Nepali public institutions do not have good record of success in international litigations because of poor defense and bowing under the weight of personal monetary gains. This particular case is different and one hopes that NRB will have the best possible defense with governor´s personal passion for getting a fair judgment.
The characters in this drama are many, but those being reported in the media and known to many of us are just two, an American of Nepali origin Mr Ashim Khatri and a Chinese Mr Wu Lixian. Mr Lixian disappeared initially and later was reported to be telling Nepali investigating authorities that the money transferred to Nepal Bangladesh Bank account from an US bank more than two years ago was meant for payment of local expenditures incurred on account of completing contractual obligations with Nepal´s security agencies for their purchase of equipments supplied to Sudan mission.
Why did he abscond for almost a year to say this much? This is a critical question. If there were some local expenditures to be met out of the contract proceeds then why did not the supply contractor seek payment in local currency is a legitimate question that anyone can ask. Routing of payments through different countries in the world raises suspicion. But perpetrators of this game should have clearly thought that any money coming from a highly regulated economy, such as the United States, would not attract Nepali authorities´ eyes. This is where they made the mistake.
NRB, in this case, has won half the battle. It should put in all out efforts to get the final verdict in its favor. Monetary expenditure should not be a consideration at all. It is not just about getting NRB´s money back. It is about getting small amount of national prestige back. It is also about preventing misuse of the personal contribution of lower level security staff to their welfare fund, which they did through the cut in their peacekeeping emoluments. Few people know how disgusted does lower staff of the security agencies feel toward their seniors and those involved in high value procurement deals.
High-priced contracts are the source of high-level corruption in developing countries and the flow of money thus created ultimately impacts the political environment leading to instability. A fragile political environment in small landlocked countries can become breeding ground for security threats to neighboring countries.
It is not known whether US government played any role in this episode. If they did, then it is clearly a message of abhorrence to corruption, no matter where it occurs.
Foreign governments have two different hats when dealing with countries like ours—as donors and as economic partners. When they, directly or indirectly through multilateral agencies, act as donors they speak loudly against any symptom of corruption and consider corruption control as the sole responsibility of aid receiving country. This voice is getting stronger as taxpayers in aid providing countries, mainly OECD Club members, demand enhanced accountability of the usage of tax money. In desperation, some governments seek to adopt alternative approaches to aid delivery.
This is not going to work, however. This can bring short-term benefits, but in the longer run corruption remains unabated and alternative aid delivery mechanism is also fraught with corruption. Added to it is that the mechanism is expensive, whether it is through NGOs or UN system or through direct execution. The cents that get to the targeted beneficiaries for every dollar spent from aid is invariably less in the case of an alternative mechanism. The best mechanism of aid delivery is through the recipient country government system, while working in tandem and building pressure for better financial accountability. This can ensure better usage of the internal resources of the recipient country as well. After all, prevalence of corruption diverts more of internal resources than of foreign resources. If international community looks for alternative mechanism for safeguard of its money, then corruption does not get controlled rather it further flourishes.
The other role is as the partner of financial flows and trade. As a partner of financial flows, the concern for nature of the money is increasing as many OECD countries are facing threats of terrorism and organized crimes. These heinous activities are transnational and those who undertake them make the most efficient use of the modern banking and trading system to transfer money from where it is to where it is needed. Therefore, global system now requires every country to properly screen financial flows so that terrorists or criminals do not get a hand on it. The one million dollar in question here has all the characteristics of money laundered.
Although anti-money laundering (AML) and controlling of financing of terrorism gets high importance globally, Nepal is yet to take benefits out of it. The present case is just a tip of the iceberg. Many willful bank defaulters, when strong blacklisting regulations were enforced, are still at large and living cozy life in the western hemisphere. Unity fraudsters are said to be in Belgium.
But our institutions have not been able to bring them back with the stolen money because we could not make a proper case. When NRB gets its money finally back, our institutions would have gained some experience and this will lead to successes in the future. However, cooperation of the foreign governments is crucial to get corruption money back from foreign banks. There is a long way to go. Nepali Legislature-Parliament has bigger responsibility in this regard as bills on prevention of money laundering and controlling of financing of organized crimes are still under parliamentary debate. Giving them approval quickly benefits Nepal in many ways. Further delay in getting the bills through or ratifying associated conventions would only invite dire consequences.
As a trade partner, role of foreign governments in helping control corruption has surprisingly been indifferent, at best it is passive. So is the role of multilateral financial or regulatory agencies. This type of corruption is in large scale and also contributor to political instability in Nepal, or for that matter in any other developing country. Trade-related corruption has basically two facets. In case of import of goods from other countries, most companies issue invoices that are different in value than those reported to the exporting country customs. The payment through the formal banking system, therefore, would be lower than the actual payment that exporting entity would require.
That goes through other means of remittance, which is not legal. But this remains unnoticed by the exporting country government. In order to handle such transactions, many Nepali traders also have firms in Singapore, Hong Kong, Dubai, etc. If the original manufacturers deny issuing two sets of invoices, the conduit would be a trading firm in any of such locations. This practice results in lower tax collection for Nepal and higher profits for traders. Such super profits are eventually used for bribery and political financing. This is where international community can help by requiring their customs to mandatorily share valuation data with importing country customs.
Government construction and supply contracts where global bidders participate have also been fraught with corruption. Even companies that operate very transparently and refrain from any corrupt practices in their home country engage in dirty tactics while it comes to operation in Nepal. Foreign governments, therefore, need to require their companies, whether in construction or supply business, to follow the same standards and anti-corruption practices while doing business in Nepal. Many Nepali construction projects have become very expensive not just because of inhospitable working environment, but because of corruption.
The construction contractor of Middle Marsyangdi Hydropower project should someday face a scrutiny, wherever, for its conduct in the execution of the project, as it has been the most expensive project ever. Middle Marsyangdi will not be a forgotten story. The pace of work in Melamchi tunnel construction is moving so slow raising suspicion that contractor is trapped under some kind of unwarranted payments. Chameliya project is another boiling pot.
These high-priced contracts are the source of high-level corruption in developing countries and the flow of money thus created ultimately impacts the political environment leading to instability. A fragile political environment in small landlocked countries can become breeding ground for security threats to neighboring countries. Therefore, government of bigger and developed countries should not shut eyes saying that such deals are business deals.
Writer is former finance secretary
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