The Enforcement Directorate this week initiated a preliminary inquiry against Paytm Payments Bank, as per news reports, for violation of anti-money laundering and exchange control requirements. The action comes days after the Reserve Bank of India (RBI) barred the Paytm subsidiary from accepting new deposits from February 29 (now extended till March 15).
Read: The legal framework for betting and gambling
The exact reason and specific violations of the Foreign Exchange Management Act (FEMA), which deals inward and outward remittances, were not mentioned by Reuters, the first news agency to break the news on ED investigation.
The Paytm spokesperson, however, said no overseas remittances of any kind could be performed from bank accounts or wallet accounts at Paytm Payments Bank.
Paytm a catalyst for illegal portals?
As law enforcement turned blind eye over illegal betting and gambling portals for long, the offshore portals advertised having Paytm payment option as an unique feature.
It is not clear then how these illegal portal operators got access to Paytm banking and wallet facilities. But as everything unfolds now, it appears the top management of the bank could have been privy to lapses in kyc due diligence that allowed betting portals to function using Paytm banking and payment facilities.
A normal search on the internet search engines reveal a number of betting and gambling results that highlight instant payments using Paytm infrastructure. Instant payments acted as an attractive option as it created a trust factor among the users since users could instantly withdraw amounts into their bank accounts.
One aspect could have been as we reported earlier, the betting operators could have got onboarded as vegetable sellers to route gambling transactions. Groceries (vegetables) are exempt from GST taxation and this may be the reason for the betting firms to choose groceries trading.
RBI governor Shaktikanta Das recently said there won’t be any review of the decision on halting Paytm Payments Bank services.