Presentation Transcript

1. Foreign Exchange Management Act Module VII: Important Provisions Foreign exchange management Act regarding holding, handling and transfer of foreign exchange. Money laundering meaning
2. FEMA 1999 In India, Foreign trade was regulated by a)The Foreign trade (Development and Regulation) Act, 1992 which replaced the Imports and exports(Control) Act, 1947 b) Foreign Exchange Regulations Act 1973. With the liberlaisation and globalisation, the outlook changed. Now it is the question of management and not regulation. However, certain activities are still being regulated in the interest of sovereignty of the nation.
3. FEMA 1999 FEMA Act 1999 came in the backdrop of the stringent regulatory provisions of FERA which were described as draconian and obnoxious in the wake of economic liberalisation. FERA served the country to tide over the foreign exchange crisis and the controlled economic regime. Then, conservation and proper utilisation of foreign exchange was the motto. FEMA came into effect from Jan 1,2000 extends to the whole of India and applies to all branches, offices, and agencies outside India, owned or controlled by a person resident in India.
4. FEMA 1999 FEMA 1999 has repealed the FERA 1973. FEMA came into force from 1st June 2000 FEMA is liberal with the objective of facilitating external trade and payments and promoting orderly development and maintenance of foreign exchange market in India. The act applies to the whole of India and also to branches, offices and agencies outside India owned or controlled by a person resident in India. It also applieds to any contravention committed outside India by any person to whom this Act applies.
5. FEMA 1999 Objectives of FEMA: Facilitating external trade and payments Promoting the orderly development and maintenance of foreign exchange market FEMA deals with both Current Account and Capital Account Transactions of the BOP Sec 3 of the FEMA imposes restrictions on dealings in foreign exchange and foreign securities and payments to and receipts from any person outside India. The Act provides certain conditions.
6. FERA and FEMA compared FERA Regulatory in nature; preventing misuse; control regime. Lengthy Act with 81 sections Stipulations were rigid which included imprisonment Many conditions were imposed in the export/import, blocked accounts, movement of human resources FEMA Management, Facilitating trade and payments, and flow of exchange; economic liberalisation Smaller enactment with 49 sections Rigidity is withdrawn. Penalty and no imprisonment. Now the conditions are highly liberal and provides a congenial climate for export /import of goods, services, human capital etc
7. FEMA 1999 Important Definitions under the Act: Capital Account Transaction: It means—a) a transaction which alters the assets or liabilities, including contingent liabilities, outside India of persons resident in India OR b)assets and liabilities in India of persons resident outside India OR c) Prohibitions as per Sec 6(3) (RBI may regulate or restrict certain transactions Currency: Currency includes all: a) currency notes; b) Postal Notes; c) Postal Orders; d) Money Orders; e) Cheques; f) Travellers’cheques; g) Letters of Credit; h) Bills of Exchange and promissory notes and i) Credit Cards. It also includes which the RBI may notify from time to time
8. FEMA 1999 Current Account Transactions: it means a transaction other than the capital transaction. It includes—a) payments in connections with foreign trade, other current business, services, and short term banking and credit facilities in the ordinary course of business; b) payments due as interest on loans and as net income from investments; c) remittances for living expenses of parents, spouse and children residing abroad; d) expenses in connection with foreign travel, education, medical care of parents, spouse and children. Export: --a) taking out of India to a place outside India any goods; b) Provision of services from India to any person outside India; Foreign Currency—Means currency other than Indian Curency
9. FEMA 1999 Foreign Exchange: It means foreign currency and includes—a) deposits, credits and balances payable in any foreign currency; b)drafts, traveller’scheques, letters of credit or bills of exchange, expressed or drawn in Indian currency but payable in any foreign currency; c) drafts, travellers’cheques, letters of credit or bills of exchange drawn by banks, institutions or persons outside India but payable in Indian currency Foreign Security: Securities denominated or expressed in foreign currency Import: Bringing into India any goods or services
10. FEMA 1999 Resident: 182 days except where outside India stay for taking up employment, or carrying out business or for permanent settlement or where the stay in India is uncertain. Non-resident: Not satisfying the Resident definition Repatriation: Crossing the foreign exchange into India from other countries or sending from India outside India Security: Shares, stocks, Bonds and Debentures, Government securities (Public Debts), Savings Certificates of the Government, deposit receipts and units of Unit Trust of India or any Mutual Fund but it does not include the Bills of Exchange or Promissory notes other than the Government Promissory Notes or other securities notified by the RBI
11. FEMA 1999 Service: Service of any description which is made available to potential users. It also includes the provision of facilities in connection with banking, financing, insurance, medical assistance, legal assistance, chit fund, real estate, transport, processing, supply of electrical or other energy, boarding or lodging or both, entertainment, amusement or the purveying of news or other information. (Exception—personal service rendered free of charge)
12. FEMA 1999 Salient features of FEMA: All receipts and payments shall be through authorised persons (RBI is authority to decide about authorised persons) Holding of Foreign Exchange:-A resident in India cannot acquire, hold , own, possess or transfer any foreign exchange, foreign security or any immovable property situated outside India.(except where specifically permitted) Current Account Transaction: Any person is free to sell or buy foreign exchange to or from an authorised person for a current account transaction. Capital Account Transaction:-Any person is free to sell or buy foreign exchange to or from an authorised person for a capital transaction with certain exceptions ( RBI can fix up limits or the class of transaction which are permissible or not)
13. FEMA 1999 Prohibition of certain transactions: RBI has powers to regulate, prohibit, or restrict the following: Transfer or issue of any foreign security by a resident in India Transfer or issue of any security by a person resident outside India. Borrowing or lending in foreign exchange Borrowing or lending in Rupees outside India Export or import of currency or currency notes Transfer of immovable property in India and Outside India involving foreign exchange. Giving of a guarantee or surety by resident to a resident or person outside India And such other transactions which involve foreign exchange
14. FEMA 1999 Export of goods and services: Exporter of goods and services shall furnish a declaration giving full particulars and ensure that the value of the goods are realised within the stipulated time. Realisation and Repatriation (exemptions thereon): Steps shall be taken to ensure realisation or repatriation. Certain exemptions are provided Eg possession of foreign currency or foreign coins with certain limits Authorised Person: RBI authorises persons as: “authorised dealers(including banks), money changer or off-shore banking unit.” RBI has powers to inspect these offices who have to maintain proper books of accounts.
15. FEMA 1999 Contravention and Penalties: Where the contravention amount is quantifiable, the penalty is thrice the amount involved. In other cases, the penalty is upto Rs 2 lakh. Continuing contravention –Rs5000 per day. Failure to pay the penalty may land the person for civil imprisonment (subject to appeal). Warrant of arrest can be made in case the person is likely to abscond or leave the local limits. IN case of contravention by Companies, every person in charge of such an act shall be deemed guilty of contravention. Provision for adjudication and appeal: FEMA Provides for adjudication and appeals. The Central Government appoints the adjudicating authority, who has powers to conduct judicial proceedings as per Indian Penal Code. A special director is the appellate authority.
16. Money Laundering Money laundering Acquiring, Owning, possessing or transferring any money for crime related purposes directly or indirectly is known as money laundering. Also referred to in terrorism related activities. Money laundering involves disguising financial assets so that they can be used without detection of the illegal activity that let to its production. Through the process of “money laundering” a person converts illegal money into a legal entity. Whosoever directly or indirectly attempts to indulge or knowingly assists or knowingly is a party or is actually involved in any process or activity connected with the proceeds of crime and projecting it as untainted property shall be held guilty of the offence of money laundering. Every country make legislations for anti-money laundering. In India, the Prevention of Money Laundering Act (henceforth, PMLA) was enacted w.e.f 2003
17. Money Laundering The UN General Assembly, in its Special Session (1999), came up with a political declaration that required the Member-States to adopt money laundering legislation and programme. Moreover with the changed economic scenario and the dynamic process of liberalization laws like Foreign Exchange Management Bill in place of earlier FERA was felt to be much static and harsh. Prevention of Money Laundering Act was passed in the year 2002 effective from Jan 17, 2003 With the PMLA coming into force, banks, financial institutions and financial intermediaries will have to mandatorily report to Government all suspicious transactions and those over Rs.10 Lakh. Financial institutions, including chit funds, cooperative banks and intermediaries like stock brokers, share transfer agents, underwriters and investment advisers were to be registered with SEBI.
18. Money Laundering The Financial Intelligence Unit (FIU-IND) was set up as a multi-disciplinary unit for establishing links between suspicious or unusual financial transactions and criminal activities. Legislations In Consonance With PMLA :-1. Banking Regulation Act, 1949. 2. Chit Funds Act, 1982. 3. deposit Insurance and Credit Guarantee Corporation Act, 1961 4. NABARD Act, 1981. 5. National Housing Bank Act, 1987. 6. Reserve Bank of India Act,1934. 7. Securities and Exchange Board of India act,1992.
19. Money Laundering The Schedule to the Prevention of Money Laundering Act (henceforth, PMLA), 2002, lists some of the offences under the following Legislations:Offences under the India Penal Code (part A) - eg. Waging or attempting to wage war, or abetting waging of war against the Government of India, Conspiring to commit offences punishable by s.121 against the state 1. Offences under the Narcotic Drugs and Psychotropic Substances Act, 1985- eg. Contravention in relation to opium poppy and opium. 2. Offences under India Penal Code (part B) - eg. Murder, kidnapping for ransom, counterfeiting currency notes or bank notes. 3. Offences under the Arms Act, 1959- eg. Knowingly purchasing arms from unlicensed person not entitled to purchase the same. 4. Offences under the Wildlife (Protection) Act, 1972- eg. Contravention of provisions of s.48 relating to purchase of animals etc by license. 5. Offence under the Immoral Traffic (Prevention) Act, 1956- eg. Seducing or soliciting for purpose of prostitution. 6. Offences under the Prevention of Corruption Act, 1988- eg. Taking gratification for exercise of personal influence, with public servant The innumerate under the afore stated Acts generate huge sums. The launderer converts these sums into untainted money by investing them into shares or banks and thereby converts the essential character of the money.
20. Money Laundering RBI, SEBI and IRDA are under the purview of PMLA. It allows search and seizure of suspected properties by officials and stipulates punishment of minimum three years’ imprisonment for the Guilty. Money laundering can be checked by monitoring illegal forex transactions, real estate, gems and jewellery and high value purchases. In India, however, PMLA regulates only banking companies, financial institutions and intermediaries to maintain records, furnish information and verify identity of the customers. It does not deal with tapping of information within the ambit of informal economy as in case of forex transactions, because lot of dealing in this avenue is done through informal channels. The PMLA makes it illegal to enter into a transaction related to funds derived from criminal activities as also to possess or transfer such funds.
21. Money Laundering Apart from the banking and other financial institutions and intermediaries the Act also extends upon the working of International Payment gateways such as Visa and Mastercard along with money transfer providers. However, it is strongly felt that PMLA should incorporate within its ambit the casinos, because a huge amount of money, in form of informal transactions, is being operated upon through such places. The menace of money laundering hits not only at the root of a country’s financial structure but also kills its social structure by financing anti-social activities. There is a growing need to catch hold of the increasing threat of money laundering by legislating and implementing amendments in the present law of Anti- money Laundering.