PM’s Office directs probe into Nepalis with offshore investmentsThe Prime Minister’s Office has directed the Financial Information Unit under the Nepal Rastra Bank to expedite probe into businesses and businesspeople following media reports of their involvement in establishing companies in tax haven countries and bringing in foreign direct investment from there.
The Prime Minister’s Office has directed the Financial Information Unit under the Nepal Rastra Bank to expedite probe into businesses and businesspeople following media reports of their involvement in establishing companies in tax haven countries and bringing in foreign direct investment from there.
The government swung into action following the Centre for Investigative Journalism-Nepal’s report NepaLeaks 2019, which showed that more than 50 Nepalis have invested in offshore companies.
While no committee has been formed to launch a comprehensive probe, both the prime minister and the finance minister said they are serious about the issue. Addressing Parliament on Friday, Prime Minister KP Sharma Oli said investigations will be carried out as provisioned in the laws.
Responding to the queries of lawmakers at the parliamentary Finance Committee, Finance Minister Yubaraj Khatiwada said there is the need to amend the Non-Resident Nepali Act, Income Tax Act and the Double Taxation Avoidance Agreement.
Given the names of Non-resident Nepalis in the NepaLeaks report for maintaining offshore accounts and bringing in investments from tax havens, Khatiwada hinted that legal loopholes will be plugged to discourage this trend.
“While the NRN Act allows non-resident Nepalis to invest in Nepal and repatriate the profit, we’ve seen misuse of this provision,” said Khatiwada.
Despite the government’s pledge, past experiences don’t give much hope. When the Panama Papers leaked by the International Consortium of Investigative Journalists (ICIJ) revealed the names of more than 20 Nepalis parking their wealth in a number of tax haven countries and territories, the government of the day had promised comprehensive investigation.
A team headed by deputy director general of the Department of Money Laundering Investigation (DoMLI), which represented officials from the Financial Information Unit (FIU) and the Central Investigation Bureau (CIB) of Nepal Police, was tasked with conducting an investigation. However, there has not been a breakthrough in the last two years.
The FIU is Nepal’s financial intelligence unit, responsible for receiving, processing, analysing and disseminating financial information and intelligence on suspected money laundering and terrorist financing activities to other law enforcement agencies. The CIJ-Nepal revelation puts pressure on the government since it comes ahead of an investment summit and Nepal’s third mutual evaluation report by Financial Action Task Force, the global anti-money laundering watchdog, is due in 2020.
Mutual evaluation is a thorough and intensive peer review of an FATF member to assess its level of implementation of the recommendations.
Economists said the Oli government must show strong commitment to preventing money laundering if it wants to make the investment summit a success. “The government must expedite a comprehensive probe to give a clear message that Nepal honours the international anti-money laundering regime,” said Sujeev Shakya.
According to the CIJ-Nepal’s report, around 45 percent of the money that came into Nepal in the form of FDI in the last two decades was from the British Virgin Islands, a Caribbean tax haven used by the world’s most powerful to park and transfer their illicit wealth.
The revelation, according to multiple officials at the Finance Ministry and the central bank, is a clarion call for Nepal. “The CIJ-Nepal report clearly established gaping holes in our financial regulation and in implementing the anti-money laundering laws,” said an official on the condition of anonymity.
“The highest political office must step in to strengthen the regulatory and supervisory laws if Nepal wants to avoid FATF blacklisting.”
Officials said the political will displayed during the 2011-14 period to avoid FATF blacklisting was not visible in recent times. “Frequent changes in the DoMLI leadership and the Special Court exonerating politically connected dons from money laundering charge doesn’t give the global anti-money laundering watchdogs a good impression,” said a senior official at the Finance Ministry.
Nepal had avoided being blacklisted by the Financial Action Task Force in 2014 after it fulfilled all the 15 commitments made to the FATF. The country endorsed five major laws—Anti-Money Laundering Act, Mutual Legal Assistance Act, Proceed of Crimes Act, Extradition Act and Organised Crime Control Act—and established a department to execute them.
Despite having institutional and legal frameworks against money laundering, officials say, progress on regulatory and supervisory reform is lacking. They said Nepal must get its act together ahead of the FATF’s third mutual evaluation on Nepal.
“FATF’s perception of Nepal is still not positive, given our shortcomings on financial governance and transparency,” said a senior NRB official.