HVK Archives: Fera violators in for shock as Fema won't be retrospective
Fera violators in for shock as Fema won't be retrospective - The Telegraph
Posted By Ashok V Chowgule (ashokvc@giasbm01.vsnl.net.in)
13 May 1997
Title : Fera violators in for shock as Fema won't be retrospective
Author :
Publication : The Telegraph
Date : May 13, 1997
The proposed Foreign Exchange Management Act (Fema), which is to replace the
existing Foreign Exchange Regulation Act (Fera), will not have retrospective
effect.
Top government officials said the controversial legislation, which allows parking
of funds abroad in a more liberal manner, will be effective from the day the Bill
is passed by Parliament.
Corporates facing investigations under the Fera for illegally parking export
earnings abroad or for siphoning money out of the country through an informal
banking network called the hawala route had hoped that the new legislation would
have retrospective effect.
Finance ministry officials too had indicated that the Reserve Bank of India team
which had worked on the proposed legislation wanted it to be with retrospective
effect and that some 3,000 out of the 5,000 foreign exchange violation cases being
pursued now would be dropped as a result. Many of these cases involved probes
against such high-profile companies as ITC and Shaw Wallace. These cases and a
series of raids and probes by the enforcement directorate had led to industry
chambers complaining of a "raid raj" and seeking review of Fera.
The government had consequently taken a political decision late last year to bring
in two legislations - one to liberalise parking of funds abroad, without prior
permission from the RBI, replacing Fera and another to cheek laundering of black
money
(Currently it is possible to keep funds abroad but with permission from the RBI
and there are rules which govern the manner in which these funds are invested.)
But the government for reasons best known to it decided to go ahead with the Fema
legislation while keeping the Bill to cheek money laundering in abeyance.
This was deeply resented by officials m well as most legal experts as many of the
Fera cases which would now come under Fema related to money laundering. Their fear
was that if Fema is introduced without a tough money laundering complement, these
cases would die out.
Their point was that foreign exchange violations are not made merely to buy
machinery or fund foreign travel and promotional expenditure, as made out by
industry, but are mainly "to launder or stash abroad illegal wealth accumulated
here."
Individuals and companies have been over-invoicing exports to legalise and bring
back illegal earnings salted away abroad through the 'hawala' route.
As the draft Fema also takes away powers from the enforcement directorate to
independently initiate investigations, search and detain suspects and reduces
penalties for foreign exchange violations, officials felt it would not be possible
to check this trend.
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