April 19, 2006

Return of FERA

The PMLA revives many of its draconian provisions
WHY does government want to resurrect follies that held us back in the past, just when Indians were beginning to think the licence-permit raj might be over? It is activating a legislation that is reminiscent of the draconian Foreign Exchange Regulation Act (FERA), even though that was supposed to have been phased out by the Foreign Exchange Management Act (FEMA) in 1999 because FERA was seen as incompatible with liberalisation. The Prevention of Money Laundering Act (PMLA) revives many of FERA’s provisions, at a time when Indian investors are being exposed to foreign markets and the merits of full currency convertibility are being debated. PMLA, like FERA, reverses the principles of liberal jurisprudence. If the Enforcement Directorate (ED) should accuse someone of economic crimes like money laundering, he will be presumed guilty unless he can prove himself innocent. Penal provisions, including imprisonment, are as severe as those under FERA. Moreover an ED officer of the rank of special director will have almost the same adjudicating powers as a civil court. The Act is meant to cut off terrorists’ and druglords’ access to funds, yet is worded to facilitate indiscriminate use against people who should be presumed innocent.
When financial flows are freed up it is likely that some of them should find their way into the wrong hands. The solution is international cooperation, involvement of experts, better enforcement and technologically facilitated monitoring. Legal provisions that require banks to disclose suspicious transactions are par for the course. But the PMLA sets up the ED as prosecutor and judge, while passing the burden of proof on to the defendant. This gives a government agency catch-all powers which can easily be misused to harass legitimate businesses or political opponents. The PMLA may have been formulated to shore up government revenues by making it easy to catch tax and duty evaders, but if the net effect is to chill business sentiment and curb financial flows, then revenues won’t benefit either. While we accept the rules of liberal politics — that people opposed to a ruling government should be allowed to have their say as well — liberal economic principles, which assert that business serves social interests and government should not treat it as subversive activity unless proven to be so, seem much harder to grasp. The latter may be the reason why the PMLA passed muster with legislators, but it will begin to militate against the former if used to target political enemies.

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