PayPal rapped by Austrac

PayPal Australia will appoint an independent expert to review its Australian programs to combat money laundering for compliance after it was forced to make an enforceable undertaking to Austrac, the government regulator of the anti-terrorism financing rules.

The undertaking concerns the lack of additional checks of PayPal account holders if their balance is lower than one thousand dollars.

PayPal already undertakes checks when the balance exceeds $1000.

"Austrac has raised concerns with the way in which PayPal assesses the risk associated with new customers towards money laundering or terrorism financing, prior to determining if the $1,000 threshold applies," PayPal wrote in a terse media release yesterday.

"This is required under a special Declaration issued by Austrac to PayPal on 3 October 2008."

Austrac said the enforceable undertaking was as a legally binding commitment made by PayPal to address its breaches of Australia's anti-money laundering and counter-terrorism financing (AML/CTF) laws.

Austrac Chief Executive Officer John Schmidt said in a statement: "An assessment of PayPal Australia revealed deficiencies in the systems PayPal had in place to assess and manage its money laundering and terrorism financing risk.

"The acceptance of this undertaking is a clear sign to industry that they must have robust systems and controls in place to manage and mitigate the risks their business may face."

PayPal Australia has agreed to strengthen its existing systems and controls to comply with risk assessment requirements and submit an independent expert report detailing PayPal Australia's compliance with AML/CTF laws and a plan to remedy identified deficiencies.

It is the first major action overseen by Schmidt, who was appointed from the NSW Premier's Department to head up the AML/CTF compliance agency in September.

It is also the first major compliance issue that new PayPal Australia managing director Frerk-Malte Feller has faced since taking up his new post last month.

It is only the third enforceable undertaking accepted by Austrac.