PayPal agrees to strengthen systems under money laundering laws

The Australian Transaction Reports and Analysis Centre has accepted enforceable undertakings from eBay subsidiary PayPal Australia due to breaches of anti-money laundering and counter-terrorism financing laws.

AUSTRAC chief executive John Schmidt has said the company now has six months in order to clean up its act and protect its online payment system from being used by money launderers and financers of terrorists.

PayPal Australia has agreed to “strengthen its existing systems and controls” in order to comply with regulatory requirements, and submit a report to AUSTRAC detailing its compliance with the laws.

The dispute between PayPal and the regulatory body has been discussed by the two parties over the past year, with concerns raised over PayPal’s ability to report illegal activities being used via its services.

AUSTRAC was particularly concerned with PayPal’s monitoring services for accounts with balances under $1,000, as required by a declaration issued to the company last year.

PayPal did not ordinarily verify customer accounts before the $1,000 threshold was reached, but AUSTRAC wants verification before that point.

“The Anti-Money Laundering and Counter-Terrorism Financing Act 2006 underpins Australia’s risk-based AML/CTF regime which recognises that reporting entities are best-placed to assess the risk of their customers, products and services becoming vulnerable to criminal activity,” Schmidt said in a statement.

“Compliance with the Act’s risk assessment requirements is crucial in Australia’s fight against money laundering and terrorism financing. The acceptance of this undertaking is a clear sign to industry that they must have robust systems and controls in place to manage and mitigate the risks their business may face.”

As a result of the undertakings, PayPal will now introduce additional registration data collection, electronic identity verification procedures and will ramp up its reporting activity to AUSTRAC.

“We consider the AML/CTF legislation extremely important and take all of our compliance obligations seriously. We are confident we will meet AUSTRAC’s requirements,” PayPal Australia managing director Frerk-Malte Feller said in a statement.

The incident is the second major dispute with an Australian regulator. Last year eBay proposed to have PayPal used as an obligatory payment system for transactions, but the idea was shot down by the Australian Competition and Consumer Commission.