Financial Crime World

Nepal Struggles with Money Laundering, Hawala System and Bank Secrecy Laws

Kathmandu, Nepal - The Nepalese government has been grappling with a significant problem: money laundering, perpetuated by the hawala system and bank secrecy laws.

A Common Method of Concealment

According to the Attorney General’s Annual Report for 2059/60, money laundering is a common method used to conceal illegal proceeds. The report highlights that individuals use this method to hide their illegal earnings, making it challenging for authorities to trace the origin of funds.

The hawala system, a network of agents who transfer funds without carrying physical cash, has become a popular way for individuals to launder money. This system allows remittances from Nepalese workers abroad to be received through unofficial channels, often exceeding the amount sent through legal banking channels.

Another method used is intermingling illegal proceeds with legal source money, making it difficult to trace the origin of funds. A recent case involving a former Minister highlights this issue, where his property was found to be significantly higher than his known income sources.

National and International Measures to Combat Money Laundering

To counter money laundering, national and international measures have been devised. However, Nepal still lacks specific legislation addressing the problem. The Foreign Exchange (Regulation) Act, 1962, regulates transactions of foreign exchange to some extent, but there is no clear provision for investigating corruption cases involving bank accounts.

Prevention of Corruption Act: A Step in the Right Direction

The newly enacted Prevention of Corruption Act, 2002, provides for freezing of bank accounts and imposing fines on financial institutions that fail to cooperate with investigations. However, the lack of implementation of these measures has hindered efforts to combat money laundering.

Tax Evasion: A Major Concern

A recent report by the Department of Revenue Investigation shows that cases of tax evasion are nominal in Nepal, but experts argue that there is rampant tax evasion due to inadequate investigation and prosecution.

Conviction Rate: A Cause for Concern

The number of cases related to violations of foreign exchange regulations tried by trial courts is higher than other crimes, but the ratio of conviction remains unsatisfactory. The government has been urged to implement a strong and practical strategy to combat money laundering and tax evasion.

Conclusion

In conclusion, Nepal’s struggle with money laundering, hawala system, and bank secrecy laws highlights the need for effective legislation and implementation to prevent illegal activities from perpetuating in the country. It is essential for the government to address these issues to maintain transparency and accountability in financial transactions.