The Directorate of Enforcement (ED) on September 2 conducted search operations in six Bengaluru premises of fintech companies Paytm Payment Services, Razorpay and Cashfree Payments, in connection with investigations pertaining to the Chinese loan apps.
In a statement dated September 3, ED said that the searches were under the provisions of the Prevention of Money Laundering Act (PMLA), 2002. The entities controlled or operated by Chinese persons were also covered in the search operation, it added.
The searches were conducted after ED investigations revealed that nefarious loan apps owned by Chinese individuals were conducting business through various merchant IDs or accounts held with payment gateways and banks.
ED investigations also revealed that these entities were generating proceeds of crime through these accounts and were not operating from addresses registered with the Ministry of Corporate Affairs (MCA).
"The case is based on 18 Nos of FIRs registered by Cyber Crime Police Station, Bengaluru City 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," the statement further read.
ED said that until now, Rs 17 crore has been seized in merchant IDs and bank accounts of these Chinese persons-controlled entities and further search operations are underway.
A Paytm spokesperson said, “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.”
In a separate statement, Paytm also clarified that the ED sought information regarding merchants to whom the company provides payment processing solutions.
"We wish to clarify that these merchants are independent entities, and none of them are our group entities," Paytm added.
"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 (Know Your Customer) and other details. The authorities were satisfied by our due diligence process," said a Razorpay spokesperson.
“We extended our diligent co-operation 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 Cashfree Payments.
The rise in digital lending by unregistered and fraudulent apps has been a major concern that has had the government, the Reserve Bank of India (RBI) as well as the ED in a bind. The issue began back in 2020 when instances of high-handed loan recovery methods by these apps that lend to unsuspecting customers at high rates pushed many to suicide.
Instances of harassment, and pushing customers to die by suicide still continue to grab headlines.
The funding and origin for these apps have been traced to China and have also led to investigations by the Serious Fraud Investigation Office (SFIO), Intelligence Bureau and even R&AW.
In a recent investigation, News18 reported that the apps are backed by registered fintech companies that are in turn backed by shell companies, numbering 100 in some instances. In several of these cases, hundreds of companies were found operating from a single address in Delhi-NCR and residential areas of Bengaluru.
On August 2, Finance Minister Nirmala Sitharaman informed the Rajya Sabha that the Central government is taking action against dubious digital loan apps, including those originating from outside the country, and also Indians who helped in setting them up.
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