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Intel agencies favour making FEMA a criminal act like PMLA.

Date: 13-11-2019
Subject: Intel agencies favour making FEMA a criminal act like PMLA
NEW DELHI: A multi-agency group, comprising of various revenue intelligence and investigative agencies and the RBI, recently met at Delhi and deliberated on the feasibility of making violations under Foreign Exchange Management act (FEMA) a criminal offence in view of huge trade-based money laundering, hawala transactions (illegal remittances) and smuggling of foreign currency out of the country. 

Currently, FEMA violation is a compoundable offence where an accused can get away on payment of penalty. The agencies are in favour of making it a criminal offence like the Prevention of Money Laundering Act (PMLA) and allowing them to prosecute offenders. 

The meeting of the multi-agency group, which included the directorate of revenue intelligence, income tax, enforcement directorate, Serious Fraud Investigation Office, directorate general of foreign trade and the RBI, explored the option of recommending to the government making FEMA a criminal law, according to sources. The meeting was coordinated by the central economic intelligence bureau, a wing of the Union finance ministry. 

While the DRI and other investigative agencies felt the need to amend the relevant laws to make FEMA a criminal act, the RBI representative at the meeting was not too keen about the proposal, sources said. The RBI was of the opinion that making it a criminal offence will impact country’s foreign direct investment (FDI). 

The DRI had recently informed the finance ministry about huge smuggling of gold into the country and foreign exchange going out of India through illegal channels. Other agencies too pointed out impact of illegal remittances, round-tripping of investments and trade-based money laundering involving FEMA violations. 

It was pointed out how in the last three years, the DRI has seized close to 10 tonnes of the yellow metal worth around Rs 4,000 crore (at current prices) and more than Rs 300 crore in foreign currencies, mostly US dollars. Along with the huge seizures, the agency arrested around 4,000 persons that included 480 foreign nationals under the smuggling act. 

The seizures of gold and foreign currencies are less than 10% of the actual smuggling, say senior officers, as majority of the smuggled gold finds its way into the local bullion market and with those engaged in large-scale money laundering. The spurt in gold smuggling is also due to a clampdown by the government on benami properties in the real estate sector and the recent increase in customs duty on gold. 

The agency has also booked several cases involving trade-based money laundering where importers and exporters have indulged in under-invoicing, over-invoicing and other FEMA violations, causing huge loss to the exchequer. The multi-agency group was of the opinion that if FEMA violations are made criminal act, this will deter huge smuggling of foreign currencies going out of the country and trade-based money laundering. 

The observations and recommendations of the meeting have been conveyed to the finance ministry for the government to take appropriate policy decisions. 

Source: timesofindia.indiatimes.com

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