PRESENTATION ON FEMA AND MONEY LAUNDERING

Submitted By:Group 1 (PGDM-Section c) Pankaj Tahilyani (13DM125) Prakhar Jain (13DM130) Prashant Aggarwal (13DM133) Raushan Singh (13DM147) Romil Dalal (13DM154) Satyendra Kumar (13DM163)

Submitted to:Prof. Pooja Mishra

FOREIGN EXCHANGE MANAGEMENT ACT, 1999

BACKGROUND
Replaced FERA Foreign Exchange Regulation Act 1974 FERA had become incompatible with the pro-liberalisation policies of the Govt. of India

This was done in order to relax the controls on foreign exchange in India, as a result of economic liberalization.
FEMA served to make transactions for external trade (exports and imports) easier transactions involving current account for external trade no longer required RBIs permission.

FERA VS FEMA
The objective of FERA was to conserve forex and prevent its misuse. The objective of FEMA is to facilitate external trade and payments and maintenance of foreign exchange in India. Violation of FERA was considered a criminal offence. Whereas violation of FEMA was considered a civil offence.
Under FERA citizenship was a criteria while determining a person as resident of India whereas under FEMA stay of more than 182 days is a criteria to determine residential status of a person.

OBJECTIVES OF THE ACT

Facilitating external trade For promoting the orderly development and maintenance of foreign exchange market in India.

FEW DEFINITIONS
"authorized person" means an authorized dealer, money changer, off-shore banking unit or any other person for the time being authorized under subsection (1) of section 10 to deal in foreign exchange or foreign securities; "capital account transaction" means a transaction which alters the assets or liabilities, including contingent liabilities, outside India of persons resident in India or assets or liabilities in India of persons resident outside India, and includes transactions referred to in sub-section (3) of section 6; "currency" includes all currency notes, postal notes, postal orders, money orders, cheques, drafts, travellers cheques, letters of credit, bills of exchange and promissory notes, credit cards or such other similar instruments, as may be notified by the Reserve Bank;

 "currency notes" means and includes cash in the form of coins and bank notes; "current account transaction" means a transaction other than a capital account transaction and without prejudice to the generality of the foregoing such transaction includes (i) payments due in connection with foreign trade, other current business, services, and short-term banking and credit facilities in the ordinary course of business, (ii) payments due as interest on loans and as net income from investments, (iii) remittances for living expenses of parents, spouse and children residing abroad, and (iv) expenses in connection with foreign travel, education and medical care of parents, spouse and children;

 "foreign exchange" means foreign currency and includes (i) deposits, credits and balances payable in any foreign currency, (ii) drafts, travellers cheques, letters of credit or bills of exchange, expressed or drawn in Indian currency but payable in any foreign currency, (iii) drafts, travellers cheques, letters of credit or bills of exchange drawn by banks, institutions or persons outside India, but payable in Indian currency;

"person" includes
(i) an individual, (ii) a Hindu undivided family, (iii) a company, (iv) a firm, (v) an association of persons or a body of individuals, whether incorporated or not, (vi) every artificial juridical person, not falling within any of the preceding subclauses

 "person resident in India" means- a person residing in India for more than one hundred and eighty-two days during the course of the preceding financial year "person resident outside India" means a person who is not resident in India; "repatriate to India" means bringing into India the realized foreign exchange and (i) the selling of such foreign exchange to an authorized person in India in exchange for rupees, or (ii) the holding of realized amount in an account with an authorized person in India to the extent notified by the Reserve Bank, and includes use of the realized amount for discharge of a debt or liability denominated in foreign exchange and the expression "repatriation" shall be construed accordingly;

REGULATION AND MANAGEMENT OF FOREIGN EXCHANGE

Dealing in foreign exchange- As per the Act no person shall-

a) deal in or transfer any foreign exchange or foreign security to any person not being an authorized person;
b) make any payment to or for the credit of any person resident outside India in any manner; c) receive otherwise through an authorized person, any payment by order or on behalf of any person resident outside India in any manner. d) enter into any financial transaction in India as consideration for or in association with acquisition or creation or transfer of a right to acquire, any asset outside India by any person.

CURRENT ACCOUNT TRANSACTIONS

Any person may sell or draw foreign exchange to or from an authorized person if such sale or drawl is a current account transaction: Provided that the Central Government may, in public interest and in consultation with the Reserve Bank, impose such reasonable restrictions for current account transactions as may be prescribed.

CAPITAL ACCOUNT TRANSACTIONS

Subject to certain provisions, any person may sell or draw foreign exchange to or from an authorized person for a capital account transaction. The Reserve Bank may, in consultation with the Central Government, specify (a) any class or classes of capital account transactions which are permissible; (b) the limit up to which foreign exchange shall be admissible for such transactions: Provided that the Reserve Bank shall not impose any restriction on the drawl of foreign exchange for payments due on account of amortization of loans or for depreciation of direct investments in the ordinary courts of business.

 The Reserve Bank may, by regulations, prohibit, restrict or regulate the following

(a) transfer or issue of any foreign security by a person resident in India;

(b) transfer or issue of any security by a person resident outside India; (c) transfer or issue of any security or foreign security by any branch, office or agency in India of a person resident outside India; (d) any borrowing or lending in rupees in whatever form or by whatever name called; (e) any borrowing or lending in rupees in whatever form or by whatever name called between a person resident in India and a person resident outside India;

(f) deposits between persons resident in India and persons resident outside India; (g) export, import or holding of currency or currency notes; (h) transfer of immovable property outside India, other than a lease exceeding five years, by a person resident in India; (i) acquisition or transfer of immovable property in India, other than a lease not exceeding five years, by a person resident outside India; (j) giving of a guarantee or surety in respect of any debt, obligation or other liability incurred (I) by a person resident in India and owed to a person resident outside India; or (ii) by a person resident outside India.

 A person resident in India may hold, own, transfer or invest in foreign currency, foreign security or any immovable property situated outside India if such currency, security or property was acquired, held or owned by such person when he was resident outside India or inherited from a person who was resident outside India. A person resident outside India may hold, own, transfer or invest in Indian currency, security or any immovable property situated in India if such currency, security or property was acquired, held or owned by such person when he was resident in India or inherited from a person who was resident in India.

EXPORT OF GOODS AND SERVICES

Every exporter of goods shall (a) furnish to the Reserve Bank or to such other authority a declaration in such form and in such manner as may be specified, containing true and correct material particulars, including the amount representing the full export value or, if the full export value of the goods is not ascertainable at the time of export, the value which the exporter, having regard to the prevailing market conditions, expects to receive on the sale of the goods in a market outside India; (b) furnish to the Reserve Bank such other information as may be required by the Reserve Bank for the purpose of ensuring the realization of the export proceeds by such exporter.

EXEMPTIONS :
Trade samples of goods and publicity material supplied free of payment Goods or software accompanied by a declaration by the exporter that they are not more than twenty five thousand rupees in value

By way of gift of goods accompanied by a declaration by the exporter that they are not more than one lakh rupees in value

Case 1 : Violation by Emaar MGF Land Ltd

The group had disclosed to RBI that it is bringing FDI for developing construction related projects in India but it used the funds for purchasing agricultural land, which is a violation of rules framed by the banking and FDI regulator of the country. The agency found that funds were received by the company and its "four subsidiaries from Dubai, Cyprus, Mauritius and other foreign countries under the FDI scheme of RBI since April 2005 to the tune of about Rs 8,600 crore. The penalty proceedings against these violations amount to Rs 25,000 crore which is 300 per cent of the violations detected.

Case 2 : Violation by Rajasthan Royals

ED discovered that Jaipur IPL was formed in March 2008, but the initial payment to the Board of Control for Cricket in India was made by Manoj Badale, through his personal account, on behalf of the consortium of investors led by Emerging Media (IPL) Ltd. Under Fema, a non-resident Indian (NRI) can remit money to a company against shares through normal banking channels. in this case, the company did not exist when the money was remitted to India. ED has imposed a fine of Rs.100 crore on Rajasthan Royals.

Case 3 : Violation by British nationals

Enforcement Directorate (ED), Goa, has issued notices to four British nationals for violating the Foreign Exchange Management Act (FEMA) in making purchases of immovable properties in Goa.
In terms of the provisions of Section 6(5) of FEMA 1999, a person resident outside India can hold, own, transfer or invest in Indian currency, security or any immovable property situated in India if such currency, security or property was acquired, held or owned by such person when he was a resident in India or inherited from a person who was a resident in India.

In 2012, 32 notices were served on foreign nationals for purchase of immovable property and 5.5 crore was recovered as penalties. In 2013, 16 notices were issued and 3.60 crore was recovered.

HAVE ANY OF YOU WHO HAVE NOT EXPERIENCED GIVING BRIBE DIRECTLY OR INDIRECTLY?

HOW DO YOU THINK THAT THE MONEY EARNED OUT OF CORRUPTION, BRIBERY ETC IS UTILIZED BY CRIMINALS?

SOME TAUNTING FACTS

According to United Nations office of Drugs and Crime, the estimated amount of money laundered globally in one year is 2 - 5% of global GDP, or $800 billion - $2 trillion in current US dollars. According to Corruption Perception Index 2011 India is in 95th position, where as according to doing business report 2012 of the world bank India is in 132nd position. As many as 62% of all citizens think that corruption is real and they have in fact have had first hand experience of paying a bribe or using a contact to get a job done in a public office India Corruption Study 2005 by Transparency International.

The public officials in India may be cornering as much as Rs.92,122 crore ($18.42 billion), or 1.26 per cent of the GDP, through corruption. (Source : Economic Times Dated December 11, 2011)
Result. Black Money and its laundering

ACT OF MONEY LAUNDERING

Process by which illegal funds and assets are converted into legitimate funds and assets. How the process takes place ?? Entry of illegal funds into the system Placement Distancing of funds from its origin-Layering Laundered funds are made available as legitimate funds-Integration

THE PROCESS

HOW DOES IT WORK?

Sell cocaine and get a million dollars.

Take the million in cash to the some Islands.

Buy a legitimate company , complete with a board of directors. Open a bank account in the companys name and deposit the rest of the money. Enjoy the islands, get some sun, then go home. When you get home, borrow $200,000 from the Company account and have it delivered via wire transfer

Open a restaurant.
Deposit proceeds from ongoing drug business along with proceeds from the restaurant every month into a legitimate bank account. Dont add too much illegal money, just enough to make it look as though your restaurant is

doing a good, healthy business.

Pay all of your taxes on the restaurant deposits, so the tax authorities dont start an investigation

COMMON SOURCES OF MONEY LAUNDERING

Tax Evasion Drug Trafficking

Organized Crime e.g. Extortion, Prostitution

Loan Sharking, Kidnapping, Contract Killing, Gambling, Adulation, Bank Fraud and Corruption etc. Slush Funds maintained by the big corporations e.g. Bribery, Payment to the Political Parties, Politicians etc. Terrorisms International Traffickers in arms; International Trafficking in human beings smuggling Smuggling

CASE 1: HSBC MONEY LAUNDERING CASE

HSBC to pay $1.9 billion U.S. fine in money-laundering case. The settlement is the third time in a decade that HSBC has been penalized for lax controls and ordered by U.S Mexico's Sinaloa cartel and Colombia's Norte del Valle cartel between them laundered $881 million through HSBC and a Mexican unit. The bank acknowledged it failed to maintain an effective program against money laundering and failed to conduct basic due diligence on some of its account holders. Despite the known risks of doing business in Mexico, the bank put the country in its lowest risk category

 Bank officials repeatedly ignored internal warnings that HSBC's monitoring systems were inadequate. The agreement also described a vastly understaffed compliance department. The Justice Department also charged the bank with violating sanctions laws by doing business with customers in Iran, Libya, Sudan, Burma and Cuba. HSBC said it had increased spending on anti-money laundering systems by around nine times between 2009 and 2011. It also said that as part of the overhaul of its controls, it has launched a global review of its "Know Your Customer" files

Case 2: NDTV & Chidambaram Accused of Money Laundering Scam of Rs. 5500 cr.
IT Commissioner Srivastavas Allegation against P. Chidambaram P. Chidambaram received several thousand crores by way of bribes, which NDTV laundered through dummy companies. Using his power positions, Mr Chidambaram has scuttled all attempts at inquiry. NDTV allegedly laundered Rs. 5,500 crore by raising funds through private placements, from undisclosed investors in NDTV subsidiaries based in UK and Holland. The sums raised by it through dubious investors not only paid off its Rs.-3,500 crore liability but left an amount in excess of Rs. 2,000 crore to be transferred to another account. These funds were transferred to a Mauritius-based NDTV subsidiary. These funds were then routed to several other NDTV subsidiaries in India. These Indian subsidiaries were later merged with NDTV Ltd., India without giving a fair share holding right to the companies of Mauritius or UK or Holland. Shockingly, both, the UK- and Holland-based NDTV subsidiaries, were closed down and so was the Mauritius company!

Case 3: Adarsh scam: Money laundering case against Chavan, 13 others

Former Maharashtra Chief Minister Ashok Chavan and 13 others have been slapped with a money laundering case by the Enforcement Directorate(ED) for their alleged involvement in the Adarsh housing scam worth 19,000 crores The accused persons got clearances to construct Adarsh illegally and obtained flats at a very low price compared to market value. The accused projected tainted property as untainted, it constitutes offence under section 3 of PMLA

Case 4: World hawala king Naresh Jain

Naresh Chandra Jain, the alleged head of a global hawala racket of over Rs. 5,000 crore, was arrested on 6th December 2009 by the Narcotics Control Bureau and the Enforcement Directorate.
It was also alleged that Jain was using certain companies and accounts in New York for depositing proceeds of crime (drug money) and transferring the funds so generated illegally to drug barons in locations such as Turkey. ED identified about 40 front companies used by Jain for his money laundering activities with more companies suspected to have being set up by him. It was also alleged that Jain has been operating a worldwide network of money laundering for organized group of all ethnicities and a range of criminality including drug trafficking and fraud.