What changed
This Master Circular consolidates all existing instructions on compounding FEMA contraventions into one document. It includes a sunset clause, meaning it will be withdrawn on July 1, 2013, and replaced by an updated version.
What it means for you
Banks and authorized dealers can now refer to a single source for compounding procedures, reducing confusion. The process remains voluntary but requires admission of contravention. Willful, malafide, and fraudulent transactions are treated strictly.
What you must do
- Review the consolidated compounding rules and ensure your compliance team is aware of the updated procedures.
- Train staff on the distinction between contraventions compoundable by RBI versus those by Directorate of Enforcement (Section 3(a) hawala transactions).
Who it affects
All Authorised Dealer Category - I banks, Authorised Banks, Individuals and corporate entities dealing with foreign exchange
What is the maximum penalty for a non-quantifiable FEMA contravention?
Up to ₹2 lakh, and if continuing, an additional ₹5,000 per day after the first day.
Can compounding be done for hawala transactions?
No, contraventions under Section 3(a) of FEMA (hawala) are compounded by the Directorate of Enforcement, not RBI.
Does compounding stop further legal action?
Yes, once a contravention is compounded by the Compounding Authority, no further proceedings can be initiated or continued against the contravener.