InvestorQ : What is this Chinese app scam and how is Paytm involved in this entire saga?
Arti Chavan made post

What is this Chinese app scam and how is Paytm involved in this entire saga?

Rutuja Nigam answered.
4 weeks ago

The Chinese loan app scam pertains to the use of Chinese funds for giving out consumer loans or digital loans to Indian borrowers. These came to light after the ED conducted a series of raids, including at the offices of Paytm, Razorpay and others. However, One97 Communications, which operates the Paytm brand, has categorically denied any links with the specific merchants under the Enforcement Directorate scanner. In the Chinese loan app scam, Paytm clarified that none of the funds frozen by ED belonged to Paytm or its group.

ED has called it a routine investigation into allegations of masked Chinese lenders participating in the Indian digital market. The focus of the Enforcement Directorate (ED) is on a specific set of merchants, involved in the Chinese loan app scam. Presumably, Paytm was the provider of payment services. Incidentally, Paytm is not a provider of loans on its own books but merely syndicates and facilitate loans on its platform. Paytm clarified that merchants under the ED scanner were independent entities and not part of Paytm group.

ED recently conducted raids at six premises in the city of Bengaluru of different online payment gateways. These included some of the marquee names like Razorpay, Paytm and Cashfree. These raids pertained to alleged irregularities in instant app-based loans, which were apparently controlled by Chinese nationals by masking their identity. However, ED has confirmed that it had seized funds to the tune of Rs17 crore in merchant IDs and bank accounts of Chinese controlled entities. Ultimate beneficiary links are yet to be established.

For the time being, Paytm has frozen certain amounts pertaining to selected Merchant IDs (MIDs) of a set of merchant entities on the instructions of the ED. These are the ids that have been specifically identified by the ED as backed by Chinese funding sources. Paytm added that it may not have full control over the fund trails of all its merchant entities. However, if this concern is true, there is likely to be calls for much more stringent adherence to KYC norms and stringent money laundering norms for digital lenders too.

While there have bene concerns over the source and the colour of the money and the tactics used to recovery, the major ED concern pertains to the colour of the money. Apparently, the funding has come from dummy Chinese accounts and in many cases proceeds of crime may have been routed through payment gateways. In many cases, forged documents of Indians were used to make them dummy directors to lend legitimacy. With the concerns over Chinese high-handedness, ED is not going to take this lightly.