Ed May Lose Powers Of Arrest In New Forex Act

The Enforcement Directorate (ED) may lose its power to arrest a forex offender and three key Sections of the Foreign Exchange Regulation Act (Fera) are likely to be excluded from the proposed Foreign Exchange Management Act (Fema), being drafted by the finance ministry.

The three Sections will be incorporated in the new Money Laundering Bill, due to come up for discussion in Parliament latest by the monsoon session, officials said.

Fema will be bereft of the following Sections of the Fera:

Section 8: Restrictions on dealings in foreign exchange. This relates to transfer of forex and the requisite permission of the Reserve Bank of India (RBI) to be procured prior to any such transfer taking place by any person who is not an authorised dealer.

Section 9: Restrictions on payments. This lays down restrictions which say that no person shall make any payment to or for the credit of any person residing outside India received otherwise than through an authorised dealer, any payment by order or on behalf of any person resident outside India. This can be relaxed only in cases of general or specific exemptions.

Section 18: Payment for exported goods. This section makes it mandatory on the part of an exporter to furnish the prescribed authority a declaration in the prescribed form with evidence representing the full export value of goods or if that is not ascertainable, 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 the overseas market, and affirms in the said declaration that the full export value of the goods has been, or will, within the prescribed period be, paid in the prescribed manner.

However, the most significant debate on the issue relates to Section 35, involving EDs power to arrest. Considered the most draconian of all the Fera Sections, both the business and industry have been objecting to it for some time now.

Revenue ministry officials feel that ED may, after all, lose the most powerful tool at its disposal.

The Section 35 stipulates that, If any officer of enforcement, authorised on this behalf by the Central government, by general or special order, has reasons to believe that any person in India or within the Indian Customs waters has been guilty of an offence punishable under this Act, he may arrest such person and shall, as soon as may be, inform him of the grounds for such arrest...

Moreover, it is still not clear which government department will ultimately have the right to enforce the Money Laundering Act. Views are divided on this issue. While one view believes that the powers will be handed over to the ED, the opposing point of view is that these powers will be divided between the various government departments.

The Money Laundering Bill will incorporate all the powers of the ED, the Directorate of Revenue Intelligence (DRI), the Income-Tax (I-T) department and the Narcotics Control Bureau (NCB).

Senior officials say that if the sole power of enforcing the Money Laundering Bill rests with the ED, then there will hardly be any change in its role after Fera is replaced with Fema.

The most compelling features of Fera will, in any case be a part of the Money Laundering Act.