Business Laws Presentation

7/29/2019 Business Laws Presentation

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FEMA AND MONEY LAUNDERING

Presented by:

Sameer MiraniSanjukta Sen

Sanya Katyal

Shreyasi BanerjeeShubham Chhabra

S.S. SubramanyaSweta


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INTRODUCTION

The Foreign Exchange Management Act (1999) orFEMA has been introduced as a replacement forearlier Foreign Exchange Regulation Act (FERA).

FEMA came into force on the 1st June, 2000

It consolidates and amends the law relating toforeign exchange

It facilitates external trade and payments

It promotes the orderly development andmaintenance of foreign exchange market in India


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MAIN FEATURESOFTHE ACT

Activities such as payments made to any person outsideIndia or receipts from them, along with the deals in foreignexchange and foreign security is restricted under FEMA

Deals in foreign exchange under the current accounts andcapital accounts by an authorised person can be restricted

under FEMA, based on public interest. People living in India will be permitted to carry out

transactions in foreign exchange, foreign security or to ownor hold immovable property abroad if the currency, security

or property was owned or acquired when he/she was livingoutside India, or when it was inherited to him/her bysomeone living outside India.

Exporters are needed to furnish their export details to RBI


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TOWHOMISTHE ACTAPPLICABLE?

The whole of India

All branches, offices and agencies outside Indiaowned or controlled by a person resident in India.

Any contravention committed outside India by any

person to whom this Act is applicable.

Broadly speaking FEMA covers three different typesof categories and deals differently with them-

Person Person resident in India

Person resident outside India


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SINGER ADNAN SAMISPROPERTIESCONFISCATEDFORVIOLATING FEMA

Adnan Sami had allegedly acquired eight flats and five carparking spaces located in Andheri and later gifted five flatsand three parking slots to his wife by violating certain FEMAlaws

Under the FEMA regulations, any person, who is a citizen of

Pakistan, Bangladesh, Sri Lanka, Afghanistan, China, Iran,Nepal or Bhutan cannot purchase or transfer any kind ofimmovable property in India without taking permission of RBI

Violations-

The Enforcement Directorate (ED) said that Sami had nottaken approval of RBI to buy these properties

ED claimed that while taking loans to buy properties, he hadmisled banks


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Penalty-

The Enforcement Directorate had confiscated the eightflats and the five car parking spaces of Adnan Sami andslapped a Rs 20 lakh fine on him

In his defence -

Sami had taken a stand before the FEMA adjudicationauthority that RBI had powers to grant ex-post-factopermission to acquire the properties

He said that he had taken loans from Axis bank to buythese properties and there was no question of foreignexchange violation


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He had also applied for Indian citizenship and hisapplication was pending

He had got a PAN card and was paying income tax inIndia since last ten years.

Recently

Adnan Sami has approached the Delhi high courtseeking clearance to purchase property in the capital

In his petition, Sami informed the high court he hasbeen a resident of India for past 13 years and has even

sung a World Cup Cricket song for the Indian team The Act also recognizes the rights of 'person resident in

India' and it is under this category that Sami claimed heis eligible to purchase property.


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ED levies fine on True Axis for

violating FEMA


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FEMA SECTION 6(3) & SECTION47

Under FEMA, foreigners can buy land in India ifthey hold a business visa and have lived in thecountry for 182 days at a stretch in the previousfinancial year.

Foreigners with business visas can purchaseproperties in the name of Indian entitiesregistered with the registrar of companies and

the local branch of RBI, Even then, they are notallowed to buy agricultural and plantation land.


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THE CASE

According to the directorates investigations,Beyzer founded True Axis and infused capital inthe firm as foreign direct investment, or FDI,under the automatic route of RBI available fornon-resident Indians.

The company and its directors accepted Rs 33.1

lakh from NRI account of a person in India asForeign Direct Investment without permission ofthe government of India.


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IMPACT

The three directors of the company, Mr ValuilinRashid, Mr Leonid Beyzer and Mr Pramod Walkewere charged for violating Section 6(3) of FEMA

1999 read with notification no: 20/2000 RB datedMay 3, 2000, and Section 47 of FEMA read withReserve bank of India (Goa) directions.

The company and its directors were charged foraccepting Rs. 33.1 lakh from NRI account.


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They were also charged for not filing the required

FC-GPR report within stipulated period of 30days from the date of receipt of the amount ofconsideration.

The company management was also charged forissuing fresh shares to Mr Rashid and Mr Beyzereven after the RBI had refused permission toform the company.

Both these foreign nationals had formed thecompany, purchased agricultural properties andhad brought in investment to the tune of Rs 2.29Crores as FDI.


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WHAT IS IT ?

Legitimization of illegally obtained money to hide the truenature of the source.

Effected by passing it through legitimate business

channels by means of bank deposits, investments ortransfers from one place ( or person ) to another.


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MONEY LAUNDERINGTHROUGH BANKS

South Indian Bank Limited, Nariman Point, MumbaiBranch involved in a massive money launderingoperation in 1995

Number of fictitious accounts were opened in thebank for depositing large currencies which werelater remitted to Hong Kong, using the fraudulentdocuments covering legitimate imports

Account of M/s Chinubhai Patel & Co. was opened

in February 1994 without following the RBIguidelines of obtaining photo of the account holder


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Verification revealed that the account holder did not existin the mentioned address of Vaishali Shopping Center.

The Account was utilised for depositing a cash of Rs.

387,379,000 and remittances amounting to US $12,048,650 was remitted to Hong Kong in favour of M/s.R.P. Imports and Exports, Hong Kong using fraudulentdocuments.

Four more similar firms by the name of M/s RakeshInternational, M/s R.M. International, M/s P.M.International and M/s Deepee International which were allfictitious accounts were operating with the bank since

1992 resulting in a loss of foreign exchange worth $80Million.


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MODUSOPERANDI

Middlemen were employed to recruit persons :

Of small means for opening bank accounts in thenames of fictitious firms, for depositing cash and payorders. These deposits were utilized for making

remittances, against (fraudulent) documents coveringimports.

For depositing cash or pay orders obtained from other

banks.

For maintaining proper liaison with bank officials, to

ensure that the transactions were conducted smoothly.


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Specialised in preparing forged documents, viz., Bills of Entry,Packing lists, Invoices, Customs duty paying documents to coverfictitious imports.

For opening bank accounts in places like Hong Kong for

receiving foreign exchange remittances from India. All the bankpapers, including signed cheque books, were taken over inadvance from those persons for withdrawal of foreign exchange

remitted from the Indian banks to these accounts.

To sell foreign exchange so obtained in Hong Kong to goldsmugglers, exporters (who need foreign exchange for meetingtheir requirements of over-invoiced exports), importers (who

need foreign exchange to meet their requirements of under-invoiced imports), and others who need foreign currency forvarious purposes.


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THE ACTIONS TAKEN

Investigations conducted so far revealed that themain persons involved in this racket are Dinesh C.Bhuva and Hemant Barot, who have beenabsconding ever since it came to light that they are

the real brains behind the racket. Nearly 33 arrests have been made so far in this

regard including those of the bank officials whowere charged under the violation of the FERA Act.


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Documents

Business Laws Presentation