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UPSC FEMA & PMLA - English

FEMA & PMLA

Why in News?

The Directorate of Enforcement (ED) has registered 14,143 cases under FEMA and PMLA between 2019-20 and 2021-22 as compared to 4,913 cases in 2014-15 to 2016-17.

Year 2021-22 saw the highest number of money laundering and foreign exchange violation cases.

Foreign Exchange Management Act, 1999

• The legal framework for the administration of foreign exchange transactions in India is provided by the Foreign Exchange Management Act, 1999.
• Under the FEMA, which came into force with effect from 1st June 2000, all transactions involving foreign exchange have been classified either as capital or current account transactions.
• Current Account Transactions: All transactions undertaken by a resident that do not alter his / her assets or liabilities, including contingent liabilities, outside India are current account transactions. Example: payment in connection with foreign trade, expenses in connection with foreign travel, education etc.
• Capital Account Transactions: It includes those transactions which are undertaken by a resident of India such that his/her assets or liabilities outside India are altered (either increased or decreased). Example: investment in foreign securities, acquisition of immovable property outside India etc.
• Resident Indians:
  • A 'person resident in India' is defined in Section 2(v) of FEMA, 1999 as:
  • Barring few exceptions, a person residing in India for more than 182 days during the course of the preceding financial year.
  • Any person or body corporate registered or incorporated in India.
  • An office, branch or agency in India owned or controlled by a person resident outside India.
  • An office, branch or agency outside India owned or controlled by a person resident in India.

What is the Prevention of Money Laundering Act, 2002

• It forms the core of the legal framework put in place by India to combat Money Laundering.
• The provisions of this act are applicable to all financial institutions, banks (Including RBI), mutual funds, insurance companies, and their financial intermediaries.
• PMLA (Amendment) Act, 2012:
• Adds the concept of ‘reporting entity’ which would include a banking company, financial institution, intermediary etc.
• PMLA, 2002 levied a fine up to Rs 5 lakh, but the amendment act has removed this upper limit.
• It has provided for provisional attachment and confiscation of property of any person involved in such activities.

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