Cliff Saran’s FUD blog

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.

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

Actually, it's part of the Third Money Laundering Directive. Details here: http://www.hm-treasury.gov.uk/consultations_and_legislation/money_laundering_directive/consult_thirdmoney_2007.cfm or here http://www.hm-treasury.gov.uk/media/0/3/consult_thirdmoney_2007.pdf

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?

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.

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,

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

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

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.

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)

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*

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.

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.

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!!!!!