AUSTRAC has ordered an external audit of PayPal Australia's compliance with financial crime laws amid concerns that the payments platform has been exploited by child sex rings over the internet.The financial crimes enforcement agency yesterday ordered PayPal to appoint an independent auditor to assess its transaction reporting and record keeping after the company self-disclosed shortcomings in its reporting of international funds transfers via its platform.AUSTRAC chief executive Nicole Rose told ABC's business correspondent Peter Ryan the agency was concerned that PayPal was being used by Australian subscribers to facilitate transactions involving sexual abuse of children in countries such as the Philippines.PETER RYAN:  You've cited the importance of financial intelligence to help combat serious crimes and you've singled out child sex exploitation. Is that a major issue that PayPal is exposed to?NICOLE ROSE:  Yes, it is, Peter, because online child abuse material can be ordered from Australia to areas such as the Philippines. They are quite often small amounts that are repeated often as the offender wishes them to be and PayPal, unfortunately, is one of the areas that they can use to do that. PR:  Surely, PayPal would be aware that it is at risk of being used by child sex exploitation rings? ROSE:  PayPal is, and they've worked with us in our public-private partnership on a number of matters to assist law enforcement in tracking down offenders but it is the volume, Peter, that we are concerned about, that if there is any underreporting, those things are not being reported and intelligence is lost. PR:  PayPal says it self-reported these issues relating to international transfers but are you concerned that self-reporting or self-regulation isn't enough especially given the risk of child sex exploitation?ROSE:  Yeah, correct. We're really pleased that there are all of these entities that are disclosing failures in their reporting and we're working with them but that's why we want to get the auditor in, to really see what sort of risks there have been and there continue to be with either PayPal systems or their reporting regime.The external auditor is required to submit a report on the effectiveness of PayPal's compliance processes early next year.The audit will investigate whether the company has met its obligations in relation to anti-money laundering and counter terrorism funding.It will also assess issues raised by PayPal itself concerning international funds transfers and the adequacy of record keeping practices.Rose indicated that the outcomes of the audit would inform AUSTRAC on whether any further regulatory action was required.PayPal is the latest financial institution to come under intense scrutiny from AUSTRAC this year following orders issued to buy now, pay later pioneer Afterpay in June.