OFFENCES UNDER FEMA - COMPOUNDING PREVENTS PROSECUTION

Transactions involving foreign exchange [Forex Transactons] are regulated by FEMA. Commonly known Forex Transactions are purchase and sale of shares and other securities in India by foreign nationals, foreign entities and persons who are resident outside India [Non-Residents]. Common mode of making such investments is through setting up of wholly owned subsidiaries or joint ventures in India. Similarly Indian enterprises and entrepreneurs set up their subsidiaries, joint ventures and entities in several other countries. FEMA regulates transactions initiated by non-resident Indians too. Acquisition and Sale of immovable properties in India by Non-Residents and Acquisition and Sale of immovable properties situate abroad by Indian Residents are also regulated under FEMA.




These regulations offer necessary guidance in a relation to a given Forex Transaction. Several compliance requirements arise while carrying out a Forex Transactions. Generally regulations offer some sort of a hurdle in translating the thoughts of an enterprising business man into action. However it is necessary to note that these regulations have been introduced keeping the national interest in mind and accordingly they have to be considered and complied with. Complications do arise while putting through or executing Forex Transactions. As a result contraventions of FEMA and / or the applicable regulations do take place resulting in the commission of prosecutable offences. When such offences occur, Section 15 of FEMA offers a facility to get the offences compounded rather than getting engrossed in avoidable adjudication proceedings and avoidable prosecution measures.



Until recently getting a contravention under FEMA compounded would involve huge costs. Irrespective of whether the contravention had arisen due to any technical or inadvertent reasons, compounding authorities have been levying huge compounding fee. They are guided by the provisions of Section 13 of FEMA which states that a person who contravenes any provision of FEMA or rules and regulations thereunder is liable to a penalty upto thrice the sum involved in such contravention if Adjudicating Authority adjudges the contravention.

Recently RBI introduced a refreshing change to this practice of levying huge costs on for allowing a contravention to be compounded. Vide its Circular A.P. (DIR Series) Circular No. 56 June 28, 2010, RBI brought out new norms to be applied in relation to applications for compounding of contraventions.

What RBI would examine? - The Perspective Approach

When an application is made for compounding of a contravention, the RBI would examine the nature of contravention in the following manner:

a. whether the contravention is technical and/or minor in nature and needs only an administrative cautionary advice;

b. whether the contravention is serious and warrants compounding of the contravention; and

c. whether the contravention, prima facie, involves money-laundering, national and security concerns involving serious infringements of the regulatory framework.

Investigation by Enforcement Directorate

If RBI finds that it is necessary for further investigation, it may recommend the matter to the Directorate of Enforcement (DoE) for further investigation. Such action may be initiated under FEMA, 1999 by the Enforcement Directorate or the Anti Money Laundering Authority instituted under the Prevention of Money Laundering Act, 2002 or to any other agencies, as RBI may deemed fit.

COMPOUND AND REDUCE FINES AND PENALTIES!