AUSTRAC hits Paypal with counter-terrorism audit

Australia's financial crime watchdog is auditing PayPal's compliance with money laundering and counter-terror laws.

Its investigation hinges on PayPal's reporting of funds transferred in and out of the country.

AUSTRAC chief executive Nicole Rose said businesses like PayPal played a critical role in stopping the movement of money to paedophiles and terrorists.

"PayPal is an important partner in the fight against crime," Ms Rose said on Tuesday.

"However, when we suspect non-compliance AUSTRAC will take action to protect the Australian community."

A Paypal spokesperson contacted 9news.com.au, saying the business is fully committed to complying with AUSTRAC regulations.

"PayPal is fully committed to complying with all applicable laws and regulations in the 200+ markets in which we operate. Following an internal review, our business in Australia self-disclosed an issue in our reporting system for International Fund Transfer Instructions to AUSTRAC," the spokesperson said in a statement.

"We are working in full cooperation with AUSTRAC to remediate this reporting system issue and to undertake the audit as outlined by AUSTRAC in the time specified. There is no impact to our customers, who can continue to use PayPal services as usual."

Any possible breaches could result in fines, compliance actions or criminal prosecutions.

The external auditor will report back to AUSTRAC within four months.

PayPal will be forced to cover the costs of the audit.