Draft bills to replace FERA cleared, but ED is unhappy

The two bills will replace the 1973 Foreign Exchange Regulation Act FERA, which several experts and economists involved in their drafting felt has become an obsolete piece of legislation in view of the liberalised economy and partialconvertibility of the rupee. After the repeal of FERA, the MLPB will take care of large foreign exchange offences while FEMA will be the regulatory act for tackling smaller offenders.

However, Finance Ministry sources say, the passage of the two bills may not be that smooth in view of the 8220;strong8221; reservations the present Enforcement Director, M K Bezbaruah has expressed on FEMA. The ED8217;s views, sent to the Ministry of Finance sometime last week, have also been annexed by the Ministry of Finance along with the drafts for the Cabinet.

Sources say that with the two drafts ready to be submitted to the Cabinet, it was only a matter of time before control and prosecution for forex offences slips out of the hands of the ED. It is understood that while senior ED officials were consulted when the first draft of the MLPB was finalised; they were not consulted till a 8220;very late stage8221; on the salient features of FEMA.

In the scheme envisaged in the FEMA, small violations of forex will now be treated as a civiland not a criminal offence. However, the MLPB envisages strict penal punishment for offenders who have committed offences over Rs25 lakh, including the confiscation of the 8220;proceeds of crime8221; like property and other investments.

While it is still not clear which agency will administer the MLPB, the powers for enforcing FEMA are proposed to be divided between the Reserve Bank of India and the ED. The RBI India, which has been intimately involved in the drafting of FEMA will now be the enforcing agency for the 8220;compoundable8221; forex offences, which will leave the ED with administration of the few cases in which adjudication is required. There is already some consternation in the ED about sections of FEMA which state that the Government can appoint the officers who will adjudicate the cases. Some of these observations are said to be part of the note sent last week by the ED to the Ministry of Finance. The ED has pointed out that might be a problem of 8220;compatability8221; between the FEMA and the MLPB and thatthere were some definational problems in the drafts. It has also been conveyed to the MoF that while the new laws will take care of the large and small offenders, there will be a huge 8220;grey area8221; wherein middle-level violators would get away scot free.