Paytm
Credits: Wikimedia Commons

India has been cracking down hard on lending apps that operate in the market, with suspicious Chinese links. Google too sprung into action by removing over 2000 unethical lending apps this year with new Indian digital lending rules being issued last month. Several Chinese smartphone vendors (such as Xiaomi, Oppo, and Vivo) have had the displeasure to be subject to raids and probes by the Enforcement Directorate and having millions in assets seized.

Now, fintech unicorns Razorpay and Paytm, as well as Cashfree, have been added to the latest names to be raided by the Indian agency.

In a press release, the ED informed that it conducted raids on six premises in Bengaluru, reportedly belonging to Paytm, Cashfree, and Razorpay, as well as some entities controlled by Chinese individuals. The raids started on Friday, September 2, and continued till Saturday.

As a result of the raids, the ED seized a total of ₹17 crores in merchant IDs and bank accounts of these entities.

“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, adding that the premises of Razorpay, Cashfree, Paytm and entities controlled or operated by Chinese persons were covered in the raids.

The investigation was initially launched by the ED under the criminal sections of the Prevention of Money Laundering Act (PMLA) as several unauthorized loan apps came under the scanner for allegedly money laundering.

The probe, which is the latest in a long series in recent months, began after it received 18 complaints made to the Cyber Crime Police in Bengaluru, which alleged that the firms were involved in the extortion and harassment of the public who had availed small amount of loans through the mobile apps. Additionally, the addresses provided by these entities on the MCA website or registered addresses were found to be fake.

It has been alleged that these NBFCs misused personal data and resorted to predatory lending practices to extort high interest rates from those who took loans.

The probe found that the entities were controlled and operated by Chinese personnel, who used practices such as forging of documents of Indians (thereby making them the “dummy directors”) in order to operate and generate “proceeds of crime through merchant IDs/accounts held with payment gateways/banks.”

In response, Paytm denied that the funds seized by the ED belonged to the fintech or its group entities. “As 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,” Paytm said in a statement. “We are, and will continue to, fully cooperate with the authorities, and all the directive actions are being duly complied with.”

In a statement, a Cashfree spokesperson said that its processes adhered to the directions put forth by the PMLA. “We extended our diligent cooperation to the ED operations, providing them the required and necessary information on the same day of enquiry. Our operations and on-boarding processes adhere to the PMLA and KYC directions, and we will continue to do so in the time to follow.”

“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,” a Razorpay spokesperson said.