(Updated: May 13, 2020)
Global payments giant PayPal has become the latest big-name target of financial crimes regulator Austrac, which has hit the group with legal notices to produce information as it probes as many as 300 million potential breaches of the law.
The Australian understands Austrac has referred the PayPal matter to its enforcement unit, which is considering legal action under the Anti-Money Laundering and Counter-Terrorism Financing Act as the regulator awaits findings, expected in August, from an external auditor.
The regulator is assessing PayPal Australia’s compliance with laws surrounding the compulsory reporting of the transfer of funds in and out of Australia, as it ramps up efforts to stop the movement of money to criminals and terrorists.
The PayPal revelations come as Westpac and Austrac continue to squabble over which facts they agree on in a legal case against the bank alleging 23 million breaches of the same rules. The action against Westpac shook the bank to its core in November when an Austrac court filing showed some of the transactions were linked to financing sexual exploitation of children in The Philippines.
CBA had its own battle with Austrac, which resulted in it paying a $700m penalty. As part of the settlement, CBA admitted contravening the law 53,750 times.
Austrac forced the appointment of the external auditor to PayPal in September to start a detailed probe of its compliance with local anti-money-laundering and counter-terrorism financing laws.
The legal case — if it proceeds — will be closely watched by other large payments groups and regulators around the world, given PayPal’s global clout.
PayPal in Australia facilitates the buying and selling of goods and services online, in a mobile app or in person by linking a customer’s bank account, debit and credit card to their PayPal account. The company has 325 million active account holders globally, and more than 8 million active Australian customer accounts.
A PayPal spokesman said the company was “working closely” with the external auditor and Austrac to satisfy the requirements of the audit commissioned last year.
“Given the audit is still in progress, it would not be appropriate to discuss further details until the audit is completed,” he said.
An Austrac spokeswoman said the appointment of an external auditor was mandated to “examine ongoing concerns” regarding PayPal Australia’s compliance with relevant legislation.
“Austrac does not provide ongoing commentary on our compliance work with our reporting entities,” she said. “Austrac continues to work with PayPal to assist them to strengthen their compliance capabilities.”
Sources said the number of PayPal’s potential breaches had to be considered against the fact it facilitated a large number of small-value amounts on sites such as eBay. The number of potential breaches by PayPal is yet to be formally locked down as the auditor works through the transactions, but The Australian understands the scope of the probe suggests they could be as high as 300 million. The legal notices PayPal has been hit with allow Austrac to gather its own information ahead of the auditor presenting its report.
A final decision on legal action is expected after the audit report is submitted.
Thomson Reuters Asia Pacific regulatory intelligence expert Nathan Lynch said the matter was complicated by PayPal being the biggest reporter of international funds transfer transactions in Australia, accounting for about 70 per cent. “The entire global payments industry is watching this,” he said of the Westpac and PayPal matters with Austrac.
Mr Lynch, who has cited EY as the PayPal Australia external auditor, said “legal uncertainties” remained around how Austrac enforced the law for fintech groups, given the legislation covering international transfers came into place 30 years ago.
“There is a question over whether they (PayPal) are technically caught.”
PayPal’s latest annual report, released last month, disclosed its Australian unit self-reported potential violations to Austrac a year ago, on the reporting of international funds transfer instructions. It said, as required by Austrac, an interim report by the auditor was lodged on December 31.
“We cannot estimate the potential impact, if any, on our business or financial statements at this time,” the annual report said, but it did warn of potential large ramifications from Austrac’s investigations.
“An adverse outcome arising from the external auditor’s review and any associated proceeding or matter initiated by Austrac … could result in injunctions, damage awards, fines or penalties, or require us to change practices in a manner that could result in a material loss, require significant management time, result in the diversion of significant operational resources or otherwise harm our business.”
As well as Westpac, National Australia Bank and Bendigo and Adelaide Bank have ongoing matters to resolve with Austrac.
Following publication in The Australian on Tuesday a PayPal spokeperson said: “Any quantification around the number of transactions in question is speculative, premature and without foundation”.
The Australian had given PayPal two business days to respond prior to publication.
Update from PayPal
A PayPal spokesperson has reached out to FCCED to debunk this story. He said;
“PayPal Australia is working closely with an external auditor and AUSTRAC to satisfy the requirements of an audit commissioned late last year. We are aware of recent media reports about the audit, which have circulated misleading information. Any quantification around the number of transactions in question is speculative, premature and without foundation. Given the audit is still in progress, it would not be appropriate to discuss further details until the audit is completed.”