Delhi High Court seeks Finance Ministry reply to PayPal appeal against order deeming it a Payment System Operator under PMLA

The Delhi High Court has made the Union Ministry of Finance a party to the appeal filed by online payment platform PayPal against an order categorising it as a Payment System Operator (PSO) under the Prevention of Money Laundering Act (PMLA) [PayPal Payments Private Limited v. Financial Intelligency Unit India through Additional Director & Anr]..A Division Bench of Chief Justice Satish Chandra Sharma and Justice Sanjeev Narula noted that the issue under consideration is very important and that the Court will require a detailed response from the Central government.The Court, therefore, granted four weeks’ time to the Ministry of Finance to file a detailed response and listed the case for further consideration on October 18..In an order pronounced on July 24 this year, a single-judge of the High Court had held that PayPal must comply with reporting entity obligations under the PMLA.This meant that the US-based fintech firm will have to comply with Section 12 of the PMLA, which makes it mandatory for a ‘reporting entity’ to maintain records of all transactions and verify and maintain the records of identities of all its clients for a period of ten years, among many other obligations. PayPal filed an appeal against this order..Appearing for PayPal, Senior Advocate Sandeep Sethi argued that it neither makes nor receives any payment, and that it was only a payment gateway.“Every transaction to the last detail as they (the authorities) require is reported by the banks… I am authorised by the Reserve Bank of India as an Online Payment Gateway Service Provider and I do not handle any funds,” Sethi stated..Meanwhile, Additional Solicitor General (ASG) SV Raju appeared for the Financial Intelligence Unit (FIU) and stated that PayPal is a PSO and that its own officials have conceded that the platform can be used for terror financing.“Suppose, someone sitting in Pakistan from Lashkar-e-Taiba sends money to a person in Delhi to get explosives, you will not have any way of knowing it,” the ASG stated..The Bench remarked that such concerns worried the nation and that is why it was being cautious in this case.