According to the information provided by the Indian authorities, Paytm Payment Bank, the company's banking division, was fined by the FIU for failing to report illicit funds that were transferred through its accounts. Under the Prevention of Money Laundering Act (PMLA), the fine was assessed for alleged violations of Anti-Money Laundering (AML) laws.

Penalty foundation for Paytm Payments Bank
 

According to FIU, the authority started looking into the Paytm Payments Bank after learning from law enforcement agencies about certain companies and the businesses they owned/managed in their network were involved in a number of illegal activities, such as arranging and facilitating online gambling and transferring money through the bank. The FIU emphasised that the money obtained from these illicit operations was transferred and used to fund these businesses' Paytm Payments Bank bank accounts.

The authority concluded that the allegations against Paytm were supported and decided to fine the banking arm after evaluating the oral and written submissions as well as the material that was on file. The penalty also pertains to misbehaviour in a business division that was shut down in 2022, after which the branch upgraded its FIU reporting procedures and monitoring systems. The Reserve Bank of India (RBI) had already ordered the branch to close by the middle of March 2024 because of ongoing supervisory concerns and compliance issues. The payment app, which depended on the infrastructure of the banking business, was impacted by this.

Furthermore, even though Paytm officials assured investors that the digital payments app will continue to function as usual, the company's stock saw a significant drop after the regulatory mandate.

According to Reuters, the RBI also took action against Paytm Payments Bank since the latter failed to adhere to rules and raised supervisory issues that lasted for a number of years. At the time, the RBI was in the process of bringing Paytm into compliance, and as part of that effort, it had already fined Paytm Payments Bank USD 650,000 for non-compliance, including breaking Know Your Customer (KYC) regulations.

Additionally, in 2022, due to Paytm's stock market IPO and worries about its value and business plan, the bank was prohibited from gaining new clients, and an audit of its IT infrastructure was mandated.