EBay's PayPal auction payment unit is under investigation for possible violations of the USA Patriot Act.
A letter from the US Attorney's office for the Eastern District of Missouri stated that PayPal's earlier practice of providing payment services to online gambling merchants violated provisions in the Patriot Act that "prohibit the transmission of funds that are known to been derived from a criminal offence or are intended to be used to promote or support unlawful activity".
Kevin Pursglove, an eBay spokesman, said the company's attorneys are reviewing the allegations, which addressed an issue that happened nearly two years ago, before eBay's aquisition of PayPal last July. As part of its acquisition of the online payments company, eBay said it would pull the PayPal unit out of the gambling transaction business.
According to eBay's financial filing to the Securities and Exchange Commission, the US Attorney's letter said the alleged violations expose PayPal to "potential civil forfeiture of the amounts it received in connection with such activities", as well as "potential criminal liability".
The letter offered to rescind the allegations if PayPal paid the amount of money it earned by handling online gambling transactions from26 October 2001 to 31 July 2002, plus interest.
In the filing, eBay stated that PayPal "acted in the good faith belief that its conduct did not violate [the statute]". The company also claimed that its earnings from the transactions were lower than figures asserted by the government.
The USA Patriot Act, which gives law enforcement authorities expanded tools for investigating and deterring future terrorist acts, was passed a month after the 11 September terrorist attacks on the US in 2001.