What changed
This Master Circular No.9/2013-14, updated as of April 28, 2014, consolidates all existing instructions on compounding FEMA contraventions into one document. It includes a sunset clause of one year, withdrawing on July 1, 2014, after which it will be replaced by an updated version.
What it means for you
Banks and authorized dealers now have a single reference for the compounding process, reducing confusion and transaction costs. The circular clarifies that compounding is voluntary and only for quantifiable contraventions, with severe treatment for willful or fraudulent cases. It also delineates RBI's compounding powers versus the Directorate of Enforcement's role in Hawala transactions.
What you must do
- Review the consolidated instructions to ensure your bank's FEMA compliance processes align with the compounding rules.
- Train staff handling foreign exchange transactions on the voluntary compounding procedure and penalty structure.
- Update internal guidelines to distinguish between contraventions compoundable by RBI versus those under Section 3(a) handled by Enforcement Directorate.
- Prepare for the sunset clause by monitoring for the updated Master Circular expected after July 1, 2014.
Who it affects
All Authorised Dealer Category-I banks, Authorised Banks handling foreign exchange, Compliance officers dealing with FEMA contraventions, Corporate and individual customers involved in foreign exchange transactions
What is the penalty for a FEMA contravention under this circular?
Penalty can be up to three times the amount involved if quantifiable, or up to ₹2 lakh if not. For continuing contraventions, an additional ₹5,000 per day after the first day may apply.
Can all FEMA contraventions be compounded?
No, only quantifiable contraventions are eligible. Also, contraventions under Section 3(a) of FEMA (Hawala transactions) are handled by the Directorate of Enforcement, not RBI.
What happens after a contravention is compounded?
Once compounded, no further proceedings or actions can be initiated against the contravener for that specific contravention.