2. A PRESENTATION ON CROSS BORDER TRANSACTION - EXCHANGE CONTROL AND THE LAW 2/15/2016pramila shrivastav1

3. CROSS BORDER TRANSACTIONS  Cross-border operations are transactions between residents of different countries.  Major Types Of Cross Border Transactions  Cross-Border Financing and Investment  Buying or Selling Products & Services  Combined research/ shared services 2/15/2016pramila shrivastav2

4. CROSS BORDER TRANSACTIONS  I. Cross-Border Financing and Investment  This term refers to any financing arrangement that crosses national boundaries. Cross border financing could include  cross border loans,  letters of credit or bankers acceptances,  Bank guarantees, depositary receipts etc.  Investments including FDIs(Foreign Direct Investments),FPIs(Foreign Portfolio Investments),FIIs(Foreign Institutional Investments) 2/15/2016pramila shrivastav3

5. CROSS BORDER TRANSACTIONS  2. Buying or Selling Products & Services This term refers to any buying or selling activities of products or services including cost sharing by Multinational companies Both may have different features with respect to  infrastructure,  permanent establishment,  producing product or services outside the one’s jurisdictional  area,  trading across the borders,  bridging between local resources and outside supply etc etc. 2/15/2016pramila shrivastav4

6. CROSS BORDER TRANSACTIONS  3. Combined research/ shared services  B.P.O.As a result of globalization, organizations today are required to make their non-core operations a strategic tool for enhancing their core capabilities, improve processes, lower costs, drive revenue, pledge quality and strengthen customer relationships with Business Outsourcing Solutions. . Groups of companies are introducing joint research programs for entire industry as one cartel or chamber of commerce or group of commerce.   This type of arrangements of shared service centers are also concern matter in international trade if those shared service centers providing services across the borders scattered in different locations.  2/15/2016pramila shrivastav5

7. EXCHANGE CONTROL  Exchange Control is a governmental restriction on the movement of currency between countries in private transactions in foreign exchange (foreign money or claims on foreign money).  The transactions include currency, bank transactions, book transfers, electronic payments or any other direct or indirect financial benefits provided by persons who are residents or citizens of one country to persons who are residents or citizens of another country. 2/15/2016pramila shrivastav6

8. LAWS FOR EXCHANGE CONTROL Brief Background:  The Defence of India Act 1939 first introduced exchange control on a temporary basis.  Subsequently, the Foreign Exchange Regulation Act was enacted in 1947 to be replaced by the Foreign Exchange Regulation Act (FERA),1973.  Due to Economic liberalization in 1991, foreign investments were sought to be encouraged in many sectors. In the changed environment, the provisions of FERA were found restrictive in nature. herefore FERA was reviewed by the Tarapore committee on Capital Account Convertibility, constituted by the Reserve Bank of India.  Consequently FERA was repealed and replaced by Foreign Exchange Management Act (FEMA),1999,w.e.f. 1 st June,2000. 2/15/2016pramila shrivastav7

9. LAWS FOR EXCHANGE CONTROL  TODAY WE HAVE A PLETHORA OF LAWS GOVERNING EXCHANGE CONTROL IN CROSS BORDER TRANSACTIONS, WHICH INCLUDE:  F E M A- FOREIGN EXCHANGE MANAGEMENT ACT 1999  F C R A - Foreign Contribution Regulatory Act 2010 & FOREIGN CONTRIBUTION ( REGULATION ) R ULES 2011 A S M ODIFIED B Y FOREIGN CONTRIBUTION ( REGULATION ) A MENDMENT R ULES 2015.  P M L A-Prevention of Money Laundering Act, 2002 & Prevention of MoneY LaunderinG (Amendment) Act 2012 2/15/2016pramila shrivastav8

10. LAWS FOR EXCHANGE CONTROL  OBJECTIVES 0F THE THREE LAWS  THE OLDEST OF THE THREE LAWS IS FEMA,1999,WHICH CONTROLS THE PROVISIONS RELATING TO FOREIGN EXCHANGE,FACILITATES EXTERNAL TRADE AND PAYMENTS AND MAINTAINS BALANCE IN FOREIGN EXCHANGE MARKET IN INDIA.  THE SECOND LAW IS PMLA,BROUGHT IN THE YEAR 2002,TO PREVENT MONEY LAUNDERING AND TO PROVIDE FOR CONSFICATION OF PROPERTY DERIVED FROM OR INVOLVED IN,MONEY LAUNDERING AND FOR MATTERS CONNECTED THEREWITH.IT HAS BEEN SUBSEQUENTLY AMENDED IN 2012.  FCRA IS THE THIRD AND MOST RECENT LAW,BROUGHT IN 2010,WITH THE OBJECTIVE OF REGULATING ACCEPTANCE AND UTILISATION OF FOREIGN CONTRIBUTION OR FOREIGN HOSPITALITY BY SPECIFIED PERSONS AND TO PROHIBIT ACCEPTANCE AND UTILISATION OF FOREIGN CONTRIBUTION OR FOREIGN HOSPITALITY FOR ANY ACTIVITIES DETRIMENTAL TO THE NATIONAL INTEREST.  2/15/2016pramila shrivastav9

11. FEMA AND FERA –A comparison There are some similarities in both the laws, e.g. The regulatory bodies are the Union Government and the Reserve Bank of India. The Directorate of Enforcement continues to be the agency for enforcement of the provisions of the Act, including coercive measures such as search and seizure action Wide applicability of the law i.e. to the whole of India as well as to certain extra-territorial jurisdictions 2/15/2016pramila shrivastav10

12. FEMA AND FERA –A comparison However, there are major differences in the two acts. Some of the differences are FEMA 1. No. of Sections: Has only 49 sections and is much simpler. 2. Punishment: Any offence is civil offence punishable with monetary penalty and imprisonment is only when penalty amount is not paid 3. Penalty: u/s 13 is limited to three times the amount involved in contravention 4. Appeals FERA Had 81 sections and was far more complicated. Any offence was criminal offence punishable as per Cr.P.C. with imprisonment u/s 50 penalty was almost five times the amount involved in contravention 2/15/2016pramila shrivastav11

13. FEMA AND FERA –A comparison Continued …..major differences FEMA 4. APPELLATE PROCEDURE: Adjudication and appeal:Sec.16 to Sec.35. High Court Appellate Tribunal for Foreign Exchange Special Director (appeals) or Adjudicating authorities FERA Adjudication and appeal: Sec. 51 to Sec. 54 High Court Foreign Exchange Regulation Appellate Board Adjudicating authorities 2/15/2016pramila shrivastav12

14. FEMA--THE FOREIGN EXCHANGE MANAGEMENT ACT, 1999  Applies to the whole of India. As well as to all branches, offices and agencies outside India owned or controlled by a person resident in India and also to any contravention there under committed outside India by any person to whom this Act applies.  It came into force w.e.f.1 st June 2000.  Provided that different dates may be appointed for different provisions of this Act and any reference in any such provision to the commencement of this Act shall be construed as a reference to the coming into force of that provision. 2/15/2016pramila shrivastav13

15. OBJECTIVE OF FEMA According to the Act, the objective is-  To consolidate and amend the law relating to foreign exchange  with the objective of facilitating external trade and payments  and for promoting the orderly development and maintenance of foreign exchange market in India 2/15/2016pramila shrivastav14

16. The Overall Structureof FEMA Supreme legislation 7 CHAPTERS49 SECTIONS Delegated legislation By Ministry U/S 46 of FEMA 5 SETS OF RULES Subordinate legislation By RBI U/S 47 Of FEMA 23 SETS OF REGULATIONS Master Circular issued by RBI every year FDI POLICY IISSUED BY DIPPS PERIODICALLY Notifications and circulars issued by RBI 2/15/2016pramila shrivastav15

17. The Legislative Structureof FEMA 1999  The FEMA,1999. contains legal provisions in 7 chapters and 49 sections as detailed below Chapter I Preliminary (Sec.1& 2) Chapter II Regulation And Management Of Foreign Exchange (Sec.3-9) Chapter III Authorized Person (Sec.10-12) Chapter IV Contraventions and Penalties (Sec. 13-15) Chapter V Adjudication and Appeal (Sec.16-35) Chapter VI Directorate of Enforcement. (Sec 36-38) Chapter VII Miscellaneous (Sec.39-49) 2/15/2016pramila shrivastav16

18. The directorate of enforcement Chapter VI (Sec 36-38) of the FEMA relates to the establishment and powers of the Directorate of Enforcement.  The Directorate enforces two laws;  FEMA, a Civil Law having quasi judicial powers, for investigating suspected contraventions of the Exchange Control Laws and Regulations with the powers to impose penalties on those adjudged guilty and  PMLA, a Criminal Law, whereby the Officers are empowered to conduct enquiries to locate, provisionally attach/confiscate assets derived from acts of Schedules Offences besides arresting and prosecuting the Money Launderers.  2/15/2016pramila shrivastav17

19. Some important Definitions in fema contd. "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; "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; 2/15/2016pramila shrivastav18

20. Some important Definitions in fema contd.  "currency" includes all currency notes, postal notes, postal orders, money orders, cheques, drafts, travelers cheques, letters of credit, bills of exchange and promissory notes, credit cards or such other similar instruments, as may be notified by the Reserve Bank;  "foreign exchange" means foreign currency and includes,- (i) deposits, credits and balances payable in any foreign currency, (ii) drafts, travellers cheques, letters of credit or bills of exchange, expressed or drawn in Indian currency but payable in any foreign currency, (iii) drafts, travellers cheques, letters of credit or bills of exchange drawn by banks, institutions or persons outside India, but payable in Indian currency;  "person" includes – an individual, a Hindu undivided family, a company, a firm, an association of persons or a body of individuals, whether incorporated or not, every artificial juridical person, not falling within any of the preceding sub-clauses 2/15/2016pramila shrivastav19

21. FCRA ----- Foreign Contribution Regulatory Act 2010 & FOREIGN CONTRIBUTION (REGULATION ) R ULES 2011 A S M ODIFIED B Y FOREIGN CONTRIBUTION (REGULATION ) A MENDMENT R ULES 2015 The original Foreign Contribution Regulation Act 1976 was subsequently replaced by Foreign Contribution Regulation Act 2010. The objectives of the Act are mainly to exercise control over 1). Acceptance of Foreign Hospitality by dignitaries and high officials from the Govt., including prohibition on election candidates,registered newspaper personnel,political parties,MPs,MLAs, Judges, Govt. servants etc 2) Utilization of foreign contribution in India. --- 2/15/2016pramila shrivastav20

22. 2/15/2016pramila shrivastav21 FCRA continued. Foreign Contribution means contribution by any foreign source. Case Law: Association for Democratic Reforms v. UOI (2014),Del.HC DB).Two companies incorporated in India had given donations to political parties. Majority shares of these companies were held by a company incorporated outside India. Held that the donations were received from foreign sources. Foreign contributions include articles, currency, hospitality,and securities as specified by the Govt. from time to time FCRA is applicable to the whole of India and also to citizens of India outside India and associates/branches and subsidiaries outside India of companies or bodies registered or incorporated in India.  FCRA is administered by the Ministry of Home Affairs, Foreign Division.

23. FCRA contd. FCRA to override the provisions of FEMA or other general acts since it is a special act.Thus even if a transaction is permissible under FEMA,the restrictions of FCRA shall apply. Exemptions  ---Contributions by U.N. and its specified agencies, World Bank, IMF, or other agencies as notified by the Govt. are exempt.  -----Exemptions from FCRA restrictions are specified in Sec.3 and Sec.4,and includes gifts from relatives,scholarships, remittances for salaries and wages, payments in the course of normal trade and commerce,etc, subject to prohibitions notified by the Govt. u/s 10. Recent Developments  Recently the NGOs in India have had to face the restrictions on foreign contributions under this Act. In June 2015, the MHA cancelled the licenses of 15,000 NGOs for violation of FCRA.  2/15/2016pramila shrivastav22

24. Prevention of Money Laundering Act, 2002 (PMLA) & Prevention of Money Laundering (Amendment)Act, 2012  There is interesting history behind the word. ”laundering” Al Capone, the notorious mafia in USA, obtained lot of money from criminal activities. He invested that money into establishing laundries all over USA. Since laundry business is mainly cash business, he was able to convert his cash into legitimate money.  The term Money Laundering is used for the disguising or concealing of illicit income in order to make it appear legitimate.  Money Laundering is being employed by launderers worldwide to conceal criminal activity associated with it such as drugs / arms trafficking, terrorism and extortion. 2/15/2016pramila shrivastav23

25. Prevention of Money Laundering Act, 2002 (PMLA) & Prevention of Money Laundering (Amendment)Act, 2012  India has criminalised money laundering under the Prevention of Money Laundering Act, 2002 (PMLA), as amended periodically.  The latest amendment to The Prevention of Money Laundering Act 2002 was assented to by the President on 3rd January 2013 and has been notified as The Prevention of Money Laundering(Amendment) Act 2012.  The Financial Action Task Force on Money Laundering (FATF), an intergovernmental body, was established by the G- 7 Summit in Paris in 1989 and was responsible for setting global standards on anti-money laundering and combating financing of terrorism. India is also a member. 2/15/2016pramila shrivastav24

26. Contd. Prevention of Money Laundering Act, 2002 (PMLA)  Offences have cross border implications if i). Offence is committed outside India and the proceeds of such conduct or part thereof are remitted to India. Or ii) Offence is committed in India and proceeds of crime are transferred outside India.  It covers offences specified in Parts A,B,or C of Schedule to the Act, e.g, Sec.121 & Sec. 121A of I.P.C.-waging or attempting or abetting conspiring to wage war against Govt. of India; Narcotics Drugs and Psychotropic Substances Act.  & If amount involved is more than Rs.30 lacs then,offences of Murder, culpable homicide, causing hurt to extort property, kidnapping for ransom, counterfeiting, forgery.Offences under Wild Life Protection Act, Arms Act, Prevention of Immoral Trafficking Act, Prevention of Corruption Act.  2/15/2016pramila shrivastav25

27. CASE LAW: HASAN ALI KHAN   Bombay High Court Hasan Ali Khan vs Union Of India on 12 August, 2011  Criminal Appellate Jurisdiction Criminal Bail Application No.994 Of 2011 Supreme Court of India Union of India vs Hasan Ali Khan And Anr. On 30 th September,2011 Criminal Appellate Jurisdiction Criminal Appeal No.1883 of 2011 (arising out of the judgement and final order of the Bombay High Court dated 12 th August 2011)  2/15/2016pramila shrivastav26

28. CASE LAW: HASAN ALI KHAN I. Income Tax Search in 2007 found cash, jewellry,and incriminating documents regarding transactions of huge proportions in foreign banks,and three passports.---Documents were forwarded to the Enforcement Directorate. II. Income tax assessments of the accused was to the tune of Rs.110,412,68,85,303 for Assessment years 2001 to 2008 III. The enforcement Directorate during investigation found that the accused had violated the FEMA provisions and Sec.3 and Sec.4 of the PMLA to the tune of US$ 8000453000, (INR. 36,000 approx.) in his account with the Union Bank Of Switzerland,AG,Zurich, Switzerland. IV. He was arrested in 2011 and applied for bail which was granted by the Bombay High Court but subsequnetly the S.C. cancelled the bail.  The laws mentioned in this case are:-  Income Tax Act  FEMA  Section2(1) u, Section 3, and Section 4 of the Prevention of Money laundering Act(PMLA).  (SUMMARY OF THE FACTS AND THE JUDGEMENT OF THE Bombay H.C ARE SEPERATELY CIRCULATED). 2/15/2016pramila shrivastav27

29. RECENT INCIDENTS ABOUT VIOLATIONS of FEMA, fcra and pmla  THE HUGE PENDENCY OF FEMA AND PMLA CASES CAME UP IN THE PARLIAMENT ON 18 TH DECEMBER 2015.  IT WAS STATED BY THE MINISTER OF STATE,FINANCE,THAT MORE THAN 6000 CASES WERE PENDING OUT OF WHICH 4,787 WERE FEMA CASES AND 1319 CASES WERE PMLA CASES INVOLVING RS.10,309 CRORES. 2/15/2016pramila shrivastav28

30. RECENT INCIDENTS ABOUT VIOLATIONS of FEMA, fcra and pmla  FCRA IN THE NEWS  4 TH SEPT.2015: GOVT. CANCELS N.G.O.GREENPEACE INDIA’S FCRA LISCENCE THIS MEANS THE NGO WILL NOT BE ABLE TO RECEIVE FOREIGN DONATIONS.  SOCIAL ACTIVIST TEESTA SETALVAD.VIOLATION OF FCRA IN RECEIVING DONATIONS FROM FORD FOUNDATION. CBI INTERROGATION IS ONGOING.  28 TH DEC.2015.CHANGES IN FCRA ENABLES GOVT. TORECEIVE ACCOUNT DETAILS OF NGOS ONLINE. NGOS WILL BE REQUIRED TO PUBLISH DETAILS OF FOREIGN CONTRIBUTIONS ON SPECIFIED WEBSITES.  P M L A IN THE NEWS -----BANK OF BARODA CASE:--ALLEGED OVERSEAS TRANSFER OF RS 6,172 CRORES TO HONG KONG AND DUBAI ON THE PRETEXT OF ADVANCE PAYMENT FOR IMPORT ORDERS. ED AND CBI HAVE ARRESTED SOME BOB OFFICIALS. 2/15/2016pramila shrivastav29

31. THE BLACK MONEY ACT - EXEMPT  THE BLACK MONEY (UNDISCLOSED FOREIGN INCOME AND ASSETS) AND IMPOSITION OF TAX ACT, 2015  NO. 22 OF 2015 [26th May, 2015.]  An Act to make provisions to deal with the problem of the Black money that is undisclosed foreign income and assets, the procedure for dealing with such income and assets and to provide for imposition of tax on any undisclosed foreign income and asset held outside India and for matters connected therewith or incidental thereto.  THE RULES FRAMED UNDER THE NEW LAW PROVIDE FOR EXEMPTION FROM PROSECUTION UNDER FEMA TO THOSE DISCLOSING THEIR ASSETS.  RBI on 30 TH SEPTEMBER said no action under FEMA will be taken against declarations under one-time black money compliance window, which ends on Wednesday.  In a communication to banks, the Reserve Bank said: "No proceedings shall lie under the Foreign Exchange Management Act, 1999 (FEMA) against the declarant with respect to an asset held abroad for which taxes and penalties under the provisions of Black Money Act have been paid." RBI has already notified the Foreign Exchange Management Regulations, 2015, in this regard. 2/15/2016pramila shrivastav30

32. THE FATCA- Foreign Account Tax Compliance Act (FATCA) OF U.S.A.  On July 9, 2015 U.S and India Signed a Tax information sharing agreement. The agreement is designed to increase transparency between the two nations on the investment and tax matters. The agreement takes effect immediately and underscores growing international co operation to end tax evasion in both the countries.  On 28 th August 2015 RBI has issued directions on reporting requirement under Foreign Account Tax Compliance Act (FATCA) and Common Reporting Standards (CRS) to all Banks and NBFIs(Non Banking Financial Institutions)  The CBDT has also made necessary amendments to the Act and the rules to implement FATCA.  It is more of an information exchange law which shall have consequential implications for exchange control. 2/15/2016pramila shrivastav31

33. THANK YOU 2/15/2016pramila shrivastav32