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Fema, Money Bills: Cabinet nods, Parliament's turn next

In a major decision, the government on Friday cleared the Foreign Exchange Management Act -- Fema -- and the Money Laundering Bill. The two Bills, if approved by Parliament whose session has been extended till August 4, will replace the Foreign Exchange Regulation Act, Fera.

The Cabinet's decision was taken at a meeting chaired by Prime Minister Atal Bihari Vajpayee.

The Bills were drafted by the United Front government to make the rules foreign investment friendly but at the same time ensure that violators do not go scot-free.

The Bills were broadly on the lines of a draft prepared under the leadership of then finance minister Palaniappan Chidambaram.

Fema seeks to erase the long-standing belief that foreign exchange is a scarce commodity. It is expected to usher in a liberal forex regime, besides empowering the Reserve Bank of India to have total control over foreign exchange dealings and stability of the rupee.

In other words, Fema aims at diluting the draconian Fera.

The Money Laundering Bill covers both international and domestic crime, including provisions of the Prevention of Corruption Act.

The controversial aspect of the Fema Bill is that its provision would be prospective and not retrospective.

The Fema legislation seeks to differentiate between financial crime and violation of currency transaction restrictions. So, some identified crimes such as hawala and drug trafficking have been earmarked for investigation and action by the Enforcement Directorate with powers of arrest and interrogation.

According to informed sources, other small indiscretions, which merely amount to violation of currency transactions guidelines are to be dealt with by the adjudicating authority to be designated by the Reserve Bank of India, where the penalty would be in the form of a fine one or three times the value of irregular transactions.

Fera is, however, more draconian and does not differentiate between criminal activities and irregular transactions, experts said.

The Money Bill seeks to check black money generation or white collar crimes. One of the important aspects is that the Bill, if approved, will empower bank officials to probe any deposit or transaction in excess of Rs 10 million; if it is found to be related to laundering or illegal activities, the officials can report it to Enforcement Directorate.

UNI