Forex

“FOREX” submitted to prof. deepak tandon

1. 2. 3. 4.

This presentation includes: FEMA Act Its implications in Indian context Role of Hawala How to monitor money laundering?

FEMA ACT  Introduced

as replacement of FERA  Came into act on 1st day of june,2000  broadly covers all matters related to foreign exchange, investment avenues for NRIs such as immovable property, bank deposits, government bonds, investment in shares, units and other securities, and foreign direct investment in India

objective  To

consolidate and amend the law relating to foreign exchange with the objective of facilitating external trade and payments and for promoting the orderly development and maintenance of foreign exchange market in India.

Structure of fema  PRELIMINARIES,

PREAMBLE , DEFINITION—

SEC1-2  REGULATION AND MANAGEMENT OF FOREX – SEC3-9  AUTHORISED PERSONS --SEC 10-12  CONTRAVENTIONS&PENALTIES –SEC13-15  ADJUDICATION & APPEALS –SEC16-35  DIRECTORATE OF ENFORCEMENT –SEC36-38  MISC PROVISIONS-SEC39-49

FEMA-DETAILS This Act may be called the Foreign Exchange Management Act, 1999.  It extends to the whole of India.  It shall also apply to all branches, offices and agencies outside India owned or controlled by a person resident in India and also to any contravention there under committed outside India by any person to whom this Act applies.  It shall come into force on such date as the Central Government may, by notification in the Official Gazette, appoint:  provided that different dates may be appointed for different provisions of this Act and any reference in any such provision to the commencement of this Act shall be construed as a reference to the coming into force of that provision 

pENALTY a

penalty up to thrice the sum involved in such contravention where such amount is quantifiable, or up to two lac rupees where the amount is not quantifiable,

Continued…..  If

any person fails to make full payment of the penalty imposed on him within a period of ninety days from the date on which the notice for payment of such penalty is served on him, he shall be liable to civil imprisonment.  and where such contravention is a continuing one, further penalty which may extend to five thousand rupees for every day after the first day during which the contravention continues

HAWALA  'hawala'

refers to an informal way to transfer funds from one location to another via an intermediary (service providers) known as 'hawalandars.'[6]  It operate both domestically and internationally

Type of hawala

Purpose of hawala  The

hawala system emerged to finance trade without having to travel with gold or silver, which used to be dangerous, as roads were beset with pirates and bandits.

Why use hawala?  Firstly

,it is anonymous:

The person sending the funds from Country A to a beneficiary in Country B deals only with the hawalandar who provides the customer with an authentication code which the customer transmits to his beneficiary. The beneficiary collects the equivalent amount of the money from another hawalandar, which his benefactor had deposited with the hawalandar in Country A. There is no need for paper (evidence) as the transaction could take place orally or even through the internet in a chat room.

 Secondly

,the system is swifter than the formal banking system, which requires scrutiny over large money deposits to ensure it is not tainted.

Continued…  Third,

the system relies on kinship, ethnic ties, or personal relationships between the hawalandars and their customers, which at times means that funds could be sent before they are deposited with the initial hawalandar  Fourth ,the system is cheaper than the regular banking services. Although the hawalandars charge a fee or commission (0.25% to 1.25% of the amount involved), this is still a lower rate than the formal financial system

Money laundering  Money

laundering means direct or indirect involvement in cleansing of dirty money (by engaging in financial transactions) from criminal activities with the objective of hiding their true source and making them legally usable.  As discussed before, Hawala is a preferred mechanism in cross- border money laundering as it involves secret and paperless deals.

Money obtained by an illegal action is not, of itself, laundered money. The laundering offense comes from the attempt to conceal its source, not because the transaction was itself illegal (which is a separate offense).

How to monitor money laundering?  to

maintain records detailing the nature and value of transactions which may be prescribed, whether such transactions comprise of a single transaction or a series of transactions integrally connected to each other  to furnish information of transactions  verify and maintain the records of the identity of all its clients

KYC APPROACH (know your customer)

Punishment (money laundering)  Minimum

penalty is rigorous imprisonment for 3 years along with fine, which may extended to Rs 5 Lac .  Maximum imprisonment is for 7 years in general offences.  No Law of Limitation is applicable No time period where proceedings can be initiated.  Act w.e.f 1/07/2005 and has no retrospective effect.  Can be punished for the same offence twice -Prevention of Money-Laundering Act,2002 & IPC.

Submitted by:

Submitted by:

Swati-62 (Apke Bharose ka Bank)