A PRESENTATION

ON

CROSS BORDER
TRANSACTION
- EXCHANGE CONTROL
AND
THE LAW
01/19/24 pramila shrivastav 1
 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

01/19/24 pramila shrivastav 2

 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)
01/19/24 pramila shrivastav 3
 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.

01/19/24 pramila shrivastav 4

 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.


01/19/24 pramila shrivastav 5

 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.

01/19/24 pramila shrivastav 6

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. 1st June,2000.

01/19/24 pramila shrivastav 7

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 ) RULES 2011
AS MODIFIED BY FOREIGN CONTRIBUTION ( REGULATION )
AMENDMENT RULES 2015.
 P M L A-Prevention of Money Laundering Act, 2002
&
Prevention of MoneY LaunderinG (Amendment)
Act 2012

01/19/24 pramila shrivastav 8

 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.

01/19/24 pramila shrivastav 9

 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

01/19/24 pramila shrivastav 10

 FEMA AND FERA –A comparison
However, there are major differences in the two acts. Some of the
differences are

FEMA FERA

1. No. of Sections: Has only 49 sections Had 81 sections and was far
and is much simpler.
more complicated.
2. Punishment: Any offence is civil
offence punishable
with monetary penalty and imprisonment
Any offence was criminal
is only when penalty amount is not paid offence punishable as per
Cr.P.C. with imprisonment
3. Penalty: u/s 13 is limited to three times
the amount involved in contravention

4. Appeals u/s 50 penalty was almost five

times the amount involved in
contravention
01/19/24 pramila shrivastav 11
 FEMA AND FERA –A comparison
Continued …..major differences

FEMA FERA
4. APPELLATE PROCEDURE: Adjudication and appeal:
Adjudication and appeal:Sec.16 Sec. 51 to Sec. 54
to
Sec.35. High Court
High Court
Foreign Exchange Regulation
Appellate Tribunal for Foreign
Exchange Appellate Board

Special Director (appeals) or Adjudicating authorities

Adjudicating authorities
01/19/24 pramila shrivastav 12
 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.1st 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.
01/19/24 pramila shrivastav 13
 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

01/19/24 pramila shrivastav 14

 The Overall Structureof FEMA

01/19/24 pramila shrivastav 15

 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)

01/19/24 pramila shrivastav 16

 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.

01/19/24 pramila shrivastav 17
 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;
01/19/24 pramila shrivastav 18
 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
01/19/24 pramila shrivastav 19
 FCRA ----- Foreign Contribution Regulatory Act
2010 &
FOREIGN CONTRIBUTION (REGULATION ) RULES 2011
AS MODIFIED BY FOREIGN CONTRIBUTION
(REGULATION ) AMENDMENT RULES 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.

---01/19/24 pramila shrivastav 20

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.

01/19/24 pramila shrivastav 21

 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.


01/19/24 pramila shrivastav 22

 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.
01/19/24 pramila shrivastav 23
 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.
01/19/24 pramila shrivastav 24
 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.


01/19/24 pramila shrivastav 25
 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 12th August 2011)

01/19/24 pramila shrivastav 26

 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).
01/19/24 pramila shrivastav 27
 RECENT INCIDENTS ABOUT VIOLATIONS of
FEMA, fcra and pmla

 THE HUGE PENDENCY OF FEMA AND PMLA

CASES CAME UP IN THE PARLIAMENT ON 18TH
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.

01/19/24 pramila shrivastav 28

 RECENT INCIDENTS ABOUT VIOLATIONS of
FEMA, fcra and pmla
 FCRA IN THE NEWS

 4TH 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.
 28TH 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.

01/19/24 pramila shrivastav 29

 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 30TH 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.
01/19/24 pramila shrivastav 30
 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 28th 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.
01/19/24 pramila shrivastav 31
 THANK YOU

01/19/24 pramila shrivastav 32