ED Probed 17,000 Cases Under FEMA in 6 years

ED Probed 17000 Cases

New Delhi: Last week’s move by the Enforcement Directorate against Chinese phone company Xiaomi, seizing 5521 crore held in the company’s bank accounts under the FEMA comes as the agency increases its scrutiny of violations of foreign exchange laws.

ED initiated 17,189 investigations under FEMA between 2016-17 and 2021-22 (till November 30, 2021) , according to government data reviewed by HT, and the financial year ended March 31, may have seen the highest number of investigations, people familiar with the matter said.

In all, penalty worth 4,312 crore was imposed over these five years, the government data show.

While 3,627 probes were launched in 2017-18, followed by 3,360 in 2019-20, the number of cases dropped to 2,774 in 2020-21, when the functioning of all government agencies was affected due to the Covid-19 pandemic.

In the previous financial year, 2021-22, ED initiated 2,774 FEMA probes till November 30. This number, an official, said, grew rapidly over the following four months, and the volume of investigations last fiscal is expected to cross that in 2017-18.

“After the amendment in 2015 with addition of section 37A in FEMA, ED can now attach properties in India if they find that any assets are held outside India in contravention of the rules. Since then, a lot of attachments have taken place but as per law, such attachment is valid only for 180 days and it requires confirmation from competent authority on the lines of confirmation of adjudicating authority in PMLA (prevention of money laundering act). There is no drastic power of arrest under FEMA as in PMLA. However, as proceedings take place before officers who have no experience on the judicial side and hence, errors are generally committed, it is easier for defence lawyers to obtain stay from high court,” advocate Vijay Aggarwal, who represented several accused in 2G and coal fraud cases, Mehul Choksi, Rana Kapoor among others, said.

The central agency also carried out 771 raids, issued 3,610 show cause notices (SCNs) and over 27,000 summons under FEMA to individuals and companies indulging in suspicious transactions in these six years, data reveals.

Of the 3,610 SCNs, 538 were issued in 2016-17, 791 in 2017-18, 844 in 2018-19, 718 in 2019-20, 529 in 2020-21 and 190 last year till November 30.

FEMA 1999 is a civil law which was enacted to consolidate and amend the laws relating to facilitate external trade and payments and to promote the orderly development and maintenance of foreign exchange market in India.

The Reserve Bank of India (RBI) is the sole regulator of foreign exchange in India while ED is entrusted with the implementation of the law. The central agency initiates investigations and issues Show Cause Notices (SCN) in cases where the allegations of contravention of provisions under FEMA are noticed. These SCNs, upon adjudication, result in imposition of penalty as well as confiscation of currency/property involved as seen in Xiaomi’s case.

The central agency claimed in a statement on Saturday that Xiaomi, which started operations in India in 2014, remitted foreign currency equivalent to 5,551.27 crore to three overseas entities that include one Xiaomi group entity in the guise of royalty. The company refuted the ED charges saying its operations are compliant with local laws and regulations.

The government said in February this year that Foreign Direct Investment (FDI) into the country was $500.5 billion (65% more) during Prime Minister Narendra Modi’s regime as opposed to the amount received in 10 years tenure of the previous United Progressive Alliance (UPA).

In April 2020, the Centre amended FDI rules under FEMA, which made prior approval of the government mandatory for foreign investments from countries that share border with India, to prevent opportunistic takeover of domestic firms, by the Chinese amid the Covid-19 pandemic.

The Centre repeatedly asks concerned authorities including the ED to monitor activities which are in contravention of the foreign exchange laws.

Former ED director Karnal Singh asserted that FEMA is crucial to keep a watch on foreign investments and related transactions taking place in the country. “When Indian economy opened in 90s, foreign investment started pouring in. FEMA was introduced to facilitate external trade and payments as well as regulate the Indian forex market. When foreign direct investment (FDI) comes in, it is important to know who has the control, where the money is coming from, whether it is legitimate or not and if it is being used for defined purposes. ED plays a major role in all this,” Singh said.

Source – ED probed 17,000 cases under FEMA in 6 years | Latest News India – Hindustan Times

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