WASHINGTON (AP) - EBay Inc. said Monday that a U.S. Attorney is claiming the company's PayPal operation violated a part of the USA Patriot Act which deals with transmission of funds connected to criminal activity, according to its annual report filed with the Securities and Exchange Commission.
As a result, PayPal might have to forfeit the amounts it received in connection with such activities, and it also might be subject to criminal liability, the filing said.
EBay said Monday the U.S. Attorney's Office for the Eastern District of Missouri offered a complete settlement of all possible claims and charges covering a purported amount of earnings plus interest that PayPal derived from online gambling merchants from October 26, 2001, to July 31, 2002. The filing didn't provide information on the amount of earnings claimed in the letter.
EBay, which is based in San Jose, Calif., said PayPal acted in good faith and believes that it didn't violate the USA Patriot Act. The company said PayPal calculated that the amount of its earnings from online gaming activities was less than what was asserted in the U.S. Attorney's letter.
In October, Internet auctioneer EBay completed its $1.4 billion acquisition of PayPal Inc., giving it control of a top player in the Internet-payments market.
EBay said it would be harmed by negative publicity, costs of litigation and the diversion of management time if the investigation were to lead to a civil or criminal charge.
The company also said any finding of a civil or criminal violation, or potentially any settlement, could hurt PayPal's ability to obtain, maintain or renew money transmitter licenses in jurisdictions where such licenses are required, which would materially harm eBay's business.
Beginning in July 2002, PayPal provided documents and information related to its services to online gambling merchants, in response to a federal grand jury subpoena issued at the request of the U.S. Attorney for the Eastern District of Missouri.