<b>XIII LOK SABHA DEBATES, <i> Session II (Winter Session) </i> </b>
XIII LOK SABHA DEBATES, Session II (Winter Session) Thursday, December 2, 1999/Agrahayana 11, 1921 (Saka )

Title: Combined discussion on the Prevention of Money Laundering Bill, 1999 and Foreign Exchange Management Bill, 1999 moved by Shri Yashwant Sinha. (Concluded).

(Bill Passed.) 16.15 hrs.

MR. SPEAKER: Now, the House will take up Item Nos. 9 and 10 together. The time allotted is four hours. Shri Yashwant Sinha.

1615 hours


"That the Bill to prevent money-laundering and to provide for confiscation of property derived from, or involved in money-laundering and for matters connected therewith or incidental thereto, be taken into consideration.

That the Bill 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, be taken into consideration."

1616 hours (Mr. Deputy-Speaker in the Chair)

The Foreign Exchange Regulation Act, 1973 primarily made compensatory transactions (known as Havala) illegal. The basic aim was to ensure that no one contravenes the exchange control regulations through unofficial channels. The emphasis was, therefore, on violation of foreign exchange regulations rather than on "money-laundering". Money-laundering, that is the cleansing of proceeds of crimes such as extortion, treason, drug trafficking, gun running etc. poses a serious threat to the integrity and sovereignty of a country and also to its financial systems. This threat to the nation and its economy has been recognised the world over and several UN and other international conventions have called upon member countries to take legislative and other preventive measures to combat the menace of money-laundering. As India is a signatory to some of these conventions, a committee was set up to examine and suggest a draft legislation for this purpose. Based on their report, a separate legislation has been introduced with stringent penal provisions. At the same time, there is a need to consolidate and amend the law relating to foreign exchange consistent with the liberalisation policies pursued during the last eight years. While the provisions of Foreign Exchange Management Bill make foreign exchange contraventions civil wrongs, the offences under the prevention of Money-Laundering Bill have been made criminal and will attract stringent punishment.

It may be recalled that the Prevention of Money-Laundering Bill, 1998 and the Foreign Exchange Management Bill, 1998 were introduced in the 12th Lok Sabha and thereafter referred to the Standing Committee on Finance. The Reports submitted by the Standing Committee on Finance have been examined and the current Bills incorporate many of the suggestions made by the Standing Committee.

Let me briefly speak about the Prevention of Money-Laundering Bill.

The offence of money-laundering relates to only proceeds of such crimes which have been mentioned in the Schedule to the Bill. These are heinous crimes which are certain offences under the Indian Penal Code, the Prevention of Corruption Act, the Narcotics Drug and Psychotropic Substances Act, the Arms Act and the Immoral Traffic Prevention Act.

The Bill seeks to make the offence of money-laundering punishable by way of rigorous imprisonment for three to seven years and fine upto Rs.5 lakhs. In case of drug related offences, the punishment may extend upto ten years plus fine of Rs.5 lakh.

The Bill also seeks to provide for attachment of property believed to be involved in money-laundering. The Bill also has provisions for granting powers, similar to those conferred under other economic legislations, of summons, survey, search and seizure. The Bill also seeks to cast certain reporting obligations on the financial institutions including banks. Special Courts are proposed to be set up to try the offence of money-laundering, and their orders will be appealable before the High Court. The Bill has provisions

for having Treaties for Mutual Legal Assistance and Extradition Proceedings with other countries so as to facilitate the transfer of funds involved in money-laundering kept outside the country and extradition of the accused persons from abroad.

Sir, now allow me to say something very briefly about the Foreign Exchange Management Bill.

In the on-going process of economic liberalization, many changes in regard to foreign investment and foreign trade have been brought about since 1991 for closer interaction with the world economy. In this context, the Foreign Exchange Regulation Act, 1973 (FERA) was reviewed in 1993 and it was felt that many of the restrictive provisions of this Act needed modifications. Further, certain Sections of this Act had lost their relevance and needed to be deleted from the Act. As a result of comprehensive review, the 1973 Act was amended in 1993.

At this stage the Ministry of Law had suggested that better course of action would be to repeal and introduce a new legislation. Reserve Bank of India was accordingly asked to undertake a fresh exercise and suggest an altogether fresh legislation. A Task Force constituted for the purpose submitted its report in 1994 recommending substantial changes in the Act. Besides, there have been rapid developments in the external sector like better reserves position, substantial increase in India's foreign trade, progressive reduction in customs duties and India's decision to undertake the obligations of Article VIII of the IMF Articles of Agreement whereby all current account transactions are to be freely allowed.

Thus, this Bill aims to repeal and replace the Foreign Exchange Regulation Act, 1973 and to further consolidate 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.

I commend these two Bills for consideration and passing by the House.

MR. DEPUTY-SPEAKER: Motions moved:

"That the Bill to prevent money-laundering and to provide for confiscation of property derived from, or involved in money-laundering and for matters connected therewith or incidental thereto, be taken into consideration."

"That the Bill 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, be taken into consideration."

Before I call any Member to speak, there are amendments from Shri Varkala Radhakrishnan. Let him move his amendments. I think he is not here.

Shri Pawan Kumar Bansal to speak.

SHRI PAWAN KUMAR BANSAL (CHANDIGARH): Mr. Deputy-Speaker Sir, these are two important pieces of legislation which have rather come a little late. We have over the years witnessed to our chagrin that illicit trafficking in drugs and arms has taken a heavy toll of the economies of various countries. According to one estimate, an amount as staggering as five billion dollars represents illegal trafficking in drugs per year the world over and an amount of seven hundred billion dollars represents the volume of illicit trade in arms.

We know of the Golden Crescent, that is, Afghanistan, Pakistan and Iran and what we call the Golden Triangle comprising of Myanmar, Laos and Thailand as far as the trafficking in drugs is concerned. India, unfortunately, has been a transit country for drugs and has been the recipient of illicit arms as well. We know of the famous Purulia arms dropping case. Nothing much could be found out in that. But it certainly points to the gravity of the situation, the enormity of the problem which various countries, particularly the developing countries, face because of the illicit trafficking in drugs and arms. Therefore, it was quite imperative that a piece of legislation like the Prevention of Money Laundering Bill should have been brought before Parliament. I unreservedly support this Bill because that has been our stand all through.

From time to time measures have been taken to protect the Indian economy from the onslaught of the inimical forces outside the country using crime, using the ill-gotten money from this activity to destabilise our country.

Coming from Punjab, one just cannot forget the turmoil, the uncertainty, and insecurity that stalked the State for a decade because of some association with or easy flow of money to the terrorists.

Another important aspect that immediately comes to one's mind when we take up a legislation like prevention of money laundering is the extent of ill-gotten money, money tainted with crime being used in various ways which may perhaps not be within our knowledge also. The hon. Minister has talked about and rather enumerated in the Bill in the form of Schedule certain offences which he rightly considers to be heinous ones and have to be addressed to on priority. I got a little late in moving my amendments which are not before the House as such. I have moved an amendment not because I have any problem or difficulty with his classification of offences but to bring to the notice of the honourable House that the matter just does not end there. The ramifications of the problem, and the ways crime and money are interrelated are enormous. It is not just these few offences which have been mentioned there, there are various other offences committeed for money. Say, of course, an argument can be well given that in case of any violation of Passports Act, it could attract a penalty or action under the Prevention of Corruption Act, etc. But in today's world, when the information technology is growing at an exponential rate, crime need not be committed by a person actually visiting the place of crime. It is through the internet even that crime can be committed today. Therefore, we have got to be innovative. We have got to visualise all sorts of possibilities, ways and means which could be devised by the underworld, by various mafia groups to perpetrate crime and be benefited by the proceeds thereof. Since I do agree with the spirit of the Bill, I would not take much time in going into the details of the Bill or the principles behind that.

I would very briefly refer to some of the provisions and I would request the hon. Minister to consider my amendments, even though they have not been formally circulated as I got late in moving them today.

Firstly, personally speaking, I would like the reference to the scheduled offences to be deleted. I want the hon. Minister to consider that if we can incorporate the offence of murder in the Schedule, then I think there are other cases where even a lesser offence committed for pecuriary gains should attract a similar response from us.

And therefore, any crime which is committed and from which arises the monetary consideration should be included in the scope of this Act and for that reason, I would, further, like to draw the hon. Minister's attention to the definition of money laundering itself. Here, Clause 5 (1) (a) of the Bill stipulates:

"any person is in possession of any proceeds of crime;

This is fine. Then, Clause 5 (1) (c) further says:

"such person has been charged of having committed a scheduled offence;"

I think, this has to be omitted. Then, Clause 5 (1) (c) says:

"such proceeds of crime are likely to be concealed, transferred or dealt with in any manner which may result in frustrating any proceedings relating to confiscation of such proceeds of crime under this Chapter,"

If there is a reasonable apprehension or information with the concerned authority that a person is in possession of any proceeds of crime and also as mentioned in Clause 5 (1) (c) above, these two reasons should be good enough to take action.

Sir, the hon. Minister said that the law which he is proposing to this House is a stringent one. With respect, I would like to say that it is not stringent. The response is not commensurate with the problem that stares at our face menacingly. There could, very well, be a case where, for example, we know that there is a murder committed at a particular place. Some amount of money is related with that crime and recovered at some other place because an information is received by the concerned authority that such and such amount of money could be recovered from that place. So, now the murder turns out to be a blind one or you do not really, with an amount of certainty, trace the person who is the culprit in that crime. Not only this; let us take a case of narcotics, money is recoverable there also, but not the actual offender.

Unless we remove this Clause which says that unless such a person has been charged with that offence, the property cannot be attached, it will not serve the desired purpose. So, I think, this should be deleted to give more teeth to this piece of legislation.

Sir, when I say that certain more powers have to be given to the concerned authorities and their hands are not to be tied by the requirements like the one that that particular person should also be charged with the offence, I, at the same time, feel that in Section 19 where, after the adjudicating authority has decided in a particular way that the property which has been attached need not be attached any further, a provision, somehow, has been made that despite that order of the adjudicating authority - which is a quasi-judicial authority comprising of senior officers - power has been given to the Director, to the Joint Director, to the Assistant Director etc., to still withhold release of that property. I think an amendment is required there also to say that in case the adjudicating authority feels that that property is relevant for the decision of the appeal, it is the adjudicating authority which should permit the withholding of the release of the property.

I now come to the provision regarding the composition of the appellate authority which, again, is a little technical.

Today, when we have a plethora of cases accumulating in the courts and when we talk of judicial reforms being necessary because of piling up of cases in the High Courts and the Supreme Court, we have to - as far as the new legislations are concerned - ensure that the procedure prescribed is simple and effective.

I do agree that the appeal from the adjudicating authority goes to the Appellate Authority. But I further see, as the hon. Minister has provided for, the Chairman of the Appellate Authority can be a person who is or has been a Judge of the Supreme Court and the appeal from the Appellate Authority further goes to the High Court. I would like to suggest to himthat as is the normal practice elsewhere in many other laws that we have, the appellate authority should be confined only to those people who have been or are qualified to be Judges of the High Courts.

I have a serious objection here. I would like the hon. Minister to consider this. This is the first piece of legislation where I find that this particular clause is missing "a person's qualification", that is, a Member of that appellate tribunal will be a person who has been or is a Judge of the High Court and, of course, thereafter the various officers. The words missing are:

"who is qualified to be a Judge of the High Court."

There is no other piece of legislation where this is provided for. You have a good number of competent jurists and lawyers who can very well perform this job. District Judges and Sessions Judges, who have done commendable jobs, are qualified to be Judges of the High Court, but because of this provision in the Act, they cannot be appointed Members of this appellate tribunal.

Thereafter, I have another suggestion to make, that is, for expeditious disposal of matters. I can understand at the initial stage where an appeal is sought to be filed against the decision of the adjudicating authority to the appellate authority. If the Government feels that the adjudicating authority has not taken notice of a particular provision of law or has somehow gone wrong in the decision of the case, they could very well appeal to the appellate authority. But I would humbly submit that the right of the Government to file a further appeal in the High Court should be restricted. The amendment that I have moved is an omnibus one that the State should not have the right to file an appeal. On a second thought, I find that on a question of law if an appeal were to be filed in the High Court, it is good enough. But if, on facts, the Government were to act like an ordinary litigant, filing appeals or revisions at every stage of the litigation, we will not come to an end of the matter. The point at issue would continue to linger on. We would end up with the same situation that is there in the courts today. The High Courts, as I just submitted to this hon. House, are already overburdened with work. So, we should spare the High Courts of additional work in this manner.

The cases could very well be decided by the adjudicating authorities and the appellate authorities. ..(Interruptions).......I am talking of the powers given by the Act. What the Parliament cannot curtail is the right of the High Court under article 226 of the Constitution, that is, the writ jurisdiction. The other powers are all creation of the statutes. It is for any particular law to give any particular power to the High Courts or not or to decide upon any authority as the appellate authority. So, I think, the powers of the Government should be restricted, in filing appeals only, up to the level of the appellate authority.

Sir, when I began with my intervention in this matter, I very briefly referred to the money that is tainted by the blood of the people, by the poverty of the people. Rightly so, I find that an effort has been made to seek the active assistance of the banks and other financial institutions in tracing certain offences or in trying to prevent money laundering. But I think, we have to give a little deeper thought to see as to how the banks can be made to ensure total transparency in their work. We know that crime rises at places where, what you could say, there is more of cash involved in the transaction.

What ways could be devised to see that there is regular flow of information to the Directorate from the banks, from the financial institutions and from the intermediaries? When I talk of intermediaries, I see that in the definition of this word in the Bill, there is omission of -- there may be a little deviation from the clause here as such but that is very relevant as far as the question of money laundering is concerned -- the word Property Dealer.