“FOREX”

submitted to
prof. deepak tandon

This presentation includes:

1. FEMA Act
2. Its implications in Indian context
3. Role of Hawala
4. 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
 Toconsolidate 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…..
 Ifany 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
 Thehawala 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)