The ED conducted search operations at six premises, including those of the three fintech unicorns along with entities controlled/operated by Chinese persons
The ED’s actions were based on FIRs registered in Bengaluru against numerous entities for involvement in extortion of the public who had availed small loans through mobile apps
The agency said that most of the entities mentioned in the FIRs were operated by Chinese nationals, and seized INR 17 Cr
The Enforcement Directorate (ED) on Friday (September 2) conducted searches at the premises of Paytm, Cashfree and Razorpay in connection with its investigation of the Chinese loan apps case, seizing INR 17 Cr in merchant IDs and bank accounts belonging to these apps. The search is still ongoing.
The financial law enforcement agency conducted search operations at six premises, including those of the three fintech unicorns along with entities controlled/ operated by Chinese persons, under the provisions of the Prevention of Money Laundering Act (PMLA), 2002.
“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 ED said in a statement.
The ED also seized INR 17 Cr from merchant IDs and bank accounts of the loan apps being controlled by Chinese citizens. The agency noted that the loan apps submitted fake addresses while registering with the Ministry of Corporate Affairs (MCA) and were generating proceeds of crime from the seized merchant IDs.
Inc42 has reached out for a comment from Paytm and Cashfree and the story will be updated with their responses.
Per Inc42 sources, ED didn’t find any money in relation to the probe from Razorpay.
A Razorpay spokesperson, on the other hand, told Inc42, “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.”
The ED said that during the investigation, it was discovered that most of the entities mentioned in the FIRs were operated by Chinese nationals. The apps were using forged documents of Indian citizens and making them dummy directors of those entities, it added.
“It has come to notice that the said entities were doing their suspected/illegal business through various Merchant IDs/Accounts held with Payment Gateways/banks,” the statement said.
It is prudent to mention here that for a company to get into the lending business, it needs to get a licence from the Reserve Bank of India (RBI) as a non-banking financial institution (NBFC). It is a stringent process and only a small percentage of applicant companies are awarded the NBFC licence.
However, the apps named in the FIRs created dummy entities in India and entered into a partnership with defunct NBFCs. The loan apps then use the defunct companies’ NBFC licences to get into the lending business, while the NBFC would create a merchant ID in the name of the loan app with payment aggregators such as Paytm.
ED’s Crackdown On Chinese-Backed Companies In India
Earlier, reports emerged that the Indian Chartered Accountants Institute (ICAI) is investigating the role of chartered accountants in the establishment and registration of these Chinese loan apps.
The institute took action after several incidents surfaced in which CAs allegedly submitted fake documents to help register the Chinese loan apps.
Earlier this week, the opposition party Congress alleged that Chinese loan apps took away INR 500 Cr from Indian borrowers.
Most of these Chinese loan apps came on the ED’s radar after it was discovered that these apps were remitting almost all of the proceeds of crime to entities and persons based in China. These apps have been accused of using heavy-handed tactics for loan recovery, charging high interest rates and processing fees.
Previously, ED has conducted probes into several tech firms this year including Chinese smartphone makers Vivo, Oppo and Xiaomi for allegedly evading taxes.
ED is also looking at several crypto firms including CoinSwitch Kuber, WazirX, CoinDCX, and more, in an INR 1,000 Cr worth of money laundering case. Before that, ED froze WazirX’s bank assets worth INR 64.67 Cr and Vauld’s INR 370 Cr in a money laundering case.
