One of the world’s best-kept secrets is out in public. The Panama Papers, an investigation carried out by the International Consortium of Investigative Journalists (ICIJ) in partnership with over 100 news organisations, have revealed how the world’s most prominent people, including politicians, businessmen, sports and film stars, have set up offshore companies to avoid taxation.

With a giant leak of documents from Mossack Fonseca, a global law firm based in Panama, the ICIJ has unearthed the offshore holdings of 140 politicians and public officials around the world that include 12 current and former world leaders. Those included are prime ministers of Iceland and Pakistan, the president of Ukraine, and the king of Saudi Arabia. The law firm’s leaked internal files have information on 214,000 offshore companies connected to people in 200 countries and territories.

While the Panama Papers have not named any Nepali companies, individuals and politicians, an earlier report by the ICIJ titled ‘The Swiss Leaks’had revealed that eight Nepalis stashed $54 million in HSBC’s Swiss private banking arm in the year 2006-07. According to the report, Nepali nationals had used 36 bank accounts to deposit their black money. The maximum amount a Nepali deposited was $45 million.

Nepal’s law prohibits its citizens from depositing money in foreign banks unless they earn or invest money abroad. But Nepalis stashing money away in foreign banks is nothing new. Our government officials have long known about such illegal offshore accounts.

Various international reports including ‘Illicit Financial Flows from Developing Countries: 2003- 2012’ by Global Financial Integrity, an American non-profit organisation, had shown that Nepal lost $754 million on average during that period. According to the report, trade misinvoicing—misreporting the value of a commercial transaction on an invoice submitted to customs—accounted for most of the capital flight.

Local bankers say that money earned from corruption and commissions received for being agents of big infrastructure projects and aircraft purchase deals are deposited in offshore accounts, and that political leaders and bureaucrats who become parties to such deals also park their money in tax havens.

They also claim that capital flight has intensified with political uncertainty in Nepal and that each year representatives of world’s leading private bankers visit  Nepal and meet with ‘high net worth’ individuals.

Interestingly, there has also been a rise in foreign direct investments (FDI) in Nepal from those very countries known as tax havens including the British Virgin Islands. Government officials suspect that individuals are using FDI to legalise black money deposited abroad.

With government authorities mulling over allowing Nepalis to invest abroad through new laws, these revelations, including the Panama Papers, should be taken as an eye-opener. Until the country returns to political stability, it would be unwise to hurry to pass laws easing FDI from Nepal.  

While powerful countries including the US and India have been searching the money deposited by their taxpayers in offshore accounts, there has been little effort from the Nepal government to find out who held such accounts and if the money was earned legally. Not much progress has been made despite the existence of the Department of Money-Laundering Investigation (DMLI) and Money Laundering Prevention Act. The Panama Papers shine light on government inaction to unearth the black money stashed in foreign banks and to bring it back to the country.