Investigating Offshore Accounts Political Will Power Is Needed : Pranav Bhattarai

Recent disclosure by the International Consortium of Investigative Journalists (ICIJ) shows that Rs. 5.38 billion ($54 million) was deposited in the HSBC bank in Switzerland. According to the ICIJ report titled ‘The Swiss Leaks’, Nepali nationals had used 36 bank accounts to deposit the black money. Based on the deposit volume, Nepal ranks 116th among 203 source countries of black money. Nepal has the fourth largest amount deposited from South Asia after India, Pakistan and Sri Lanka. In terms of the number of clients, the country has been ranked 159th. The HSBC’s private banking arm handled $100 billion from 106,000 clients in the year 2006-07. The report states that 12 Nepali clients’ accounts were opened between 1994 and 2006.

Similarly, the report 'Banks of Switzerland 2013" mentions that Nepali deposits in various Swiss banks have decreased to Rs. 9.15 billion in 2013 from Rs 13.58 billion in 2012. Though the aggregate figure has depleted, it is indicative that hefty sums of money by Nepali nationals are being siphoned off to foreign banks. This must be a serious matter of concern for the government of Nepal. When billions of rupees are being deposited in offshore accounts, it should be properly investigated by the government of Nepal through bilateral initiatives and mechanisms.

Investigate offshore accounts

Despite global attempts to crack down on money laundering in the last decade following terrorist attacks in the US, it has grown into a transnational malaise. International financial institutions are a key driver in laundering the proceeds of crime and corruption. Despite banks tightening their regulations and oversight on such monies after the global financial crisis in 2008, the trend of exploiting global financial institutions for corrupt purposes has not decelerated.

Banking secrecy, non-disclosure of ownership of corporations and other legal entities, lack of accounting transparency of multinational companies and insufficient provisions for effective exchange of information are loopholes within the international financial system, which have led to a phenomenal rise in deposits in secrecy jurisdictions globally.

nvestigation into corruption-related money laundering has frequently been stymied by secrecy laws in international financial institutions. Banking secrecy has been identified as the single biggest obstacle to international co-operation in tracking the proceeds of corruption and crime. Global Financial Integrity (GFI), a US-based non-profit research institute, finds that secret deposits in offshore and secrecy jurisdictions across the world has reached US $10 trillion. The US, the UK and the Cayman Islands top the list of secrecy jurisdictions, each holding secret deposits of more than US $1.5 trillion from non-residents around the world.

In an effort to consolidate exchange of information of offshore tax evasion, some countries have initiated signing bilateral agreements with high secrecy jurisdictions. The UK has signed an agreement with the Swiss authorities for mutual sharing of tax information. Following the agreement, Switzerland will have to tax Swiss bank accounts of UK citizens. Between £3 billion and £6 billion a year is expected to be transferred to the UK from taxes of those who have undisclosed bank accounts in secrecy jurisdictions such as Switzerland.

Even India has recently signed an agreement with Switzerland under which Swiss banks will have to provide a list of Indian depositors to the government of India. Indian Prime Minister Narendra Modi has pledged to crack down on money laundering and bring back black money deposited in offshore accounts.  

ffshore deposits in secrecy jurisdictions have been growing at an annual rate of nine per cent. The GFI research covering a period from 2000 to 2008 also shows that illicit financial flows from developing countries alone reached US $6.5 trillion. Not all money deposited in offshore secrecy jurisdictions can be considered illicit in origin; but a considerable portion of it does emanate from commercial tax evasion, criminal activities, drugs trafficking, corruption, bribery, theft and many other illegal means.
he GFI study also shows that Nepal has lost US $9.1 billion from 1990 to 2008 in illicit financial flows. This is nearly eight times more than the official development assistance the country received during this period. This is indicative of Nepal facing an array of money laundering threats, including those resulting from corruption, illicit financial flows, tax evasion, narcotics trafficking, smuggling, fraud and human trafficking. Nepal’s fat informal sector and illegal cross border businesses have offered enormous opportunities for money laundering as well.

Strengthening MLID

To check laundering, the government has set up the Money Laundering Investigation Department (MLID) and Financial Information Unit (FIU). Though the MLID enjoys extensive jurisdiction covering civil servants, constitutional bodies, judiciary, army, non-government organisation and private sector falling within its ambit, its performance has not been up to the mark. This is due to lack of investigative capability, institutional independence, prosecutorial strength, adequate resources and competent staff.

The MLID has been placed within the Ministry of Finance, putting its institutional autonomy and independence in question. The agency without competent personnel and autonomy is no better than a scarecrow. Thus, there should be serious consideration to give statutory or constitutional status to this department. Also the MLID needs to have a pool of technical and judicial experts with knowledge of electronic transfers, banking and financial system, which is a must for curbing crimes of money laundering effectively. 

rowth of the global AML regime in the last two decades has not only put pressure on tightening banking regulations globally but also offered new opportunities for countries like Nepal to deter and detect corruption and to recover illicit assets stashed abroad. But, in order to cash in on these opportunities, Nepal needs to improve its AML system by harmonising domestic laws on predicate offences and improving access to information on beneficiary ownership, and encouraging collaboration between the MLID, FIU, Special Court and anti-graft agencies as a part of improving the AML regime to curb fiscal crimes and the flow of dirty money in and out of Nepal.

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