PayPal accused of money laundering

Allegations of ill-gotten gambling gains abound. PayPal denies everything...

PayPal has been accused of violating laws regarding the processing of online gambling payments by a US Attnorney's Office, which is asking parent company eBay to hand over nine months of the gambling-related earnings in settlement. The US Attorney for the Eastern District of Missouri told eBay that its online payment service violated provisions in the USA Patriot Act between October 2001 and July 2002, according to eBay's annual report, filed on Monday with securities regulators. Under the act, it is prohibited to transmit funds known to have come from a criminal offence, or that are intended to promote or support unlawful activities. The agency is seeking to collect any earnings that PayPal received from online gambling merchants during the nine-month period, as well as interest. Last year, PayPal received six per cent of its revenue from online gambling, according to its filing with the Securities and Exchange Commission. EBay, however, takes issue with the US Attorney's allegations. "PayPal acted in the good faith belief that its conduct did not violate [the USA Patriot Act], and PayPal calculates that the amount of its earnings from online gaming activities was less than asserted in the (US Attorney's) letter," the filing states. The auction company, which received the US Attorney's notice on Friday, is reviewing the matter and has not decided whether it will pay the requested settlement price, said Kevin Pursglove, an eBay spokesman. If a settlement is reached, it won't be the first time PayPal has paid up over processing online gambling payments. Last August, the service reached a settlement with the attorney general for the state of New York, under which it ceased processing payments for New York online gambling merchants and also paid the state $200,000, or about £126,000, in penalties. eBay, which acquired PayPal in October, has halted the practice of processing online gambling payments. In its filing, the company says the most recent controversy could hit the service hard. "Any finding of a civil or criminal violation by PayPal, or potentially any settlement, could also endanger PayPal's ability to obtain, maintain or renew money transmitter licences in jurisdictions where it requires such licences to operate, which would materially harm our business," according to the filing. The company is aware that PayPal's business could also suffer if future regulation under the USA Patriot Act requires it to revise its process for verifying the identity of its customers. The USA Patriot Act, signed into law in 2001, gives law enforcement agencies greater latitude in monitoring internet usage and sharing information. The law is designed to reduce the prospect of terrorist attacks. "PayPal's business could suffer if customers use its system for illegal or improper purposes, or if usage of its system is reduced because of increased verification requirements," the filing states. But Pursglove noted that PayPal already uses a rigorous customer identification system and has a good view, internally, of payments that merchants try to process for illicit or illegal activity. The loss of such business would be insignificant to eBay's revenue, he said. He also noted that whether eBay settles for the amount the US Attorney in Missouri is seeking, something less or nothing at all, there would be no material affect on its finances or operations. EBay declined to disclose the amount the US Attorney office is seeking. Shares of eBay slipped $3.98, or about four per cent, to $85.31 in Monday trading. Dawn Kawamoto writes for News.com