Nepal loses $8b in capital flight in last 10 years

KATHMANDU, Dec 19; Nepal lost at least US$ 1.88 billion (Rs 161.38 billion) in illegal outflow of funds in 2010, up 21.5 percent than in 2009, owing largely to export under-invoicing and import over-invoicing, says a latest report from Global Financial Integrity, a program of the Washington-based Center for International Policy.



The figure on capital flight published in the report titled ´Illicit Financial Flows from Developing Countries: 2001-2010´ represents almost 10.35 percent of the country´s gross domestic product of last fiscal year. [break]



One of the reasons for huge capital flight, according to experts, is the government´s continuous feet-dragging in easing capital control measures, which has forced domestic investors and people migrating to countries like the UK and the US to resort to illegal means to take the funds abroad.



If this continues, the country is likely to lose more money in the coming days, as political and economic conditions in the country are not expected to improve anytime soon, they said. The comments made by experts draw a parallel with findings of the report, which shows capital flight from Nepal continuously rising over the years.



In the period between 2001 and 2010, the report says, a total of $8.01 billion disappeared from the country. This means the country lost an average of $801 million a year in the 10-year period.



“Around 90 percent of the capital outflow was triggered by export under-invoicing and import over-invoicing,” the report shows.



For instance, in 2010 alone the country lost $1.70 billion in illegal financial outflow because of these reasons.



The observation made in Nepal, however, slightly differs from the global trend, which shows trade mispricing contributing to 80.1 percent of the cumulative illicit flows over the period between 2001 and 2010. Illegal transfers of the proceeds of corruption, bribery, theft and kickbacks, on the other hand, accounted for 19.9 percent of illicit outflow internationally.



The report says increasing transparency in the global financial system is critical to reducing the outflow of illicit money from developing country. At the same time, problems posed by anonymous shell companies, foundations and trusts need to be resolved, while customs and trade protocols need to be reformed to detect and curtail trade mispricing, the report states. “Also important are mandatory provisions on country-by-country reporting on sales, profits and taxes for multinational companies, and strong enforcement of anti-money laundering regulations.”

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