Minister of State for Finance Udaya Shumsher Rana has said the government has formally started coordinating with foreign banks and companies to trace sources of billions of rupees transferred to controversial businessman Ajeya Raj Sumargi and firms affiliated to him.

This is the first time a minister has publicly spoken about funds received by Sumargi, who has made a mockery of the government by evading legal actions due to his close rapport with prominent political leaders. This is a welcome step, as it signals that the government does not intend to put anyone above the law.

A preliminary report prepared by the government shows that Sumargi and his companies have so far received $118 million and 380,000 pounds sterling from “suspicious companies” based in the British Virgin Islands, Cyprus, Egypt and Belarus.

Of this amount, $63.2 million was transferred by the Cyprus-based Airbell Services and $48.4 million by Zhodar Investments Limited, a company based in British Virgin Islands. 

The government has not been able to trace the owners of these companies or ascertain their capability to make investments of that scale in Nepal, says the report. Also, these companies, which have invested millions of dollars in Nepal, do not have any website.

These are indications that these firms may be shell companies established by Sumargi himself, adds the report. What lends credence to this suspicion is the $2.43 million remitted by Sumargi himself via Zhodar Investments. How did Sumargi gain access to the company’s bank account? This question needs to be answered.

It is very well known that shell companies are generally formed in offshore tax havens to launder money. In Sumargi’s case, money obtained through illegal means in Nepal may have been shipped out of the country through informal channels and then funnelled back to Nepal via shell companies.

What is even more worrying is that these funds have been transferred to Nepal in the form of foreign investment or loans-through formal channels. This means that the offshore companies will eventually demand interest on the loans and dividend on the investments. Considering this, the possibility of criminals siphoning off more wealth amassed through illegal means, such as corruption, in the name of interest and dividend payments cannot be ruled out.

This process will not only cleanse the dirty money but open the floodgates for criminals to transfer ill-gotten wealth abroad, that too through formal channels. This would turn Nepal into a hotbed for financial crimes such as money laundering.

This probably will not be tolerated by the Financial Action Task Force, an international body that creates standards to fight global financial crimes, which had removed Nepal from its watch-list in June 2014 after the country expressed sincere commitments to fighting money laundering and terror financing.

In a free-market economy, every person has the right to earn wealth and the state should protect this right. But turning a blind eye to activities of those who amass wealth through illegal means and political protection is tantamount to promoting crony capitalism, which will only fuel public anger and push the country towards the verge of social conflict.