect from February 29 -- a deadline which was later extended to March 15.

This was followed by Vijay Shekhar Sharma stepping down as part-time non-executive Chairman of PPBL and the board of the bank being reconstituted.

The summary FIU order accessed by PTI said the proceedings against the beleaguered Paytm entity began in 2020 on a reference made by law enforcement agencies about "extensive illegal activity conducted by multiple businesses under the syndicate of individuals connected to a foreign state" and subsequent filing of FIRs by the cyber crimes unit of the Hyderabad Police under various sections of the IPC and the Telangana State Gambling Act.

The police complaints said certain entities and their network of businesses were engaged in a number of illegal acts, such as organising and assisting online gambling, and the money obtained from these illegal operations were "routed and channeled" through bank accounts maintained by the same entities with the bank (Paytm Payments Bank).

The FIU said during the course of this investigation, it came across public reports which stated that these entities were found to have cheated lakhs of Indians through fraudulent services including gambling, dating and streaming services that are prohibited by the law.

"The proceeds of these fraudulent activities were subsequently remitted abroad and several of the involved entities made use of payment intermediaries to implement their fraudulent designs within the country," the order said.

Payment Payments Bank, the order said, appears to have failed to have discharged its obligations under Chapter IV of the Prevention of Money Laundering Act (PMLA) and it has been found to have "violated" its duty on majorly two counts -- Payout-related charges and beneficiary account-related charges.

Under the first, the FIU has charged the bank for its failure to "put in place an internal mechanism to detect and report suspicious transactions in the manner prescribed under the PMLA and PML Rules including with reference to its payout service and accounts of the entities in question".

The bank has also been charged by the FIU of "failing" to exercise ongoing due diligence with respect to its payout service and accounts of entities in question relating to the same service.

It has also been charged by the FIU for its "failure" to satisfy the requirements with respect to reliance on third-party KYC, by relying on a non-compliant or unregulated entity in violation of the section 12 of the PMLA that speaks about maintenance of records by reporting entities.

Under the beneficiary account related charges, the FIU order said the bank failed to file suspicious transaction reports, in respect of 34 beneficiary accounts, in the manner and within timelines prescribed under the PMLA.

The agency also charged the bank for failing to exercise ongoing due diligence with reference to the accounts of 34 beneficiaries which received proceeds from the payout accounts of and entities in question.

Paytm Payments Bank was slapped with a fine of Rs 5.49 crore by the FIU on account of these violations under section 13 of the PMLA that speaks about imposing monetary penalty against a reporting entity for failing to comply with the obligations.

Such a reporting entity under the PMLA has to maintain a record of all transactions in such a manner that enables reconstruction of individual transactions, furnish a report to the FIU within a prescribed time and maintain record of documents evidencing identity of its clients and beneficial owners as well as account files and business correspondence relating to its clients.

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