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Last week, ED raided six premises of Paytm, Razorpay and Cashfree in Bengaluru under the provisions of the Prevention of Money Laundering Act, 2002 (PMLA). The ED had seized INR 17 Cr with regards to the search of certain merchant IDs and bank accounts that belonged to Chinese citizens.

In accordance with the raid and the subsequent freezing of accounts, Paytm issued a statement over the Bombay Stock Exchange claiming that the money did not belong to either the company or its group entities.

“As a part of ongoing investigations on a specific set of merchants, the ED has sought information regarding such merchants to whom we provide payment processing solutions. It is hereby clarified that these merchants are independent entities, and none of them are our group entities,” the company said in an exchange filing.

The fintech giant further added that ED has instructed the company to freeze some amounts from the Merchant IDs (MIDs) of a specific set of merchant entities [those allegedly belonged to Chinese individuals].

“It may be further noted that none of the funds instructed to be frozen belongs to Paytm or any of our group companies,” the statement said. 

The number of Paytm merchants’ accounts and the concerned amount frozen by ED are still unclear. Previously, Paytm had only stated that ED had reached out to the company, and it had responded ‘promptly’.

ED Raids E-Wallet Firms Over FIRs

In a statement, ED claimed that the said entities [the frozen accounts of Chinese nationals] were doing their suspected/illegal business through various Merchant IDs/accounts held with the payment gateways and banks [of Paytm, Razorpay and Cashfree]. 

It had received 18 FIRs in the Cyber Crime Police Station, Bengaluru City against some of these companies and persons. “The cases in question raised connection with their involvement in extortion and harassment of the public who had availed small amounts of loans through the mobile apps being run by those entities/persons,” the ED had said.

But since these startups do not have an NBFC licence, they do not directly operate as loan providers. Such companies usually create dummy enterprises to partner with defunct NBFCs. These NBFCs would then create the loan app’s merchant ID with payment aggregators [such as Paytm, Razorpay and Cashfree], and the said enterprises in question have denied their role or relationship with these merchant IDs.