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1. PayPal Payments Private Limited1, the petitioner impugns the order dated 17 December 2020 passed by the first respondent the Financial Intelligence Unit India2 holding it to be a ―reporting entity‖ under the Prevention of Money Laundering Act 20023 and consequently proceeding to impose monetary penalties for it having failed to comply with the reporting obligations as placed under the Prevention of Money Laundering (Maintenance of Records) Rules 20054. PayPal asserts that it is not a ―payment system operator‖ as defined under the PMLA and consequently it would be erroneous for FIU-IND to hold it to be a Reporting Entity. This is asserted on the basis of it not being engaged in rendering services relating to clearing, payment or provision of settlement between a payer and a beneficiary. It essentially avers that it merely provides a technological interface enabling export related transactions that may be undertaken by an Indian exporter and an overseas buyer. It is its categorical case that in PayPal FIU-IND PMLA 2005 Rules the chain of transaction which ensues between the Indian exporter and an overseas buyer, PayPal is at no stage engaged in the actual handling of funds. According to it, the transmission of funds occurs between the constituent Authorised Dealer Category-1 Schedule Commercial Banks5 which not only collect the amounts from the foreign purchaser directly and without any intervention of PayPal, the said funds are then transmitted to the AD Partner Bank's Export Collection Account. PayPal also relies upon the stand as struck by the Reserve Bank of India6 which in separate proceedings had averred on affidavit that it is not a payment system operator. The petitioner seeks to derive advantage from the stand so taken by RBI in those proceedings since the definition of a ―Payment System‖ under the Payments and Settlements System Act 20077 is identical to the provision embodied in the PMLA.

―Approach 1 - PayPal can continue to share information on an ad-hoc basis. In 2019, FIU-India raised 2 requests with PayPal and in both cases, information was shared with FIU-India within 48 hours of the request being raised. The requests were received by PayPal via email.
To further enhance this approach, FIU-India can utilize PayPal SafetyHub (a PayPal law enforcement information sharing platform) which will enable FIU-India officers to raise a request and receive the information from PayPal. PayPal will be able to provide on-site guidance to FIU-India officers on the registration steps for PayPal SafetyHub. Alternatively, FIU-India can reach out to the PayPal Investigations team which is focused on Asia- Pacific (APAC) law enforcement requests through asiapacificpolice@paypal.com.
PayPal and FIU-India can mutually agree to a turnaround time for ad-hoc request(s) raised by FIU-India.
Approach 2 - PayPal can explore sharing of Indian account related Suspicions Transaction Reports which are filed to the Financial Crimes Enforcement Network (FinCEN) in the United States of America where PayPal Inc is registered as a Money Service Business. If this approach is feasible, then the information would need to be shared with FIU-India through an encrypted and secured file sharing mechanism. Approach 3- PayPal can explore sharing of additional information with partner banks. FIU-India could share a list of Banks with whom additional information needs to be shared. PayPal will then engage with the Banks to determine how the information can be shared which will then be shared with FIU- India.‖
44. According to PayPal, the business model and the details thereof as set forth in these proceedings would clearly establish that it is neither involved in clearing nor is it engaged in providing payment or settlement services. According to PayPal, even the Explanation to Section 2(1)(rb) would not sustain the stand as struck by the respondents since admittedly PayPal is neither enabling credit or debit card operations, smart card operations or money transfer operations. It was submitted that it is not even the case of the respondents that PayPal is engaged in debit card, smart card or credit card operations. It was further argued that the functions performed by PayPal would also not extend to money transfer operations since it at no stage of the entire transaction handles funds which move between the Indian exporter and the overseas buyer. In view of the aforesaid, it was argued that since the technological interface provided by PayPal would not fall within the ambit of Section 2(1)(rb), it cannot be said to be a payment system operator.