THE ENFORCEMENT Directorate (ED) on Saturday conducted raids at nine premises associated with online payment gateways Paytm, Razorpay and Cashfree in Bengaluru in connection with a money laundering case — part of an ongoing probe against some unauthorised loan apps allegedly run by companies owned by Chinese nationals.
Some of these companies are also alleged to be involved in illegal betting. Transactions on these apps were allegedly facilitated through the three payment gateways.
The ED said it had seized Rs 17 crore kept in “merchant IDs and bank accounts of these Chinese persons-controlled entities” during the raids.
In a statement, a Razorpay spokesperson said: “Some of our merchants were being investigated by law enforcement about a year-and-a-half back. As part of the ongoing investigation, the authorities requested additional information to help with the investigation. We have fully cooperated and shared KYC and other details. The authorities were satisfied by our due diligence process”.
A Paytm spokesperson said the company “promptly responded” to information sought by the authorities. “We are supporting law enforcement agencies, who are investigating a specific set of merchants. The authorities reached out to us with directions to provide certain information about these merchants under scrutiny, to which we promptly responded. We continue to cooperate with the authorities and remain fully compliant,” said the spokesperson.
Cashfree said its processes adhere to PMLA directions. “We extended our diligent cooperation to the ED operations, providing them the required and necessary information on the same day of enquiry. Our operations and on-boarding processes adhere to the PMLA and KYC directions, and we will continue to do so in the time to follow,” said a company spokesperson.
The ED is probing a case of non-banking financial companies (NBFCs) allegedly indulging in predatory lending practices in violation of RBI guidelines. According to the agency, after it began its probe, many of these companies shut shop and diverted funds through fintech companies to buy crypto assets which were then laundered abroad. In this connection, the ED had searched premises associated with crypto exchange WazirX and frozen Rs 64 crore in its accounts.
The ED has alleged that the NBFCs misused personal data and resorted to high-handed methods to extort high interest rates from those who took loans.
In August 2020, the agency froze about Rs 47 crore belonging to a Chinese company running illegal betting and loan apps in India. It had also conducted searches at 15 premises associated with the company, its directors and chartered accountants across Delhi, Gurgaon, Mumbai and Pune.
The agency had then held these online payment gateways accountable for “lax due diligence” and “non-reporting of suspicious transactions”. It had even alleged that the “lax” scrutiny could have enabled hawala transactions.
According to ED, some Chinese nationals floated multiple companies in India with the help of Indian chartered accountants, using Indian directors to incorporate them. These Chinese nationals then later travelled to India and took over the directorship, ED has claimed.
“Some locals were hired and used to open bank accounts with HSBC Bank and open trade accounts with online wallets namely Paytm, Cashfree, Razorpay etc. These online wallets had lax due diligence mechanisms and their non-reporting of suspicious transactions to the regulatory authorities helped the accused companies to launch pan-India operations,” ED had said in a statement.
According to ED, after the bank accounts were opened, the internet access credentials were couriered by the Indian employees to China, and payment instructions came from the owners there. The accused companies floated a number of similar looking websites which were hosted through Cloudfare, the ED has claimed.
These websites got people to become members and place bets on various online apps. A network of agents was built to get new customers via closed Telegram and WhatsApp groups, the ED has claimed. Referral codes were used to invite new members; this also earned commission for the sponsoring member.
“Paytm and Cashfree were used to collect money and pay commission to all these agent members. Hundreds of websites were created to promote online betting under the garb of e-commerce. All websites were not activated daily. Some were activated for placing bets and the information on daily active websites was shared with members using Telegram groups,” ED had said.
According to the ED, it had identified multiple bank accounts, mostly held with HSBC Bank. It had claimed that two bank accounts of M/s Dokypay Technology Private Limited revealed that in the last one year, the account had seen collection of Rs 1,268 crore, of which Rs 300 crore came via Paytm, and around Rs 600 crore was transferred out via Paytm. Another account, of M/s Linkyun Technolgy, revealed a similar pattern, ED had said.
“It is also revealed that there were outward foreign remittances for payments to the extent of Rs 120 crore from these accounts. Large unexplained financial transactions are also seen with other Indian companies who are running online Chinese dating apps for Indian customers. There is a suspicion that, apart from indulging in banned activities like online betting, this network of companies, with their reliance on online wallets and their lax regulatory systems, could have been used for hawala transactions as well. ED is in the process of obtaining information from online wallet companies, HSBC Bank, ROC etc,” the agency had said.
The ED has said that its money laundering case is based on at least 18 FIRs filed by the Bengaluru Police cyber crime station against “numerous entities/ persons in connection with their involvement in extortion and harassment of the public who had availed small amount of loans through the mobile apps being run by those entities/persons.”
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Paytm, which has considerable investments from Chinese company Alibaba, debuted on the Indian stock exchanges last year and at the time of publishing had a market cap of Rs 47.2 trillion crore.
Razorpay was last valued at $7.5 billion in December 2021 and had said it has amassed over 8 million businesses including Facebook, Swiggy, Cred, National Pension System and Indian Oil among its customers.
In June 2021, Cashfree had raised more than $35 million from a clutch of investors including the State Bank of India and had a valuation of $200 million.
BillDesk, which was acquired by PayU, the Indian unit of Dutch company Prosus for $4.7 billion, is currently the biggest payment gateway in the country in terms of total transactions, followed by Razorpay and Paytm. Cashfree is relatively small. Other players in the market include Infibeam, CCAvenues, CitrusPay and InstaMojo.