Legal definition under FEMA India:
Save as otherwise provided, no person shall deal in or transfer foreign exchange or foreign security to any person not being an authorized person; make any payment to or for credit of any person resident outside India; receive otherwise than through authorized person any payment by order or on behalf of person resident outside India; or enter into any financial transaction in India as consideration for or in association with acquisition of right to acquire any asset outside India.

Under Spanish / EU law: Art 63 TFEU prohibits restrictions on capital movements, but Art 65 allows controls for tax enforcement and public security. Spain's Law 19/2003 on movement of capital and Royal Decree 1816/1991 requires declaration > €10,000 cash crossing border + SEPBLAC reporting. Evasion = undeclared cross-border transfer.

Methods of Evasion

1. Hawala / Hundi: Receive INR in India, pay equivalent foreign currency abroad via trust network — violates Sec 3(c) FEMA — receiving payment otherwise than through authorized person.
2. Under/Over Invoicing: Exporter under-invoices export to park difference abroad; importer over-invoices to siphon out. Case M/S Euresian Equipments v Collector of Customs 1979 — false declarations in export docs to contravene FERA.
3. Round-Tripping: Funds originating from India routed through offshore entities and subsequently reinvested back into India disguised as FDI. FEMA prohibits to prevent tax evasion.
4. Misuse of Liberalised Remittance Scheme (LRS): Splitting remittances among family to exceed $250k cap.
5. Non-surrender / Non-realization: Not surrendering foreign exchange within time or not bringing export proceeds — Sec 8 FERA/FEMA.
6. Concealed Transactions: Underreporting or misreporting of foreign exchange transactions to evade reporting — defined in PMLA/FEMA interplay.

Legal Framework — Evolution

FERA 1947 & 1973: Criminal statute — "Draconian". All forex offences criminal, imprisonment. Presumption of guilt. Section 23(1B) allowed confiscation of Indian currency representing foreign exchange proceeds.

FEMA 1999: Civil — objective to reduce restriction on foreign exchange. Now any offense in foreign exchange will be civil offense not criminal offense. Sec 13 penalty up to 3x value of forex. Only non-payment of penalty after 90 days becomes criminal under Sec 14 — evasion of forex dues can now land you in jail.

Spain: Former 1939 Law of Exchange Control — criminal. Now liberalized but Art 301 Spanish Criminal Code criminalises money laundering of evasion proceeds + Law 10/2010 administrative fines.

Case Laws

INDIA — Foundation Cases on Evasion

1. Union of India vs Vijay Chand Jain — AIR 1977 SC 1302 — Leading Case on Confiscation
Facts: Sale proceeds of foreign currency in Indian rupees Rs 12,31,000 seized. Question: Can Govt confiscate Indian currency representing illegal foreign exchange?
Held: Section 4(1) prohibits sale or purchase of foreign currency except through authorized dealer. Indian currency seized can be confiscated as "property in respect of which contravention has taken place" under Sec 23(1B) FERA 1947. Supreme Court upheld confiscation — evasion via Indian rupee leg also punishable.

2. Hans George vs State — 1963 — Gold + Forex Smuggling
German national brought gold into India without RBI permission with intent to defraud Government. Convicted under Sec 23(1-A) FERA and Sea Customs Act. SC: mens rea not required for FERA — strict liability for bringing gold without permission. Foundation for exchange control evasion as absolute offence.

3. S. Muthiah Pillai vs FERAB — 1989 — Hawala
During March 1963, appellant in contravention of Sec 5(1)(aa) attempted to receive Rs 40,000 from person other than authorized dealer by order or on behalf of person resident outside India in Penang. Madras HC upheld penalty — receiving payment through non-authorized channel = evasion even if money is INR.

4. Delhi High Court — Arjun Patil vs UOI — CRL.A. 407/2007 — Indian Currency Can Be Seized Under FERA
ED seized Rs 12,31,000 under Sec 63 FERA on allegation intended to be used for illegal purchase of foreign exchange. HC: Section 63 clearly empowers adjudicating authority to confiscate any currency, security or other money in respect of which contravention has taken place. Indian currency intended for illegal purchase of forex can be seized — anticipatory evasion punishable. Upheld.

5. Rayala Corporation (P) Ltd vs Director of Enforcement — 1961 SC
If any person contravenes provisions of Sec 4,5,9,10,12(2), he shall be liable to penalty not exceeding 3x value of foreign exchange. Defined penalty structure — still basis for Sec 13 FEMA.

6. Agrawal Trading Corporation vs Collector of Customs — 17 Jan 1972 SC
Exportation of Indian currency out of India was in contravention of Sec 8(2) FERA. Partners in-charge responsible. Extended liability to company and partners for evasion.

7. Evasion via Non-Utilization — 2008 (12) TMI 31
Person released forex USD 34,230 for travel/business but failed to utilize for purpose released — held guilty of contravention of Sec 8(3) to extent of $34,230. Classic LRS evasion: take forex for one purpose, use for another.

UK — Exchange / Duty Evasion Parallel

8. R v Miller EWCA Crim 533 — Large-Scale Importation from Spain to UK
Operation to import duty-free tobacco from Spain into UK. Defendant pleaded guilty to fraudulent evasion of duty under Sec 170(2)(a) Customs and Excise Management Act 1979. Court of Appeal clarified culpability differentiation — even peripheral participant in evasion network liable. Used for sentencing Spanish-UK tobacco evasion rings.[2025]

9. Smith v UKHL UKHL 68 — Pecuniary Advantage
Appellant pleaded guilty to fraudulent evasion of excise duty. House of Lords defined confiscation of proceeds — benefit is value of duty evaded, not profit. Applied to exchange control: benefit = total forex value evaded.[2001]

10. R v Latif UKHL 16 — Entrapment & Exchange Control
House of Lords considered criminal liability arising from arrangements involving attempted importation. Held customs officers can act as agents to detect evasion — not entrapment if predisposition exists.[1996]

SPAIN — Related

11. Jyske Bank Gibraltar — Supreme Court Spain 2014 — Refusal to Disclose Customers to SEPBLAC
Fine €1.7M upheld for bank's refusal to disclose identity of customers in Spain after request from SEPBLAC. Argued banking secrecy under Art 22 Third Money Laundering Directive. Court: banking secrecy cannot override anti-evasion supervision. Same principle applies to exchange control: Law 19/2003 obliges reporting.

Penalty Regime Today

• India FEMA Sec 13: Penalty up to 3x sum involved, or Rs 2 lakh if amount not quantifiable. Sec 37A: ED can seize property as value equivalent within India if forex asset held abroad — to prevent parking abroad.
• Compounding: FEMA contravention can be compounded by RBI — delay in reporting inward remittance, FC-GPR, ECB statements, acquisition abroad.
• Spain: Undeclared movement > €10k = administrative fine up to 100% of value + criminal money laundering if proceeds of crime.

Defence: No mens rea needed under FERA, but under FEMA bona fide transaction + authorized channel + proper declaration = no evasion.