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Industry demands removal of irritants from FEMA, Money Bill

The recently-introduced Foreign Exchange Management Act or the FEMA and the Prevention of Money Laundering Act to overhaul the existing foreign exchange regulation systems tend to perpetuate rather than eliminate some of the provisions of the 25-year-old FERA (or the Foreign Exchange Regulation Act) which these bills are to replace, industry says.

While it views the FEMA as a liberal and simplified law, more in tune with the country's new economic environment of globalisation, the PMLA is being seen to retain some of the draconian provisions of the Foreign Exchange Regulation Act making its replacement with the new law in conformity with global corporate laws a zero sum game.

Prime Minister Atal Bihari Vajpayee had stated that steps would be taken to speed up the FEMA, and the views of trade and industry would be invited before finalising the money laundering Act.

''Old wine in new bottles,'' was how Radhika Sachdeva, a management expert, described the move. The Institute of Chartered Accountants of India has brought out a comprehensive paper pleading for changes in the FEMA and the PMLA. Several leading tax experts, including R N Lakhotia, author of several popular books on taxation, have voiced their concern and the common thread running through their argument is that it is crucial to remove the irritants.

The FEMA, except for certain sections, has been generally welcomed as a 'soft' law with several features to boost foreign trade and investment. The PMLA has been attacked by many, including the chambers as being too harsh. The two enactments, introduced in the last session of the Lok Sabha, in a way are contradictory to each other, says D S Mehta, consultant to some leading industrial houses. The sections which have been objected to in the FEMA include 36, 39 and 49(3). The opponents of the PMLA argue that the legislation brings in more control than regulation.

Under Section 49(3) of the FEMA, ''All offences committed under the repealed Act will continue to be governed by the provisions of the repealed Act as if the Act had not been repealed.'' The implications of this are that even after the enactment of the FEMA, ''the atrocious FERA will continue to harass businessmen.''

If the FERA has been found faulty, there is little logic or justification to apply it to old cases. It is somewhat ridiculous to launch investigations under the repealed Act, if the alleged offences were committed before the enactment of the FEMA, Mehta says.

The provision implies that an offence committed in 1997 and detected in 2000 will be dealt under the repealed FERA.

Industry supporters argue that equity demands that offences prior to the new Act detected later should be dealt with under the new law. In other words, the FEMA should be applied uniformly and with retrospective effect all existing cases where inquiry or investigation has commenced must fall within the ambit of the FEMA. Either section 49(3) be scrapped or the Act should provide some amnesty scheme for compounding cases under the FERA where offences are inconsistent with the FEMA.

A leading chamber, while stating that it is not against rigorous penalty in cases of drug-related and other such crimes if these are proved, has stressed that economic offences should be clearly left out from the ambit of the money laundering bill as these could be dealt in various provisions under Income Tax Act, Company Law and Indian Penal Code.

The cases of forgery should not be treated at par with murder cases as the Indian Penal Code. Similarly, the use of proceeds of crime funds and falsification of accounts is already covered under income tax and other laws. The clause relating to falsification of accounts could lead to undue hardships to genuine persons and clause could be subjected to misuse and harassment like the FERA, the chamber argued.

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