Capital flight

The still unfolding story of the siphoning off of foreign currency from Nepal to Hong Kong-based banks exposes a dangerous trend of capital flight. This is not the first time that capital flight has taken place -- there was much anecdotal evidence of capital being taken out from the country to India and beyond. What is different this time is the amount of money involved and the banking channel being used to siphon away the hard-earned greenbacks. The amount—US$ 100 million—is the biggest ever flight of foreign exchange to banks abroad on the pretext of import transactions.



As much as this shows the desperation of those who want to take capital out of the country it also exposes the vulnerability of our banking system and standard import procedures to such abuse. Imports from Tibet seem to have been chosen strategically to siphon off the money since trade with Tibet and mainland China operates through draft/TT and not through Letter of Credit (LC) as happens with third-country imports. It is possible that Hong Kong was chosen as the final destination for conversions of drafts/TT, bearing in mind that it would be much more difficult for Nepali authorities to track down and bring back the money.



Since the investigation is at a preliminary stage it is difficult to ascertain the role of government agencies-- especially customs officials at Tatopani -- and of officials at banks from which the drafts/TT originated, in this multi-million dollar capital flight in foreign exchange. But questions easily arise; how could they have failed to notice that such a huge amount of foreign currency was going out on the pretext of importing raw wool when the carpet industry is struggling to survive? Virtually none of the consignments coming from Tibet costs more than US$10,000, but in this particular operation one consignment cost up to US$ 49,000. Why didn’t this raise suspicion among bank officials handling the transactions?



The central bank and the Finance Ministry were also slow in tracking the misdeed. For months they worried about the fast depletion in foreign currency reserves, mainly due to a surge in imports, and took different measures to check the imports and discourage consumption. But they didn’t bother to scrutinize the drafts/TT and LCs to see where the money was going. If the central bank and the government department concerned had been a bit more vigilant, the irregularity could have been traced and due action taken long ago. But better late than never. The Revenue Investigation Department, the agency handling the investigation, should now leave no stone unturned to get to the bottom of the scam and expose the people behind it.

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