Presentation on FEMA and Money Laundering PGDM 13-15 Section C GROUP 1

8/12/2019 Presentation on FEMA and Money Laundering PGDM 13-15 Section C GROUP 1

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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


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FOREIGN EXCHANGE

MANAGEMENT ACT,1999


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BACKGROUND Replaced FERAForeign 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) easiertransactions involving current account for external

trade no longer required RBIs permission.


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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 acriteria to determine residential status of a person.


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OBJECTIVES OF THE ACT

Facilitating external trade

For promoting the orderly development and maintenance of foreignexchange market in India.


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FEW DEFINITIONS

"authorized person" means an authorized dealer, money changer, off-shore

banking unit or any other person for the time being authorized under sub-

section (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 exchangeand promissory notes, credit cards or such other similar instruments, as may

be notified by the Reserve Bank;


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"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;


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"person resident in India" means- a person residing in India for more than onehundred 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 foreignexchange and the expression "repatriation" shall be construed accordingly;


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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 Indiain 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.


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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.


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CAPITAL ACCOUNT TRANSACTIONS

Subject to certain provisions, any person may sell or draw foreignexchange 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 arepermissible;

(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.


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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 outsideIndia;


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(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 notexceeding 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.


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A person residentin India may hold, own, transfer or invest in foreign

currency, foreign security or any immovable property situated outside Indiaifsuch 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.


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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 notascertainable 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.


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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 thousandrupees 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


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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.


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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.


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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 anyimmovable 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 immovableproperty and 5.5 crore was recovered as penalties. In 2013, 16 notices were issued

and 3.60 crore was recovered.


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HAVE ANY OF YOU WHO HAVE NOT

EXPERIENCED GIVING BRIBE DIRECTLY

OR INDIRECTLY?


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HOW DO YOU THINK THAT THE MONEY

EARNED OUT OF CORRUPTION, BRIBERY

ETC IS UTILIZED BY CRIMINALS?


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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 95thposition, where as according to doing business report 2012 of theworld bank India is in 132ndposition.

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 orusing a contact to get a job done in a public office IndiaCorruption Study 2005 by Transparency International.

The public officials in India may be cornering as much as Rs.92,122crore ($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


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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


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THE PROCESS


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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 therestaurant 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


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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


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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 betweenthem 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


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Bank officials repeatedly ignored internal warnings that HSBC's

monitoring systems were inadequate.

The agreement also described a vastly understaffed compliancedepartment.

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 launderingsystems 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


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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 fairshare 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!
http://www.manushi.in/articles.php?articleId=1749


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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


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Case 4: Worldhawala king Naresh Jain

Naresh Chandra Jain, the alleged head of a global hawala racket of over Rs. 5,000

crore, was arrested on 6thDecember 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 moneylaundering for organized group of all ethnicities and a range of criminality

including drug trafficking and fraud.


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Presentation on FEMA and Money Laundering PGDM 13-15 Section C GROUP 1

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