The Nation: Forex Regulations; Officer's Choice

The proposed anti-money laundering and forex laws meet with stiff resistance.

Leave the task of reforming a law in the hands of the bureaucracy and it comes back deformed. The Union Government recently got its officers to draft the Central Vigilance Commission (CVC) Ordinance and burnt its fingers as it came to be challenged in the Supreme Court. And now bureaucrats of the Finance Ministry are at work, smuggling their personal agendas into two crucial bills presented before Parliament: the Foreign Exchange Management (FEM) Bill and the Prevention of Money Laundering (PML) Bill. The Parliamentary Standing Committee on Finance, to which the bills have been submitted for review, is picking holes in them. The Reserve Bank of India (RBI) has sent a secret note to the Finance Ministry, saying that the bills, particularly the PML Bill, if enacted, would "derail" the reform process. The Confederation of Indian Industry has begun a campaign against the bills, including circulating proposals for drastic amendments and holding public debates. The Associated Chambers of Commerce and Industry has demanded review of the fem Bill in particular.

NOTIONALLY LIBERAL

"Any police officer" of a state government can carry out inspections "at any time" to prevent forex misuse.

The provisions inapplicable to Indian nationals under FERA are applicable to Indians in new bill.

Compounding of offence is left to the discretion of the Enforcement Directorate.

Falsification of accounts under Section 477A of the IPC is put on a par with laundering charges.

To be charged for laundering money, there is no need to establish mens rea (criminal intent). The accused must prove he is innocent.

The drafts of the CVC Ordinance and of the two bills reveal a common pattern of bureaucratic subversion. The ordinance defeated its very purpose of insulating anti-sleaze investigation from executive interference by keeping executives immune from investigation. The PML and fem bills also run against the grain of their raison d'ętre -- that of replacing the draconian FERA with a more reasonable law that makes violations of its provisions more of a civil nature, keeping tough punishments reserved for laundering the proceeds from drug trafficking, terrorism, flesh trade and organised crime. The fem Bill authorises, in its present form, even a police sub-inspector to raid the premises of a business house, or its directors, on suspicion of violation of the rules. That threatens to perpetuate the existing "raid raj" under FERA, which thrives on destroying corporate reputations by conducting well-publicised raids. The bill does not even spell out the rules for compounding an offence or agreeing not to prosecute in return for payment. That gives a new lease of life to arbitrariness.

On the other hand, the PML Bill enables the authorities to book an accused on the mere suspicion that he might have falsified his accounts, without a prior report sent to a magistrate, as laid down under Section 173 of the Criminal Procedure Code. The onus of disproving the allegation will shift to the accused. The RBI, it is learnt, has objected to such examination of books on a roving or fishing inquiry, without sufficient evidence of the proceeds from the prescribed crimes being laundered into the banking system, or otherwise, through falsification of accounts. "The PML Bill owes its origin to the UN Convention against Illicit Traffic in Narcotic Drugs, to which India is a party," says Murli Deora, chairman of the Finance Standing Committee. "It is a part of a worldwide effort to curb narco-terrorism and organised crime. To equate the charge of making false book entries on a par with such heinous crime is stretching ethics too far."

What has particularly irritated most of the Standing Committee members and the business community is the prosecution disowning the burden of proof in the anti-money laundering cases. It is an accepted norm of Anglo-Saxon jurisprudence, on which the Indian legal system is modelled, that the prosecution must prove that what it alleges is true. But the PML Bill, which makes violations punishable with rigorous imprisonment up to seven years and penalty of Rs 5 lakh, apart from provisions for property confiscation, does not require the prosecution to discharge its burden of proof. If the law of the land were such, both Home Minister L.K. Advani and Finance Minister Yashwant Sinha would have been put behind the bars in the Jain hawala case, which had all the violations listed in the PML Bill, until they could prove themselves innocent.

The fingerprint of the babu on the bill is also evident in Clause 54, which provides a disproportionately light deterrence against officers conducting searches or detaining and arresting people without reasonable ground for suspicion. With no obligation of prior reporting to the magistrate, the enforcing authority can indeed turn into an instrument of public harassment without such a safeguard.

However, under the bill, no court can take cognisance of such executive harassment except with the previous sanction of the Central Government. This is in line with the hated "Single Directive" which does not allow the CBI to investigate any officer of the rank of joint secretary or above without clearance from higher authorities.

Such permission from the Central Government is seldom obtained. Besides, the maximum punishment for such offence is only three months' imprisonment, a special grace compared to the damage they can cause to individuals or their businesses.

As a senior RBI official explains, the basic problem with the two bills is that their authors are torn between the twin obligation of moving with the times and retaining discretionary powers in the hands of the bureaucracy. In the process, the officialdom has proved its talent to reshape the laws to its advantage if they threaten to get out of hand.