In the last Clause of the Immoral Traffic Act it says : "Seducing a person in custody". I do not know in what manner it will help in the case of money-laundering because I have no such experience in my 30 years of police service. I did not have any experience of seduction of a person in custody and money-laundering. Maybe there are some instances here and there. But it may be fraught with danger. An authority has been allowed to arrest. The law of the land always says that any person who is arrested, in most cases, will be produced at the police station or before the Magistrate, if the time is there and all those things. Instead of producing the person at the police station, it may so happen, as per this Act, that the person arresting may keep him for some time. It will create a problem for the Government. There must be a provision that any person who is arrested must be sent to jail and if it is not possible, send him to the police station temporarily. That is how the accountability will be there. Otherwise it may so happen that the money-launderer in his own way, may palm off some money to the authorities concerned and we may not be able to do anything in that matter and he may escape easily.
SHRI M.V.V.S. MURTHI (VISAKHAPATNAM): You know it better.
SHRI ANADI SAHU : That is why from my experience I am telling all these things.
MR. CHAIRMAN : Shri Sahu, please conclude.
SHRI ANADI SAHU (BERHAMPUR, ORISSA): I will take only two minutes. Once you have given the orders, I will sit down.
So, when we are thinking of the Prevention of Money-laundering Bill, we have to think of all these provisions. We could have taken recourse to section 357 of the Cr.P.C. for compensation and taking money from the person who has laundered the money. Why should a special Bill be brought? Yet, if a special Bill has come, let all these things be taken into account before the Prevention of Money-laundering Bill is made into an Act.
SHRI MOINUL HASSAN (MURSHIDABAD): Respected Chairman Sir, again I rise to oppose the two Bills which are now under discussion because I firmly believe that it is my duty towards my nation. While opposing the Bill, I would like to say something.
Firstly, what is the background of FEMA? I suppose that the hon. Finance Minister has told at the time of introduction of the Bill, and other places also, that the position of the foreign exchange reserves is very sound. We know that there are foreign exchange reserves to the tune of more than 34 billion dollars in our country.
Mr. Chairman Sir, if we scrutinise the structure of Indian external account, what do we find? I would like to detail the position. There are two aspects of foreign external account, I suppose, one is visible part and the second is invisible part. These are the two aspects in our external account. So far as visible part is concerned, it consists of trade account. Trade account is export and import-related account, that is, export minus import or import minus export. Our hon. Finance Minister very well knows that so far as the position of trade account is concerned, it has been deteriorating throughout the last decade.
At the time of opposing the introduction of the Bill, I referred to one datum. Perhaps, due to that, the hon. Finance Minister misunderstood me. That datum was that in 1996-97, the deficit in this account was nearly 12.5 billion dollars. That was 3.5 per cent of our GDP in 1996-97. Hon. Finance Minister has told that it is now on a very lower side at 1 per cent or 1.5 per cent. I believe it also. If we see it in absolute terms, what is the position now? In 1996-97, it was 12.5 billion dollars in absolute terms and now also, I believe that it is near that figure. I would like to clarify my point. This account has been under pressure throughout the last decade, but India was saved. How?
It is due to the glorious improvement, throughout the last decade, in the other aspect of external account, that is, the invisible account. What is this invisible account? Everybody knows about it. It depends upon many headings. The largest component of this account, as you know, is from the net private transfer, dividend given by the industrialists, disinvestment, investment, insurance premium etc. The largest component is that of those who are living abroad, that is, the Non-Resident Indians, who remit the funds in our country. It is the net private transfer which is the largest component in this account. My point is this. One of the major reasons to remit this large amount is that there is a big difference between the currency value of dollar and rupee. I do not want to go into the details on this. But I firmly believe that this remittance is volatile in nature. We cannot depend on this volatile situation; on unreliable account we cannot depend on this. We have seen the fate of the South-East Asian countries; we have seen the fate of the Asian tigers. In this background, I would like to say that India, our nation, is not in a position to shift from regulation to management. Why in a hurry Is it to promote the hawala culture in the country or is it to help foreign exchange racketeers? Will our Finance Minister answer a simple question? How much money-laundering is there in this foreign exchange sector?
Respected Chairman, Sir, two Bills are being presented as complementary to each other. Misuse of foreign exchange is a simple civil offence; diversion or misuse is not a criminal offence at all. What does this mean? I suppose, this is not in favour of our country.
From the Bill, I came to know that the position of the RBI has not been defined properly. They will not manage or exercise any control. The RBI would keep its eyes closed as the foreign exchange operators need not take any permission from the RBI. There is no control of the RBI, and no permission is required from the RBI.
Moreover, this National Democratic Alliance Government is taking decisions one by one to open up our economy, ignoring the public protests. They have even ignored a petition containing 15 million signatures. More foreign investors would come with funds, but there will be nobody to control the inflow or outflow of capital. This is main danger before the nation today.
Respected Chairman, Sir, so far as the Money-laundering Bill is concerned, I would like to confine myself to two or three points. Black money generation is virtually a threat before the Indian economy. There is a need for legal framework to stop this generation. I am sorry to say that there is no adequate provision in this Bill regarding this. The Government is trying to open up our economy to integrate ourselves with the global economy.
In fact, the Government is globalising money laundering, drug business and gun running etc. The finances are flowing into terrorist activities and smuggling of gold. Now, could this piece of legislation protect our nation from these things? I suppose, no.
Sir, many people are talking about globalisation. Permit me to say that there is a yearly conversion of 500 million dollars into white money through money laundering activities throughout the world. It is two per cent of global domestic product.
Sir, we are talking about globalisation. I would like to refer to the statements made by two gentlemen. The Director (Fiscal Affairs) of the IMF and the Advisor of the IMF's Monetary and Exchange Affairs, Mr. Vito Tanzi and Mr. Peter Quirk in the year 1996 placed a report before the IMF and I would like to quote that report. The report says:
"The globalisation of the world economy and the growing efficiency of capital markets allow individuals and firms to shift vast amount of money relatively freely between domestic financial market of one country to another which makes money laundering easier".
Sir, what are we doing and in what manner? The most remarkable grey area in the matter of money laundering is the manipulation of balance sheets. They are a part of the liberalisation process. This Bill is proposing to allow known offenders and known criminals to be freed from accusations. The people who are indulging in manipulation of balance sheets and money laundering would also go scot free by way of this piece of legislation. So, this Bill is not competent to save the interest of the country and I would like to oppose this Bill.
SHRI M.V.V.S. MURTHI (VISAKHAPATNAM): Mr. Chairman, Sir, this is an era when we are moving from the regulation regime to the management regime. In several fields harsh terms are being changed to soft words. That is why, instead of regulation, we are having this Prevention of Money Laundering and Foreign Exchange Management Bills. These bills are being brought together.
Sir, there is no doubt about the fact that we have to change with the changing times. But are we sufficiently geared up to meet this sort of a situation? This is the question that has to be looked into. Ours is one of the developing nations where we are having a lot of corruption. We know many areas where blackmoney is in circulation and we are unable to control the circulation of blackmoney in these areas. These areas include, property dealing real estate and even foreign exchange remittances.
Sir, we have to move with the moving times. We cannot have both the cake as well as the stick. The hon. Finance Minister is here and I would like to point out to him that more transparency is necessary in the transaction of the banksin these matters, like how the remittances are being arrived at, and how we could be able to arrest them, have to be looked into. Many people have already told about over-invoicing, under-invoicing and smuggling of narcotics etc.
We have taken certain steps like rationalisation of customs duties. However, in a developing country like ours we should be doubly cautious about these transactions. Otherwise, any amount of laws will not help. Even with a stringent law like FERA we still have foreign exchange irregularities. Since we are going to bring into effect the FEMA, we should see as to how we can ensure that irregularities are stopped. Prevention of money-laundering and management of foreign exchange are interrelated subjects. Therefore, an integrated approach should be adopted while dealing with these subjects. However, in certain clauses they differ with each other in approach.
I agree that too many regulations will not help our country. We have to fall in line with the rest of the world. We are already in the process of liberalisation in various fields. This is one of the areas where liberalisation was needed. That is why the Finance Minister has come out with these Bills. At the same time too much of liberalisation also would lead a developing country like ours into a difficult situation because people are not geared to accept the liberalisation in certain areas particularly in money dealings.
Offenders should be treated in a way where there is no place for protracted litigation. It is common experience in our country that once somebody commits an economic offence, the litigation goes on for several years and by the time the verdict is given one forgets as to what had happened in the first instance in that case. There should be a methodology to see that economic offenders are proceeded against in time. In the first instance it is very difficult to get hold of offenders. When one of these offenders is caught, litigation goes on for years together without the case coming to its logical conclusion. A legal framework should be put in place wherein an offender could be tried and the legal process is brought to its conclusion at the earliest. The Finance Minister may think that we have a comfortable amount of foreign exchange reserves. As suggested by a colleague, out of the 34 billion US dollars plus of reserves, a major part is NRI remittances rather than trade surplus. So, how to generate surplus in the country is a very important thing. Otherwise, when there is a run, people will withdraw their money and we will be put in a very difficult situation. Instead of depending solely on depository accounts we should also get real money by way of trading. That part of the reserves is more sound than the present depository accounts.
I fully agree with the view that we should fall in line with the rest of the world. I, therefore, support these Bills.
SHRI AJOY CHAKRABORTY (BASIRHAT): Mr. Chairman, Sir, the two Bills listed as Items 9 and 10 of the today's List of Business, that is, Prevention of Money Laundering Bill, 1999 and Foreign Exchange Management Bill, 1999 are being taken together for the consideration of the House.
Sir, the much watered down Foreign Exchange Management Bill is slated to replace the more stringent law, that is, FERA. It has been reported and whispered in the country that the industrial lobby and the big industrial associations of our country are creating constant pressure on the Government to convert FERA into FEMA. And, I think, it will rather help the hawala operators and black- marketers. That is why we are strongly opposing this Bill.
I do not know whether the hon. Finance Minister will express his anguish to this particular language. But I am rather compelled to say that this Bill is anti-national also. I oppose this Bill.
This Bill seeks to dilate on the offence under the foreign exchange violation. The offence of foreign exchange violation is not considered as a criminal offence under the new provisions. It is only a civil offence. The penalty is only payment of fine, that too, in a limited way. So, the Bill proposes to give effect retrospectively. In many cases, it will be difficult to counter foreign exchange violation, particularly, hawala crime.
Sir, under the present law, prior to the full-scale convertibility particularly, capital account convertibility, such a devolution shall make illegal outflow of funds easy, and violation shall be committed with impunity. Illegal transaction of funds are done because of the inadequacy of taxes.
1733 hours (Dr. Raghuvansh Prasad Singh in the Chair)
It is primarily done to protect illegal income arising out of the tax evasion and avoidance of law. Decline in value of Indian currency is also a significant factor which encourage stashing away of funds. In the name of liberalisation, effecient measures are considered to be retrograde steps. Illegal diversification of funds out of the country is an offence against the community and it impinges upon the resource mobilisation to tackle basic human problems. Therefore, it is wrong to consider this as a civil offence. Liberalisation gives rise to criminality. It is sought to be passed as civil offence.
So, we think, if this House passes this Bill, it will help the black marketers, criminals, black marketeers and hawala operators. So, once again we oppose this Bill.
SHRI PRAKASH MANI TRIPATHI (DEORIA): Thank you, Mr. Chairman. I rise to support the two Bills brought before Parliament for converting the FERA to FEMA, as also the Prevention of Money Laundering Bill which is being considered along with the first Bill.
What we are discussing today is the method that is required along with moving times to facilitate external trade and payment and for promoting orderly development and maintenance of foreign exchange market in India. This is not a new Bill. This was introduced in the Lok Sabha in August, 1998. It has been referred to the Standing Committee. But unfortunately the Lok Sabha was dissolved. So, it could not be proceeded with. Now the foreign exchange management concept is not a static concept. It is not that this Bill which was enacted in 1973, then called Foreign Exchange Regulation Act, will continue to be relevant for ever. Things are changing. Things will change. The financial scenario of the country is changing. It must change. It must progress and along with this, the rules and regulations must also be amended to meet the changing situation and, therefore, the concept that any change that is being brought about is not a desirable one, is a static concept. It is not a dynamic concept. The dynamic concept is to change with the changing scenario, particularly fiscal and financial scenarios of the country. The previous speaker and all the other speakers who got up always started by saying many things about our country, but one of the things that is most commonly heard is that we are a very corrupt country and it surprises me because if it is said in relation to the change in FERA, then FERA has been in operation since 1973, a period of more than 26 years and, therefore, this corruption can be put in the shelf of FERA despite the fact that it had so-called very harsh provisions for managing it. Therefore, harshness by itself is not a panacea for managing fiscal and financial ills. The remedy is to move with the times, to move and meet the requirement of the financial institutions, to take note of financial developments in the country and thereafter to make amendments to our rules and regulations so that they meet the requirements. Ours is a poor country and every time somebody got caught in a FERA violation, there is a lot of jubilation on the part of the common man and he says "Oh, this man has been caught. Now he will be penalised." Therefore, a concept arose as if every man doing any financial malfeasance or financial irregularity or a contravention of the orders that existed fcr a highly undesirable man, should be put behind the lock and key and then the whole lawful people would be very happy.
This appeared to be the concept. If it is a financial irregularity, there are ways of finding and penalizing him but to immediately consider it as a third degree crime would not be in the fairness of things if we want a better management of foreign exchange in our country as well as better correlation between our foreign exchange management and foreign trade. Therefore, concept-wise, this is a change towards a more human outlook towards financial transactions.
It has been said that this Bill has diluted certain provisions of the old FERA and that it has become very very kind to people who commit various regulation malfeasance and therefore it is anti-national. Anti-national, I find, is becoming a very common word in this august House. All financial liberalization measures are called anti-national. I would like to say that this measure has been brought only to remove the fear. Under FERA, in 1995, 2456 show-cause notices were issued and prosecution was launched in 202 cases; in 1996, the show-cause notices issued were 2291 and prosecution was launched in 101 cases; and in 1997, 2726 show-cause notices were issued while prosecution was launched in 90 cases. What kind of harassment went on in the meanwhile can only be imagined. It is the draconian measures that this Bill proposes to remove. It has become more open but it must not be taken as a cosmetic change.