Government’s Financial Intelligence Unit (FIU), which monitors the receipt and analysis of suspicious transaction reports as well as other information relevant to money laundering, associated predicate offences and financing of terrorism, has directed banks and financial institutions (BFIs) not to do transactions with shell banks or shell companies and inform it if any such transactions have ever taken place.

A shell bank is a term that describes a financial institution that does not have a physical presence in any country and a shell company is a non-trading company used as a vehicle for various financial manoeuvres or kept dormant for future use in some other capacity.

The FIU directive comes in the wake of the Panama Papers exposé, an investigation carried out by the International Consortium of Investigative Journalists (ICIJ), that shows the myriad ways in which the world’s rich and powerful use secretive offshore tax regimes to hide their money. According to bankers, the FIU on Wednesday wrote to the BFIs, reminding them of the fact that transactions with shell banks or shell companies are punishable as per the Money Laundering Prevention Act 2008. Section 3, Clause 7 of the Act states that Nepali BFIs should not do any transaction with shell banks or financial and non-financial institutions.  

As per the definition of transaction in the Act, BFIs cannot establish business linkages, open accounts, deposit collections, make payments, use lockers or establish fiduciary relations based on contract-based liabilities.

“Although the Act has not mentioned “shell company”, some investors have been found making attempts to take loans from companies based in tax havens and those companies can be categorised as shell banks,” said an NRB official. The FIU has also sought information from the BFIs whether they have any link or transactions with companies mentioned in the Panama Papers. Along with the FIU, other government authorities have also initiated discussions on ways to control money laundering.

On Wednesday, the Department of Money Laundering Investigation (DoMLI) held a meeting with the FIU, Nepal Police, the Ministry of Finance and the Department of Revenue Investigation to discuss the issues related to money laundering and terrorism financing. Damodar Regmi, director general of the DoMLI, said the meeting decided to step up surveillance on foreign direct investments (FDIs) based on their origin and individuals involved in bringing in the FDIs.

The concerned government authorities will try to find whether any Nepal linkage is mentioned in the Panama Papers,” said Regmi. “There has been an understanding to share information among ourselves.”

Regmi added that a meeting of the High Level Coordination Committee on Money Laundering would be called after the concerned authorities gather information about potential Nepal linkages of the Panama Papers. Headed by the finance secretary, the committee has secretaries of various ministries formed under the Anti-money Laundering Act. “We plan to hold the meeting of the committee as soon as possible,” said Regmi who is the member secretary of the committee. According to data of the Department of Industry (DoI), 20 per cent of the total FDI commitments that Nepal received last fiscal were from the countries that are considered tax havens.   

Officials and experts say that some of the FDIs coming from tax heavens could be the money that Nepalis had siphoned off.

Besides the government authorities, the Finance Committee of Parliament is also planning to call concerned government authorities to discuss the Panama Papers and progress made so far in the investigation of those who were earlier reported to have deposited money in HSBC Switzerland.

An earlier report by the ICIJ titled the “SwissLeaks” had revealed that eight Nepalis had stashed $54 million in HSBC’s Swiss private banking arm in 2006-07.

According to the SwissLeaks, Nepali nationals had used 36 bank accounts to deposit black money.  

Prakash Jwala, chairperson of Finance Committee, said that it would seek details of Nepal linkages of both the Panama Papers and the SwissLeaks.