The Directorate of Enforcement (ED) said on Saturday it has raided several premises in Bengaluru, including those of Razorpay Pvt Ltd, Cashfree Payments, Paytm Payment Service and also entities controlled or operated by Chinese individuals. The crackdown comes in the wake of complaints against Chinese loan apps and were carried out under the provisions of the Prevention of Money Laundering Act (PMLA), 2002.
The searches revealed that some entities, which are controlled and operated by Chinese individuals, have been using forged documents of Indians to appoint them dummy directors of those entities. The investigative agency believes these entities are “generating proceeds of crime”. It has also concluded that these entities were conducting “their suspected/illegal business” through various merchant IDs or accounts held either with payment gateways or even banks.
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The Reserve Bank of India (RBI) has been concerned about the proliferation of Chinese loan apps, many of which started operations during the pandemic, targeting the vulnerable and the unemployed.
These digital lending platforms charged very high lending rates and resorted to strong-arm tactics to recover the money. Customers who took loans from these lenders did so because the process was simple, involving little paperwork. For the lenders, such methods of acquiring customers were inexpensive.
The RBI, however, felt the need to step in and curb not just these excesses, but also lending arrangements between banks or NBFCs (non-banking financial companies) and digital platforms.
On August 10, the central bank clamped down on standalone digital lending platforms, categorically stating that the lending business could be carried out only by entities registered with it or otherwise permitted by law.
Further, the central bank has been uncomfortable with some digital loan products being offered by digital loan apps in partnership with banks and NBFCs. Moreover, the regulator also clamped down on the access of the apps to “mobile phone resources such as file and media, contact list, call logs, telephony functions” and other personal data that could be used to harass borrowers.
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The ED said it had been noticed during the search operations that the entities were not operating from the addresses given on the MCA website or the registered address, but were found to have fake addresses. An amount of Rs 17 crore has been seized in merchant IDs and bank accounts of these entities controlled by Chinese persons, the agency said.
The case is based on 18 FIRs (first information reports) registered by Cyber Crime Police Station, Bengaluru City, against numerous entities and 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 and individuals.
Razorpay, Cashfree and Paytm said they are cooperating with the agency. A spokesperson for Paytm 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.”
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.” Cashfree Payments said their “operations and on-boarding processes adhere to the PMLA and KYC directions, and we will continue to do so,” adding, “We extended our diligent co-operation to the ED operations, providing them the required and necessary information on the same day of enquiry.”