Paytm's Predicament: Enforcement Directorate Launches Money Laundering Probe Amid Regulatory Scrutiny — Report

In a significant development, the Enforcement Directorate has initiated a money laundering probe against Paytm Payments Bank Ltd, as per media reports (here, and here).

The digital payments firm is also under scrutiny for alleged violations of foreign exchange rules, although Paytm has vehemently refuted these allegations, labeling them as "factually incorrect."

This investigation adds to the challenges faced by Paytm CEO Vijay Shekhar Sharma, particularly after the Reserve Bank of India (RBI) recently imposed restrictions on Paytm Payments Bank Ltd, prohibiting credit transactions across most of its services.

This regulatory action effectively halted a majority of its operations, including its popular digital wallet, due to "persistent non-compliance," as cited by the RBI.

Furthermore, RBI's order also terminated the nodal accounts of Paytm's parent company, One97 Communications Ltd, and Paytm Payments Bank Ltd, heightening concerns over regulatory compliance and operational integrity.

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The central bank's scrutiny of Paytm stems from several issues, including the creation of hundreds of accounts without proper identification.

Many of these accounts, lacking adequate Know-Your-Customer (KYC) details, were reportedly involved in transactions worth substantial sums, raising apprehensions of potential money laundering activities.

Findings, such as over 1,000 users linking the same Permanent Account Number (PAN) to their accounts, surfaced during audits conducted by both the RBI and external auditors, added to the extent of the gravity of compliance breaches within Paytm's operations.

Meanwhile, even after meeting with Finance Minister Nirmala Sitharaman, to alleviate restrictions, the government has maintained a hands-off approach, directing Paytm to address concerns directly with the RBI.

In response, Paytm has pledged to establish an "advisory committee" focused on compliance and regulatory matters, with M Damodaran, former Chairman of the Securities and Exchange Board, appointed to lead the committee.

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