The searches were carried out under the provisions of the Prevention of Money Laundering Act (PMLA), the agency said in a press release on Saturday.
The ED has launched an investigation based on 18 First Information Reports (FIRs) registered by the Bengaluru Cybercrime Police Station, against numerous entities and individuals.
“The said entities were found to be doing their suspicious/illegal activities through various merchant IDs/accounts held with payment gateways/banks. The premises of Razorpay Pvt. Ltd, Cashfree Payments, Paytm Payment Services Ltd and controlled/operated entities by Chinese people are covered by the search operation,” the ED said. “The modus operandi of these entities is to use fake Indian documents and make them bogus directors of these entities, they generate proceeds of crime.”
Bengaluru Police had registered a case of extortion and harassment of people who took out small loans through mobile apps run by entities and individuals. The search, which began on Friday, is believed to be still ongoing at press time on Saturday.
“During investigations, it emerged that these entities are controlled/operated by Chinese individuals,” the ED said, adding that it had seized 17 crore rupees “from the merchant IDs and bank accounts of these entities controlled by Chinese persons”.
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Lending and subsequent retrieval transactions from these lending applications were routed through online payment gateways. In February 2021, ED Hyderabad Zone had summoned the heads of Razorpay, Cashfree and Paytm. Subsequently, statements from Razorpay CEO Harshil Mathur, Paytm CFO Vikas Garg and Cashfree CEO Akash Sinha were recorded, sources said.
Paytm said on Saturday it responded quickly to the agency’s questions.
“We support law enforcement, which investigates a specific set of traders,” a spokesperson said. “Authorities contacted us with instructions to provide certain information about these traders under surveillance as well as details of their transactions, 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 under investigation by law enforcement about a year and a half ago. As part of the ongoing investigation, authorities have requested additional information to facilitate the investigation. We fully cooperated and shared KYC and other details. The authorities were satisfied with our due diligence process.
Cashfree Payments said it was cooperating with the agency.
“We have extended our diligent cooperation to ED operations, providing them with the required and necessary information on the same day of the investigation,” the company said. “Our operations and onboarding processes adhere to PMLA and KYC (know your customer) guidelines, and we will continue to do so in times to come.”
Accused non-bank financial companies (NBFCs) opened merchant IDs with fintechs’ on-demand payment gateways, an official said, citing ED’s findings in a related Hyderabad case.
This allowed “companies to do loan business for the same amount as security deposits,” the official said. “All of these fintech companies’ loan payment and collection transactions were routed through payment gateways. In the case of Razorpay, more than 300 virtual accounts as well as the same number of connected bank accounts were found. All activity was performed by these apps and not controlled and managed by NBFCs.
The federal agency is said to have found proceeds of crime exceeding Rs 800 crore in a long-running money laundering investigation against 365 fintechs and their NBFC partners, people with knowledge of the matter have said.
“Payment gateways are not as regulated as banks, which makes them vulnerable to abuse,” the official quoted above said. “Usually, banks issue suspicious transaction reports (STRs). However, gateways do not follow this. In instant instances where there were multiple and regular transactions from these companies, especially in the times of Covid, gateways were exploited and used as a means of transferring the proceeds of crime.
The ED said it discovered during the searches that “the said entities were generating proceeds of crime through various merchant IDs/accounts held with payment gateways/banks and they also did not operate from the addresses given. on MCA’s website/registered address and having fake addresses.
The case refers to predatory loan apps that lured people in with seemingly easy loans. In some cases, money has flowed into customer accounts even without explicit loan requests.
This was followed by escalating harassment, including threats to upload morphed photographs to people on contact lists unless repayments were made at usurious interest rates. Repayments at multiples of the original loan amount did not end the harassment, the borrowers alleged. The apps were reportedly launched by Chinese entities with the help of Indian accomplices.