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FEMA, MLP Bills need fine-tuning, opines business community

Staff Writers in Bombay and New Delhi

The Foreign Exchange Management Bill and Money Laundering Prevention Bill, introduced in the Lok Sabha today by Finance Minister Yashwant Sinha, have become a subject of intense debate among the Indian business community.

The Bills were drafted by the United Front government in 1996 to make the rules foreign investment- and entrepreneur-friendly but at the same time ensure that violators do not go scot-free.

While the Union government views money-laundering as a serious threat to the financial systems of the country, affecting its integrity and sovereignty, industry circles fear the Bills could lead to widespread harassment of business people.

A major fear is that the charge of dressing up books under the MLP Bill may be misused. The Bill proposes to treat falsification of accounts and balance sheets as an abominable criminal offence fit for unbailable detention, under section 477A of the Indian Penal Code.

Regarding the attachment of property purchased out of slush money, the MLP Bill facilitates arrest of persons on mere suspicion, and there will not be any intervention by civil courts. Offences are non-bailable and can invite up to seven years of rigorous imprisonment.

Industry bigwigs say this is scary and superfluous as existing Acts like Income Tax Act, Central Excise Act have requisite penal provisions. Duplication of work like this is likely to lead to administrative problems in future, they add.

The MLP Bill seeks to make it mandatory for exporters to inform the Reserve Bank of India about material value, etc. However, over-invoicing has no remedy, though under-invoicing falls within full export value. An opinion is forming that such strong-arm tactics will affect transaction costs, economic output and transparency.

However, government sources sought to assure that the MLP Bill is aimed at erring corporates seeking to benefit from unaccounted money. Even chartered accountants who authorise such dressed up books will be liable for action.

Governmental assurances notwithstanding, confusion abounds over the FEMA Bill which will replace the Foreign Exchange Regulation Act. After the repeal of the FERA , the Conservation of Foreign Exchange and Prevention of Smuggling Activities Act will become reduntant. For the foreign exchange offenders are first put in preventive detention under the COFEPOSA, to be later prosecuted under the FERA. If FEMA comes into effect, the accused could only be detained, not prosecuted.

To confound matters, both the FEMA and the MLP Bills seek to check hawala trade. Apparently, the MLP Bill would probe the money source while the FEMA would unravel forex deals through illegal channels.

Another area of confusion is the existing cases booked under the FERA. Indications are that they might be tried under the FEMA.

Government sources are reported to have said that the FEMA Bill 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.

Government sources point out that the FEMA Bill 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 RBI to have total control over foreign exchange dealings and stability of the rupee.

In other words, the FEMA Bill aims at diluting the FERA which has been labelled as draconian that does not differentiate between criminal activities and irregular transactions.

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 RBI, where the penalty would be in the form of a fine one or three times the value of irregular transactions.

The MLP 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 for action.