Cliff Saran’s Enterprise blog

Sep 29 2008   7:46PM GMT

PayPal money-laundering nonsense

Cliff Saran Profile: Cliff Saran

Tags:
Fact or fiction?
rants
Security, an afterthought

I’ve had several PayPal moments over the last few days. Here’s the first. Having sold a few items on eBay, PayPal informed me by email:


PayPal is required by law to comply with European Union Anti-Money Laundering regulations to collect information from customers when they receive more than the set limit in total payments. Please log into your account, go to the Account Overview page, and follow the instructions there about how to provide the required information. These steps need to be completed as soon as possible to comply with this regulation.

 Ok, so I went on the website which then stated:

In the past 12 months, you have received £650.00 GBP or more into your PayPal account.

This means you are on your way to approaching the £1,700.00 GBP annual receiving limit. This limit is put in place to allow us to comply with our applicable Anti-Money Laundering regulations.

If you do reach the annual receiving limit of £1,700.00 GBP you will no longer be able to withdraw or send money, fund transactions or close your account until you complete certain steps to lift your limit.

It is simple to complete the steps to lift your limit

Guess what…it’s not simple. Try as I might I could not get the PayPal website to recognise that I was not a company,  just an individual, and so there was no date when the company was established.

Needless to say, it didn’t let me complete the form without completing the date field for when the company was established. After several minutes of shouting expletives to arguably the world’s worst automated voice response system, I finally got through to a PayPal agent. He wasn’t particularly helpful, and could not explain why the seeming arbitrary amount of £650 had flagged my account. Anyway, after a bit of a heated debate, he explained how to fill in the offending date field. FYI: you can use the date you set up your PayPal account (but why oh why doesn’t it say that on the bloody website?).

Now let’s put this in perspective. PayPal issued the email alert to me when my account hit 38% of the supposed £1700 limit for compliance with anti-money laundering legislation. That does seem a somewhat overzealous risk assessment, so much so that I have quickly looked up PayPal’s anti-money laundering compliance on Google. What I have found is most interesting.

This article relates to the case of a company called Vortex Centrum, which received a similar PayPal email after its account was credited by £4,500. According to this article, there is nothing in EU, UK or Irish law that places any additional due diligence burden in relation to payments which, in aggregate, reach £4,500. The author states: Whilst PayPal is free to set any trigger figure it wishes, it is completely false to suggest that that figure is set by any law.

I think PayPal has failed on several counts here. The anti-money laundering alert email seems somewhat arbitrary; there is no detailed explanation of why the customer has been targeted nor a link to the appropriate legisation; the PayPal web form for verifying the customer only reflects certain types of business user and its automated voice response system at its call centre defies logic and puts too many barriers in the way to prevent you from speaking to an agent, when you have a legitimate query.

Have you had a PayPal experience? Please get in touch.


24  Comments on this Post

 
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  • James Piggot
    Don't think the banks have much to fear from PayPal, the interface is desperately slow and clunky, the automated system drives me wild with fury, the whole thing just about works when you're selling bits and bobs for ten quid.

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  • Cliff Saran
    Good point James. I also noticed that on eBay UK, many people have had the same problem:

    http://forums.ebay.co.uk/thread.jspa?threadID=200015135&tstart=0&mod=1206004364290

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  • M Ho
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  • Andrew Furtek
    I've just had exaclty the same situation happen to me. I've asked Paypal to show me where they've found these "EU Anti Money Laundering Regulations" as I can't find them anywhere and after two emails telling me nothing they've refused to answer anything further by email and told me to phone! All I can find are a couple of EU directives, neither of which places any legal duty on Paypal to demand the banking details of its users.

    I'm going to report them to the FSA and possibly the Data Protection Commissioner. I'm just an individual who buys and sells the odd thing, not a business. I've never linked my bank account to Paypal and don't want to for obvious reasons.

    I think it's high time Paypal becomes subject to UK banking regulations. As it is, it appears to be completely remote and unaccountable to its users and judging from threads I've read elsewhere appears able to act with impunity, and gets away with it. Have others had similar experiences?

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  • Cliff Saran
    Hi Andrew

    I'm in the same position - I mainly buy, but I do sell occasionally. I was thinking about looking a bit closer at PayPal's EU anti money laundering directive claims.

    I am also going to ask the FSA, APACS and Banking Ombudsmen about where PayPal sits with regards to UK banking regulations.

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  • Steve Smith
    I am a solicitor and work in money laundering.

    Paypal is regulated by the Money Laundering Regulations 2007 ("MLR") which implemented the Third EU Money Laundering Directive. The MLR came into force on 15th December 2007 and require regulated firms such as Paypal to have in place policies and procedures that combat the risk of them being used for money laundering or terrorist financing. These include, among other things, the need to establish the identify of the customer and to carry out Customer Due Diligence ("CDD") on a risk sensitive basis. This involves taking steps to verify the identity of the customer and to understand the customers purpose/ intention for using the electronic money account. It is no different to a high street bank requiring a copy of your passport and a utility bill when you wish to open a new bank account with them. It is a criminal offence for the regulated firm not to comply with the MLR.

    Paypal falls within the scope of the MLR as it is an issuer of electronic money. Further information can be found out about this at Section 3 of Part II of the JMLSG Guidance for the UK Financial Sector (see http://www.jmlsg.org.uk/content/1/c6/01/14/57/Part_II_HMT_approved.pdf). This guidance has been endorsed by the Financial Services Authority (who regulate Paypal) as industry guidance on how to comply with the MLR.

    Essentially, the Regulations provide that an issuer of electronic money (i.e. Paypal) is able to carry out "Simplified Due Diligence" where the annual turnover of the electronic money account does not exceed 2.500 Euros (or £1650) and no more than 1,000 Euros (or £650) is redeemed in a year. In these circumstances, an issuer of electronic money is not required to verify the identity of the account holder. However, in the following circumstances, the issuer of electronic money is required to freeze the account until CDD/ verification of identity has been completed:

    1. The annual turnover limit of £1,650 is reached;

    2. The annual redemption limit of £650 is reached;

    3. An account holder seeks to carry out a single transaction in excess of £650; or

    4. Money laundering or terrorist financing is suspected.

    This means that until the account holder provides sufficient information to verify their identity no further activity should be carried out. To do so, is likely to be a breach of the MLR and may well be a criminal offence.

    This also ties in with The Transfer of Funds (Information on the Payer) Regulations 2007 (widely known as the Wire Transfer Regulations) which require the issuer of electronic money to include certain information about the sender of the monies with the transfer unless the transaction is below £650. This information includes confirmation that the identity of the sender has been verified. Failure to do so is also a criminal offence.

    Hope that sheds some light on the situation.

    Steve Smith, Blake Lapthorn Solicitors,

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  • Cliff Saran
    Thank you Steve for taking the time to offer this advice.

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  • Donna Bell
    I am both relieved and dismayed to read that other people have suffered these problems with PayPal. For anyone who is interested or better still able to comment helpfully here is my story. Has this happened to anyone else or you?

    By the way I read what Steve Smith said in his posting to this commentary with interest but none of it applies to me directly as I was approved and verified for higher fund limits as a business and signed up to WebPro merchant banking.

    My account was limited on 24th September 2008 because I had not complied with the PayPal WebPro t&cs in respect of adding wording to my website regarding storing or not as the case may be of financial records, privacy policy etc. As it was I could not comply by their deadline of 14 days because they did not tell me about it and I was given 14 days to comply or be cut off.

    And so because my web developers could not install the PayPal WebPro within 14 days I cancelled the WebPro and was told my account would be reinstated within 48 hours.

    Nothing happened so I followed up. Then I received an email and was told it would be 72 hours. In the last email I was told it was for the security of other PayPal users and that I must be patient whilst they review my account.

    Over the last couple of weeks, I have communicated with PayPal by phone and email to offer up anything that might help them lift this limitation. I even suggested downgrading to Virtual Terminal (which is included in WebPro). But I was told this was not possible because I was a new business, as I was already using it with WebPro. It seems that simply cancelling my WebPro service is not enough to restore my account even though I was advised this would be. Is there something more sinister going on regarding holding on to funds for interest on monies?

    I have over £2000 in my account which I am unable to touch (this is within my transfer limits). I emailed again today, stating the events (helpfully to assist whoever is 'reviewing' matters) but have had no acknowledgement of email.

    Something else I have found - I am not sure if Ebay are just disorganised or overloaded as they did not issue a refund to a customer when I requested it and then I had to chase them (they would at least do it on my behalf as my account is limited).

    Whatever the reason I wish PayPal would communicate better. As things are they have interruped my holiday letting business and I have been unable to take credit card bookings for this and most people want to use this method.

    Will PayPal listen if I bother to write a complaint letter - what redress do I have if they don't return the money? How long am I supposed to wait?

    If anyone has any comments or ideas I would be most interested to hear from you via this forum to to my email. Thanks for reading.

    Donna Bell

    donnastaybarn@googlemail.com

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  • Cliff Saran
    Donna, I'm sorry to hear of your PayPal troubles. I believe PayPal is audited by the FSA (https://www.paypal.com/uk/cgi-bin/webscr?cmd=p/gen/fsa-outside). It may be worth looking into this. I have been meaning to speak to the FSA anyway to find out about whether the delay in payments is within FSA guidelines.

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  • Sam
    I am going through the exact same process at this moment in time! Paypal will not lift the limitation because i to have supposedly reached the £650 barrier! I have called multiple times and had no help except told to email compliancepp@paypal.co.uk who never reply?!

    Can someone tell me how to lift this limitation asap as i am trying to sell some of my designer goodies so i can keep up with my mortgage repayments. I would sell on eBay without Paypal but eBay have no made it compulsory to offer Paypal on all listings!

    Help please!

    Sam (sam.peate@googlemail.com)

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  • Marc Lubke
    Hello everyone,

    I have got a problem that occured for I do not have a bank account but 'only' a post office account, which does not allow a direct debit facilitation. Which means after I have reached my limit I will be well and truly &^*""*£. So what to do? I remember a few years back I was able to ask PayPal to send me a letter to my home address, so I could verify my existence that way, now with these new regulations it is not possible any longer..

    Does that mean I will just have to stop selling my odd bobs?

    Thanks for any replies or remarks towards this and a special 'thank you' to feebay who are forcing me to use their own bank and charge me triple and quadruple money...

    B**ard*

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  • Cliff Saran
    You have to complete the online form, and when it asks for the date your business was established you need to put in the date you began using PayPal. I couldn't remember the exact date when I did this, so I don't think it has to be accurate. Once it's completed, you'll get a message from PayPal and your account should be OK again. I know it's ludicrous, but if you need the money quick, I think it's best to complete the online form.

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  • Michael Radford
    Hi All,

    Just to point out a small misconception. Paypal Europe is registered in Luxeburg. It received a bank charter on May 15, 2007 or so; and moved it's operations to Luxemburg in July 2007; to get away from FSA regulations.

    Steve Smith, while factually correct on the limits regarding payment (as these are the limits set by the EU, is incorrect on the statement "This guidance has been endorsed by the Financial Services Authority (who regulate Paypal) as industry guidance on how to comply with the MLR."

    Paypal is NOT regulated by the FSA. Rather, it is held accountable to Luxemburg banking law.

    Luxemburg has implemented the EU anti-money laundering directives as defined in the ‘Law On the Sale of Medication and the Prevention of Drug Addiction’ of 1989, updated in 1998, and also in the the ‘Law Concerning the Fight Against Money Laundering and Terrorist Financing’ of 2004 and the Law of 23 May 2005.

    This also means when it is dealing with UK accounts, it is dealing with 'foreign account holders'. Just to clear up that little point.

    So, Donna, you will need to understand Luxemburg law when contacting PayPal. i should think a written complaint letter copied to your MEP might prove effective more effective.

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  • C Routley
    Can only agree with everything written by Cliff Saran - I too have had the specious phone argument with Paypal representatives on EEC money regulations.

    Every UK/EEC airport, ferry terminal, etc. carry notices alerting travellers they cannot take more than £10,000 out of the country - yes that is 10 thousand pounds - not £1,000 or even £1,700. That is £10K in cash, applicable, presumably any and every day of the week that I could stick in my pocket and legally transport ANYWHERE IN EUROPE and the wider world, subject to external national legislation on currency import.

    A regulated annual limit of £1,700 - I think not. Sadly Paypal customer service staff seem to genuinely believe this bull ....

    Paypal, and it's parent company, eBay need to be made to comply with UK banking law & FSA regulations whilst they continue to impose the dual strangle-hold of compulsory Paypal transactions. The need for regulatory control is doubly important, as they blatantly choose to use their non-UK status to their own advantage when it suits them

    Sadly, the comments re. contact your MP etc. are a waste of time ... I've contacted all the political channels up to and including the Prime Minister's office, the FSA and the Monopolies commission

    In a nutshell, the official attitude (in statements from these sources) is that no-one is forced to use either Paypal or eBay - ".... there are other internet based alternatives ..."

    Yea, right ... and err, they are all well known, globally dominant, financially powerful companies? Strangely, when pressed, none of these oracles can name a competitor!!!!!

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  • David
    Hi, I have had the same problem. I am UK resident. I have a UK & a German PayPal account. The latter is used as a savings account for holidays in the EU. It is more convenient and cheaper to transfer from my UK PP to my German PP and then withdraw to my German bank account. I have been doing this for more than five years but only transferring £500-£800 per year, this May I inherited funds and decided to send £3000 to my German PayPal, no problems until I tried to withdraw to my German bank, my account was "Limited". I carried out all the formalities required to "Unlimit" by faxing a copy of my Passport and my UK address, but they wanted proof of my German address, obviously I told them I was a UK citizen and resided in the UK, this was not acceptable, I must live in Germany to open a German PayPal account, there was no indication of this when I registered with German PayPal and I gave the bank address as residence, which is a normal procedure if you so require. I was told that unless I could show a German address then my account would be "frozen" for 180 days, my sentence is completed next week and have had £3000 in "wraps" since May. Thanks BE WARNED - THE EU AT ITS WORST !!!!

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  • Barry Rodgers
    Funny you should mention competition. I have noticed Alertpay becoming more and more prominent at checkouts online. So much so, I have registered an account with them. I then have an alternative payment channel. Then, if I get a paypal 'slap' I still have means to operate my businesses.

    Which is fine until I get an Alertpay 'slap'.

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  • Steve
    Hi guys well PayPal has just destroyed my company they want to close our account but in doing so holding back for 180 days all money in the account ]

    Does someone know if this is actually legal or not

    I am sure that PayPal is MONEY LAUNDERING or using these held funds for terrorism funding and I think they should be investigated by the European Community

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  • Steve
    All hi have had problems with PayPal and have finally come to the conclusion that in my opinion it is PayPal that should be investigated for Money Laundering, they seem to have to answer to no one this is against all principles of Financial dealings. Should we have the authorities to investigate them.

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  • kenlove32
    Dear PayPal,

    complete nonsense the way EU regulations (there is no "EU law")are interpreted by PayPal.

    To learn about money laundering you should ask one of the major banks if you could buy one of their e-courses about money laundering to learn what it is and how to identify criminals.

    Stalking small sellers receiving five pounds a day as a consequence of letting anyone open a PayPal account "free and easy" without checking the identity before has nothing to do with EU money laundering regulations but with absurd PayPal practices.

    Verify your customers BEFORE they open an account in accordance with money laundering regulations and don't harm sellers businesses and reputation. If you fear money laundering, report the affected account to the police and stop that illegal 180 day account frosting periods.

    My real bank account has never been frosted for 30 years, following PayPal's practices I would have to do that at least once a month. And I'm pretty sure they know more about money laundering than PayPal.

    £1700 limit Mmmmmm & how much would paypal and eBay pocketed in fees.

    paypal needs to grow up !!!!

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  • James wroughton
    Just having the same, £800 locked, claims the documents supplied to prove my address are blurred and illegible, ORANGE EBILL PDF, the same one i claim my redemption from dialaphone on.

    Its not just the fees if my megre £800 is locked up in their account then the interest is nothing, however if they do that to 10 people every day a small estimate i know but go with it, that would be £8,000 a day earning them interest, as they ndrag it out over months lets say 30 days that would be £240,000 earning interest, and that is only ten people a day for one month out of their millions of customers. Month in month out it equates to a lot of money and certainly means they always have a healthy bank account.

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  • LG
    We still use Paypal and upgraded to a business account. From time to time, they still impose numerous restrictions on the account despite having had copies of everything imaginable over a number of years.

    The proliferation of sites like Paypalsux.com highlight exactly what everyone has always suspected about Paypal. Its not a secret any more.

    In our experience, they only tend to freeze the account when you have money in it. We sweep it out almost every day and they haven't frozen it in two years. (Correction, once last month with £500 in it, having first "reversed" a withdrawal, but was easily resolved this time).

    On one of our sites we switched over to using a "personal" Nochex account (avoid the merchant account though -- they sting you for a mega security buffer which is then dead money forever). Nochex fees are less, they don't freeze (personal) accounts and the money is faster to arrive in your bank.

    Paypal is a necessary evil for eBay or multi-currency transactions. Just keep the account empty as much as you can and never leave enough in it that it is worth their while to um... "freeze".

    For personal websites, use an alternative provider. Most are better than Paypal in many respects. It just takes some research to find the one that works for you.

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  • Edward Ginsberg
    My PayPal account has also been frozen. My employer, a language school in Ukraine, paid me through PayPal. As I am between jobs and traveling for the summer I do not have a permanent address. I have sent them a bank statement, passport, and rental agreement for the apartment that I had when I opened my PayPal account. Not enough. I can document the source of the money in my account but PayPal isn't interested.

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  • Near ex- e bayer
    I am being badgered to give my banking details.Why Should I trust Pay pal with this information?I have paid for everything via credit card for the past 5 years.Why is it imperitive now to change what has been a satisfactory experience.I managed without e-bay for 60 years of my life.I can do so again.A sum of less than 1400 USD over 5 years hardly constitutes money laundering. As for Luxembourg,I have lost several thousand dollars in the 1960s thanks to Luxembourg banking,interested in the big boys rather than the individual.As for communication with Pay Pal,they would make any civil servant proud with obstructionist and gobbledy gook methods.

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  • darwinlaganzon
    They're asking me to provide ID's that don't have. That sucks. I can be fired from my job right now if I'll get limited because of this.
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