FEMA comes into effect from June 1

NEW DELHI, MAY 8. The Government has notified the Foreign Exchange Management Act (FEMA) 1999, to replace the Foreign Exchange Regulation Act (FERA), 1974. Consequently, FEMA will come into operation from June 1 but FERA too would continue to be in operation for two years, that is, till May 31, 2002.

The two-year sunset clause for FERA had been incorporated in the FEMA legislation in order to allow the Enforcement Directorate to investigate and make ready all FERA violation cases for prosecution within that period. The directorate, therefore, has two years' time to investigate and charge-sheet all those who have been accused of violating various provisions of the FERA. According to sources in the Finance Ministry, any FERA violation cases which come to notice within this two year period would also be dealt with under the FERA legislation.

PMLA delayed

Earlier, the Government had planned to notify FEMA, which is a milder version of FERA, along with the Prevention of Money Laundering Act (PMLA) which contains strict penalties for crimes related to hawala transactions, money laundering and trade in arms and narcotic substances. However, the PMLA was caught up in the Rajya Sabha where members objected to certain clauses of the Bill. Ultimately, the matter was referred to a select committee of the Rajya Sabha. Although the legislation has been passed by the Lok Sabha, in case any amendments are carried out on the basis of the recommendations of the Rajya Sabha committee, the Bill would have to be brought back to Lok Sabha for fresh approval.

The Government's earlier plan to notify FEMA along with PMLA was part of the thinking that the rigorous FERA should be replaced by the twin legislation of FEMA and PMLA. This was because a distinction was being made between crimes which were technical in nature and for which the ends of justice could be met through imposition of pecuniary penalties only. These were to be dealt with under FEMA. The other major crimes of drug and arms running as well as gross financial manipulation were to be dealt under PMLA, which would have strict penalties, including imprisonment.

It now seems that the thinking in the Government has changed and FEMA has been notified without the accompanying legislation of PMLA being approved by Parliament. Incidentally, there has been strong pressures from the corporate sector to dilute certain provisions of PMLA which in its current form has been described as ``another FERA through the back-door.''