presentation on fema and money laundering pgdm 13-15 section c group 1
TRANSCRIPT
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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!
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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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