Bill on FEMA introduced
Tribune News Service

NEW DELHI, Aug 4 — The Union Finance Minister, Mr Yashwant Sinha, today introduced the much-delayed Foreign Exchange Management Bill, which seeks to replace the existing Foreign Exchange Regulation Act (FERA), and the Prevention of Money Laundering Bill in the Lok Sabha.

The proposed Foreign Exchange Management Act (FEMA) seeks to replace FERA which was passed at a time when the country had a closed economy and foreign currency was regulated strictly by the Reserve Bank of India. In today’s economic scenario, when the country is close to moving toward full convertibility on capital account, there is substantial increase in foreign exchange reserves, growth in foreign trade and increased access to external commercial borrowings by Indian corporates, FERA has become outdated.

While liberalising the foreign exchange regulation regime, the government by moving the Bill on Prevention of Money Laundering hopes to check the misuse of the foreign exchange by Indians.

While the objective of FEMA is to facilitate external trade and payments and for promoting orderly development and maintenance of foreign exchange market in India, the Prevention of Money Laundering Bill would aim to prevent money laundering and to provide for confiscation of property derived from or involved in money laundering.

Money laundering is punishable with three years rigorous imprisonment which may extend up to seven years and 10 years in case of drug related offences with a fine of Rs 5 lakh.

However, under FEMA, all foreign exchange violations would be tried under civil laws inviting monetary penalties and in its absence detention.

In the statement of objects and reason for FEMA, Mr Sinha said FERA, 1973, was reviewed in 1993 and several amendments relating to foreign investments and foreign trade for closer interaction with the world economy were enacted. At that stage, the Central government decided that a further review of FERA would be undertaken in the light of the subsequent developments and experience in relation to foreign trade and investment. It was subsequently felt that a better course would be to repeal FERA and undertake a fresh exercise and suggest a new legislation.

The RBI constituted a task force for the purpose and a report was given in 1994, recommending substantial changes in the existing Act.

HIGHLIGHTS

• FEMA to repeal FERA of 1973
• The Reserve Bank of India to be the sole monitor of foreign exchange transactions and appoint authorised persons to deal in exchange or in foreign securities
• The RBI to inspect authorised dealers to check compliance of FEMA regulations
• Contravention of FEMA rules liable for penalty up to twice the sum involved where amount is quantifiable and up to Rs 1 lakh where it is not quantifiable
• Penalty of Rs 5000 per day for continued violation
• Persons failing to pay penalties within 90 days liable for civil imprisonment
• FEMA to have an enforcement directorate, adjudicating authority and an appellate tribunal
• No civil court to have jurisdiction to entertain any suit or proceeding in respect of any matter handled by adjudicating authority or appellate tribunal.