Photo: IC

Australia's financial regulator on Tuesday ordered an investigation into global money transfer platform PayPal over concerns it is being misused by sex offenders to buy child abuse material from Asia.

The Australian Transaction Reports and Analysis Center (AUSTRAC) will appoint an external auditor to examine what it calls "ongoing concerns" over PayPal's alleged breaches of the country's anti-money laundering and counter-terrorism financing laws.

AUSTRAC said it was working with its partners to "combat serious crimes such as child sex exploitation" using funds transfer information reported by the financial services sector.

"Online child abuse material can be ordered from Australia to areas such as the Philippines in quite often small amounts that are repeated often, and PayPal unfortunately is one of the areas that they can use to do that," AUSTRAC CEO Nicole Rose told the ABC. "That's why we want to get the auditor in to really what sort of risks there have been and continue to be with PayPal systems or their reporting regime."

A PayPal Australia spokesperson said that following an internal review the company had "self-disclosed an issue" in its reporting system to AUSTRAC. "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," they said in a statement. 

An audit report must be compiled within 120 days and will be used to determine whether the regulator takes any further action against the digital payments platform.