eBay 2009 Annual Report Download - page 36

clear whether PayPal’s Singapore-based service is subject to Singaporean law or, if it were subject to local laws,
whether such local law would require a payment processor like PayPal to be licensed as a bank or financial
institution or otherwise. In such markets, the business may rely on partnerships with local banks to process
payments and conduct foreign exchange in local currency. Local regulators who do not have jurisdiction over
Singapore-based PayPal Private Ltd, may use their local regulatory power to interfere with, slow or halt
payments to local merchants conducted through the local banking partner. Such regulatory actions impacting
local banking partner arrangements could impose substantial costs and involve considerable delay to the
provision or development of PayPal services in that market. The Reserve Bank of India has asserted that PayPal’s
offering of payment services to customers outside of India to send personal, non-commercial payments to
recipients in India requires a license from the Reserve Bank. The Reserve Bank has directed the Indian affiliate
of PayPal’s processing bank to suspend all withdrawals to the Indian bank accounts of PayPal customers for both
personal and business customers. PayPal has suspended personal non-commercial payments to Indian accounts,
and intends to apply for a license from the Reserve Bank of India, but PayPal could be subject to fines from the
Reserve Bank for the period of operation without a license, and PayPal’s prospects for future business in India,
both cross-border and domestic, could be materially and adversely affected.
Even if PayPal is not currently required to be licensed in some jurisdictions, future localization or targeted
marketing of PayPal’s service in those countries, or expansion of the financial products offered by PayPal to new
jurisdictions (either alone, through a commercial alliance or through an acquisition), could subject PayPal to
additional licensure requirements, laws and regulations and increased regulatory scrutiny, any of which may
harm PayPal’s business. These factors could impose substantial costs and involve considerable delay to the
provision or development of its products. Delay or failure to receive such a license or regulatory approval could
require PayPal to change its business practices or features in ways that would adversely affect PayPal’s
international expansion plans, and could require PayPal to suspend providing products and services to customers
in one or more countries.
PayPal is also subject to various anti-money laundering and counter-terrorist financing laws and regulations
around the world that prohibit, among other things, its involvement in transferring the proceeds of criminal
activities. Although PayPal has implemented a program to comply with these laws and regulations, any errors or
failure to comply with federal, state or foreign money laundering and counter-terrorist financing laws could result
in significant criminal and civil lawsuits, penalties, and forfeiture of significant assets. Several countries,
including Australia, Luxembourg and Singapore, have recently implemented new anti-money laundering and
counter-terrorist financing laws and regulations, and PayPal has had to make changes to its procedures in
response. In November 2009, the Australian anti-money laundering and counter-terrorist financing regulator
(AUSTRAC) accepted an enforceable undertaking from PayPal Australia pursuant to which PayPal Australia
agreed, among other things, to appoint an independent auditor to assess PayPal Australia’s anti-money
laundering compliance policies and procedures and issue a report.
In the United States, PayPal is also subject to regulations that require it to report suspicious activities
involving transactions of $2,000, or more and may be required to obtain and keep more detailed records on the
senders and recipients in certain transfers of $3,000 or more. The interpretation of suspicious activities in this
context is uncertain. Future regulations under the USA PATRIOT Act may require PayPal to revise the
procedures it uses to verify the identity of its customers and to monitor international transactions more closely.
PayPal has localized its service in a number of other countries and as a result is subject to additional verification
and reporting requirements, which in some cases are more stringent. As PayPal continues to localize its services
in additional jurisdictions, PayPal could be required, among other things, to learn more about its customers
before opening an account, to obtain additional verification of customers and to monitor its customers’ activities
more closely. These requirements could impose significant costs on PayPal, make it more difficult for new
customers to join its network and reduce the attractiveness of its product.
To date, PayPal has obtained licenses to operate as a money transmitter in 42 U.S. states and territories and
interpretations in seven states that licensing is not required under their existing statutes. The remaining U.S. state
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