ED freezes Rs 46.67 crore in Paytm, Razorpay, Cashfree accounts

The Directorate of Enforcement (ED) has frozen Rs 46.67 crore lying in the merchant accounts of a bunch of payment gateways, in connection with its investigation into a mobile app that promised users large gains from investment in cryptocurrency mining machines.

The central agency is probing money laundering by Lillion Technocab and Shigoo Technology — which operated the app HPZ Token — as well as other entities linked to them that had Chinese nationals on board and offered instant app-based loans.

ED has frozen the funds they held in accounts with payment gateways including Easebuzz, Razorpay, Cashfree Payments and Paytm.


A senior official in the know said weak customer verification processes followed payment gateways and the fact that the sector was not being regulated allowed app-based gaming and loan firms to exploit their systems.

Easebuzz, Razorpay and Cashfree said they were cooperating with authorities and denied any involvement in the merchants’ activities. They said their operations were fully compliant with regulations.

Earlier freeze too
Paytm said it followed ED’s instruction to freeze certain merchant IDs and that the funds did not belong to it or its group entities.

Three of the payment gateway operators — Razorpay, Cashfree and Paytm — were raided by ED earlier this month in connection with another probe against Chinese-owned instant loan apps. It had frozen Rs 17 crore held in their accounts at that time.

“While probing both mobile app gaming and loan app firms, it was found that in more than 95% of the cases, (all) lending and recovery payment transactions of these fintech companies have been routed through payment gateways,” the official said. “Payment gateways aren’t regulated as much as banks… and most of the KYC (know your customer) information submitted was either forged or fake.”

Some app operators have exploited this and created accounts on the payment gateways providing KYC information on dummy directors. These people would make way for Chinese nationals who would manage the operations, he said, adding that none of the fintech companies under probe cooperated in investigations.

HPZ modus operandi
In its probe into HPZ Token, ED has conducted searches at 22 locations, including 16 on the premises linked to payment gateways and bank branches.

HPZ lured users to invest in the company on the pretext of doubling their investment, and payments were received through UPIs and other payment gateways and accounts, ED said. Part of the amount was paid back to the investors, but the remaining was diverted to various individual and company accounts through payment gateways and banks, and then siphoned off by converting the money to virtual currencies, it said in a press statement. “After that, the fraudsters stopped the payments, and the website became inaccessible,” it added.

Huge balances were found to be maintained in the bank and virtual accounts of the involved entities with payment aggregators, the agency said. These included Rs 33.36 crore with the payment gateway of Easebuzz, Rs 8.21 crore with Razorpay Software, Rs 1.28 crore with Cashfree Payments and Rs 1.11 crore with Paytm Payments, ED said.

‘Proactively blocked’
Easebuzz said none of the parties named in ED’s statement belonged to its merchant base. “The mentioned entities were only counterparties of the merchant who was using our payment gateway, and this merchant had been proactively identified and blocked by us much before the investigation had started, as per our internal risk and compliance process,” it said, adding that the company would fully cooperate with the investigating authorities.

Razorpay said it had “proactively blocked” all suspicious entities and funds associated with them and had shared details with authorities. “None of the funds which have been directed to be frozen by the authorities belong to Razorpay. As mentioned earlier, we will continue to provide necessary information to authorities to assist in this investigation,” it said.

The company also said its operations and on-boarding processes adhered to the highest standards of governance and regulatory guidelines.

Cashfree Payments also said it was fully compliant with existing regulations, and that it would continue to cooperate with ED’s operations. “We were able to provide the required and necessary information within a few hours on the day of enquiry,” it said.

Paytm took to microblogging website Twitter and said ED had instructed it to freeze certain amounts from the merchant IDs of specific merchant entities and that none of the funds belonged to it or any of its group entities.