ED probed 17k cases under FEMA in 6 yrs
THE RBI IS THE SOLE REGULATOR OF FOREIGN EXCHANGE IN INDIA WHILE ED IS ENTRUSTED WITH IMPLEMENTATION OF THE FEMA
NEW DELHI: Last week’s move by the Enforcement Directorate (ED) against Chinese phone company Xiaomi, seizing ₹5,521 crore held in the company’s bank accounts under the FEMA comes as the agency increases its scrutiny of violations of foreign exchange laws.
ED initiated 17,189 investigations under Foreign Exchange Management Act (FEMA_ between 2016-17 and 2021-22 (till November 30, 2021), according to government data reviewed by HT, and the financial year ended March 31, may have seen the highest number of investigations, people familiar with the matter said.
In all, penalty worth ₹4,312 crore was imposed over these five years, the data show.
While 3,627 probes were launched in 2017-18, followed by 3,360 in 2019-20, the number dropped to 2,774 in 2020-21, when functioning of government agencies was affected due to the Covfrom id-19 pandemic.
In the previous financial year, 2021-22, ED initiated 2,774 FEMA probes till November 30. This number, an official, said, grew rapidly over the following four months, and the volume of investigations last fiscal is expected to cross that in 2017-18.
“After the amendment in 2015 with addition of section 37A in FEMA, ED can now attach properties in India if they find that any assets are held outside India in contravention of the rules. Since then, a lot of attachments have taken place but as per law, such attachment is valid only for 180 days and requires confirmation
a competent authority on the lines of confirmation of adjudicating authority in PMLA (prevention of money laundering act). There is no drastic power of arrest under FEMA as in PMLA. However, as proceedings take place before officers who have no experience on the judicial side... it is easier for defence lawyers to obtain a stay from high court,” advocate Vijay Aggarwal, who represented several accused in 2G and coal fraud cases, Mehul Choksi, Rana Kapoor among others, said.
The Reserve Bank of India (RBI) is the sole regulator of foreign exchange in India while ED is entrusted with the implementation of FEMA.
The central agency initiates investigations and issues Show Cause Notices (SCN). These SCNs, upon adjudication, result in imposition of penalty as well as confiscation of currency/property involved as seen in Xiaomi’s case.
The company has refuted the ED charges saying its operations are compliant with local laws and regulations.
In April 2020, the Centre amended FDI rules under FEMA, which made prior approval of the government mandatory for foreign investments from countries that share border with India, to prevent opportunistic takeover of domestic firms, by the Chinese amid the Covid-19 pandemic.
The Centre repeatedly asks concerned authorities including the ED to monitor activities which are in contravention of the foreign exchange laws.
Former ED director Karnal Singh asserted that FEMA is crucial to keep a watch on foreign investments and related transactions taking place in the country. “When Indian economy opened in 90s, foreign investment started pouring in. FEMA was introduced to facilitate external trade and payments as well as regulate the Indian forex market. When FDI comes in, it is important to know who has the control, where the money is coming from, whether it is legitimate or not and if it is being used for defined purposes,” Singh said.