What changed
This master circular consolidates all existing instructions on compounding FEMA contraventions into a single document. It includes a sunset clause, meaning it will be withdrawn on July 1, 2012, and replaced by an updated version. The circular outlines the powers, process, and scope of compounding for authorized dealers.
What it means for you
Banks and authorized dealers now have a single reference for handling FEMA contraventions through compounding. This reduces transaction costs for compliant entities while ensuring strict action against willful violations. The sunset clause ensures regular updates to keep the framework current.
What you must do
- Familiarize with the consolidated compounding procedures and ensure compliance teams are trained.
- Verify that all FEMA contraventions are reported and processed through the compounding mechanism before adjudication.
- Maintain records of compounding applications and orders for audit and regulatory review.
- Monitor the sunset clause and prepare for the updated master circular by July 1, 2012.
Who it affects
All Authorised Dealer Category - I banks, Authorised Banks handling foreign exchange transactions, Compliance officers dealing with FEMA contraventions, Corporate customers involved in foreign exchange dealings
What is the penalty for a FEMA contravention under this circular?
Penalty can be up to thrice the sum involved if quantifiable, or up to ₹2 lakh if not, plus ₹5,000 per day for continuing contraventions.
Can compounding be done after adjudication proceedings start?
Yes, compounding can be applied for either before or after the institution of adjudication proceedings, as per Section 15 of FEMA.
Who handles compounding for Hawala transactions?
The Directorate of Enforcement handles compounding for contraventions under Section 3(a) of FEMA, which deals with Hawala transactions.