Soon after finance minister introduced the two bills, Prevention of Money Laundering Bill and the Foreign Exchange Management Bill, all the industry associations demanded a public debate to avoid making the Bill a source of potential source of harassment.

The industry is specifically critical of certain provisions in the PMLB which treats `falsification of accounts' as a heinous criminal offence and setting up of a directorate with sweeping powers to administer the Act.

The other provision which has evoked a sharp reaction from the bankers relates to the clause that all financial transactions above Rs 25 lakh have to be reported by the financial institutions. Even the RBI has felt that the cap should be increased substantially as otherwise it would lead totremendous amount of paperwork.

Sources in the finance ministry, however, pointed out that the government has proposed the bill which would be modified after debate in and outside Parliament. There is a scope of finetuning the provisions of the Money Laundering Bill. However, the sources stressed that the aim should be to have an effective legislation to prevent and punish offences relating to money-laundering and connected activities.

Finance ministry sources further said that the adverse reaction to industry even before the bills were formally tabled in Parliament would be kept in mind while changing some of the provisions in the bill. "We are open to suggestions. But a final decision will be taken only after ascertaining the views of the standing committee on finance which will now vet the Bill", sources said.

At the same time, the finance ministry bosses appeared hopeful that the FEMA would not face hurdles in Parliament.

The money laundering Bill provides for preventing and punishing offencesrelating to money-laundering and connected activities, confiscation of proceeds of crime, disclosure of such transactions by financial institutions, setting up of agencies and mechanisms for co-ordinating measures necessary for combating money-laundering.

As per the bill, "whoever acquires, owns, possesses or transfers any proceeds of crime; or enters into any transaction which is related to proceeds of crime either directly or indirectly; or conceals or aids in the concealment of the proceeds of crime commits the offence of money-laundering". The punishment proposed is rigorous imprisonment for a term ranging from three years to seven years and fine which may extend to Rs 5 lakhs. For offences under the Narcotic Drugs and Psychotropic Substances Act 1985, the imprisonment could be extended to 10 years.

The provisions of the Money Laundering will be implemented by a directorate which shall have sweeping powers including the power to arrest and retain property.

The violations of the provisions of theNarcotic Drugs and Psychotropic Substances Act, 1985, constitute the most serious offence under the Bill and the director is empowered to attach the laundered property in drug related cases soon after the case is filed before the court. However, in other cases, the property would be attached only for a period of 90 days or till the end of adjudication of the matter.

A separate directorate would be set up under the supervision of the revenue department to implement the Prevention of Money laundering Act which would enjoy the same powers as a civil court. The officers of the directorate would enjoy powers similar to those of income tax officers. However, the Bill proposes to empower the director, deputy director or any other authorised officer to arrest a person if he has reason to believe that the person is guilty under the Act.

Towards Less Draconian Measures

FEMA

* RBI to be the key regulating agency, to decide forex transactions rules
* Existing cases to be tried under FERA nor FEMA
*Only monetary penalties for offenders
* Adjudicating authority consisting of central government officers to be set up for this law.
* No civil court can intervene in cases being heard by adjudicators or the appellate tribunal.

MONEY LAUNDERING

* Applies to whoever acquires, owns or possesses proceeds of crime
* Property involved to be attached while adjudication is on and confiscated when guilt established.
* Money laundering to be made a non-bailable offence.
* Every bank and FI to maintain record of transaction above Rs 25 lakh within a month.
* Records to be submitted to income tax commissioner
* New directorate to be set up to implement the act