110TH INTERNATIONAL TRAINING COURSEPARTICIPANTS’ PAPERSEFFECTIVE COUNTERMEASURESAGAINST ECONOMIC CRIME IN NEPAL
Kedar Paudel*
I. INTRODUCTION
About a decade ago, economic crime wasrather ‘foreign’ to the Nepalese people.
However, during the past few years, theeconomic activities of different sectors of
the economy have increased tremendously,completely changing the social life of thepeople. This development has invited theopportunity for corruption and fraud
relating to finance, banking transactions,foreign currency speculation, real estatetransactions, illegal trade practices,
procurement of goods and the constructionof development projects. As a result, trends
have emerged which have contributed to
new social problems, including economic
crime. Due to the lack of understanding
and limited expertise of criminal justiceofficials in this new sphere of crime, theproblems are further aggravated. It is achallenge to the government and othercriminal justice agencies to fight against
such economic evil in society. Most
enforcement agencies in the country aremainly concerned with conventional typesof crime like murder, robbery, theft, rape,etc. Some countermeasures have also been
adopted to combat and control economic
crime, but these are seen as insufficient.
With the growth of commercial andbanking activities, and emerging newtechnologies in various fields of telecommunications, international air
ticketing, financial institutions, revenue
administration etc, computers are widely
utilized and a new problem of computer
crime has emerged. This crime is*Under Secretary (Judicial Service), Commission for
the Investigation of Abuse of Authority, Nepal

completely new to Nepal and a responsive
legal framework, including what conduct
should be criminalised, has not beendeveloped. This paper will put forward
some of the Nepalese experiences vis-a-vis
the countermeasures adopted against
economic crimes.
II. SITUATION OF ECONOMIC
CRIME IN NEPAL
Several types of economic crime arecommitted in Nepal. With few exceptions,most of these crimes seem simple anddirect, without any complication. However,with the globalization of various economic
and commercial activities and illegal crossborder operations, these crimes are being
complicated day by day. Economic crimeis becoming a major public issue in the
country, and the credibility of thegovernment in general, and theinvestigating institutions in particular, isbeing questioned.
A. Nature of Economic Crimes
The nature of economic crimes which arecommitted in Nepal, can be categorized asfollows:(i)
Corruption and Bribery(ii) Tax evasion(iii) Non payment of customs/excise
duties(iv) C r i m e s r e l a t e d t o b a n k i n gtransactions (e.g. letters of credit,
overdrafts, hypothecation, loanpledges, remittance, intrabranch/interbank suspense accounts etc.)(v) Forging of commercial documents(vi) Illicit drug trafficking(vii) Counterfeiting of legal documents

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RESOURCE MATERIAL SERIES No. 55(viii) Foreign employment fraud(ix) Money laundering(x) Dubious real estate transactions(xi) Privatization of public owned
corporations(xii) Export of timber(xiii) Te n a n t i n G u t h i - l a n d l a n dregistration(xiv) Lottery(xv) Undue price fixing(xvi) Smuggling(xvii) Foreign currency irregularities(xviii)Revenue pilferage(xix) Other unexposed economic crimes
Some of the economic crimes experienced
in Nepal are briefly summarized as follows.
B. Corruption and Bribery
Corruption and bribery are the major
forms of economic crime in Nepal. Various
economic crimes have been included within
the meaning of corruption under thePrevention of Corruption Act, 1960.
Corruption, in the global context, hasadversely affected many societies. To
combat corruption is quite a tough taskand, therefore, corruption is spreading inall dimensions more and more rapidly. A
developing country like Nepal has to bear
the loss of a colossal percentage of its
development expenditure throughcorruption, without any fruitful return.
Reasonable investment towards
development activities are in existence, but
the level of output in terms of benefit isworsening. The people in Nepal haveclearly recognized that there is corruption
in both the government and private sectors,
involving the whole spectrum of society(though empirical evidence has never beengathered or analyzed). There are problems
in corruption investigation andprosecution. The lack of skilled manpower,
limited resources and inadequate laws area few of the major obstacles in this field.
The types of corruption that exist in Nepal
are of various forms. In the fiscal year

202

1996/97, 2019 complaints of corruption andimproper conduct were registered andinvestigated by the Commission for theInvestigation of Abuse of Authority (CIAA);
out of which 11 cases of corruption werefiled and 1 minister, 3 secretaries andvarious public officials, private individuals
and businesses were prosecuted. A portionof the Seventh Annual Report (abridged)
1996/97 of CIAA states the cases filed in
the courts as presented below:(a) The Secretary of the Ministry ofLand reforms and Management wasinvolved in making decisions on thetransactions of tenantship of Royal
Guthi land. This Guthi has an areaof 106 Ropanis in Kathmandu
Municipality, Baneshwor, andMahadevsthan. As provided by theLaw, transactions of tenantship ofsuch Guthi land is authorised to theGuthi Sansthan only. Along with therecommendation to take necessary
action for the protection andpreservation of such Guthi lands toGuthi Sansthan, charge sheets werefiled against public officials and otherindividuals, including the secretaryand his relatives.
(b) Guthi Sansthan administrator was
found to be involved in registering thetenantship of the Guthi owned landof 4-14-1 Ropani, under Shivalaya
Guthi, located at Bishnu Village
Development Committee, ward No.
3(ka), cadastral No.133. The Steering
Committee of the Guthi Sansthan isthe only authority allowed to makedecisions on the issue of registering
tenantship of such Guthi lands. So,a total of RS. 3,912,500.00 and a fineof the same amount was claimed, as
per the provision of sections 7(1), 8
and 29 of the Prevention of
Corruption Act, 1960.

110TH INTERNATIONAL TRAINING COURSEPARTICIPANTS’ PAPERS(c) One person was arrested ‘red-handed’
while carrying illegal gold weighingaround 14 kilograms. He could not
produce any certificate for his sourceof income, to verify that the gold was
produced by him.
In thatcircumstance, the gold was subject toseizure by the Customs Office.
However the Chief Customs Officer
unlawfully decided to allow theperson to import the gold. Hence, a
total claim of RS. 6,414,600.60 was
made and the Customs Officer andthe illegal gold carrier were charged
as per the provisions of thePrevention of Corruption Act, 1960.

unauthorised concession provided in
accepting the performance bond. So,a charge sheet was filed against the
Minister of Agriculture, the Secretaryof Agriculture, General Manager of
AIC, Joint Secretary of the Ministryof Finance, General Manager of theAgriculture Development Bank,
Advisor to the Governor of Nepal
Rashtra Bank, Peasant
Representative of the Board,
Procurement Officer of AIC,
President of Semi-conductor
Materials and local representative,
claiming US$ 940,625 (equivalent to
NRs. 53,897,812.50).

(d) The Commission filed suit against the
Minister of Agriculture, along with
the Secretary and members of theBoard of Directors and other officialsof the Agricultural Input Corporation(AIC), and with the suppliers andlocal agents in connection withcorruption in the procurement ofchemical fertilisers. The main
charges for the following allegations
were:(e) Cases of corruption were filed in the
court regarding the following lettersof credit issued by the Rashtriya
B a n i j y a B a n k , B i s h a l b a z a r,
Kathmandu; which were found to beagainst the provisions of thePrevention of Corruption Act, 1960.

The Minister of Agriculture
decided to open a letter of credit toprocure 50,000 MT of urea fertiliser
at the rate of US$235 per MT, subject
to the concurrence of the Board of
Directors of AIC. This was notconsistent with the regulations of the
Corporation. Moreover, the original
offer of US$ 225 per MT was amended
to US$ 235 per MT for urea fertiliser.
In addition to that, the performancebond was taken only for 12,500 MT
instead of agreed quantity of 50,000
MT.
The claimed amount thus wascalculated as the difference between
the original offer rate and theamended offer rate, and the

The concerned personnel, alongwith the Chairman of the Steering
Committee and the General Managerof the Bank, were charged for theirfailure to monitor and take necessary
actions against such irregularities,
and for creating favorable conditions
and opportunities for the escape of
the accused. Similarly, the concerned
authority was recommended to takedepartmental action against othervarious public officials for theirnegligence in signature verification,
limit checking, denoting the margins
and for the production of false
documents to support the illegal
issuance of the letters of credit. The
Nepal Rashtra Bank was suggested
to make necessary provisions fornegular monitoring and follow up.
The Department of Revenue
Investigation was also suggested totake necessary actions regarding the203

RESOURCE MATERIAL SERIES No. 55
misappopriation of foreign currency.

corporation’s objectives. So, theconveyor and members of the tender
evaluation committee were charged
as per sections 3 and 7(2) of thePrevention of Corruption Act, 1960.
Similarly, the landowner, along with
their attorney, were charged under
the provisions of the section 16(a) of
the same Act.

(f) Bid proposals from landowners or
registered companies was invited by
the Nepal Oil Corporation forpurchase of land to construct a depot.
The proposal accepted was that of aperson who was the attorney of someof the other persons. It was foundupon investigation, that the reallandowner received only RS.
3,000,000.00P, while the mediator(the attorney) illegally earned
4,639,862.50P. The purchased plot,
upon site inspection, was also found
not to complying the specifications
and the plot was not suitable for the

In all cases, the concerned
authorities were recommended totake departmental actions against
other various public officials for theirnegligence in failing to undertake anin-depth study of the issues andprevailing legal provisions before
forwarding files to the decisionmakers.

TABLE IL/C No. Amount claimed in USdollars
30/1730165,030/2355140,1
30/2356151,2
30/2715184,230/2829189,730/2830207,030/2831210,730/2832193,830/2833
215,6
Status: Guarantee limit exceeded, documents
irresponsive.

C. Tax Evasion
Tax revenue is the major source offinancing government expenditure in the
country. Tax revenue and non-tax revenue
is comprised of 80.4 percent and 19.6
percent shares respectively. However, theviolation of customs and other various tax
laws, as well as the smuggling of the goods,
has largely affected the tax revenue of thecountry. The business community andother high-income groups mostly partakein tax evasion. Businessmen often do not

TABLE II
Tax Heading

RS in Millions
1995/96

RS in Millions
1996/97

RS in Millions
1997/98(first 9 months )5921.6

Customs
Comsumption& Products
Land Revenue& Registration
Property Profit& Income
Total

7327.48309.19684.710775.2

7507.91066.61015.4681.5

3589.34324.63090.621668

24424.3

17201.6

Some cases of tax evasion were investigated but data was not published and is not available.

204110TH INTERNATIONAL TRAINING COURSEPARTICIPANTS’ PAPERS
declare goods at relevant entry points nor
maintain or show real accounts for tax
assessment. Statistics show that thevolume of business transactions, as well as
the tax base of the country is increasing;
but revenue is decreasing. This situation
worsened last year. Table II shows thestatus of the tax revenue in last three
years.
D. Letter of Credit Scandal
The opening of Letters of Credit (L/C) invarious commercial banks, and getting
payment on the basis of forged documents(without importing goods), is a common
misuse of foreign currency and a major
source of economic crime in the country. A
report submitted in 1996 by the Letter ofCredit Investigation Commission,
appointed by His Majesty’s Government
under the Inquiry Commission Act 1970,shows that when investigating misuse,
Letters of Credit to the value of US$50,000
were opened within the period between
July 1994 to October 1995. The recorded
foreign currency misuse for this period was
US$ 36,156,797. The banks involved insuch scandals, and the corresponding
amounts, are given table III.
TABLE IIIBank
Nepal S.B.I. Bank
Nepal Bangladesh Bank
Nepal Indoswez Bank
Himalayan Bank
Nepal Arab Bank
Restrain Banijya Bank
Nepal Bank Limited
Total

US $ Amount78,04,100.00
77,38,038.38
15,81,097.00
3,13,652.45
10,44,515.00
174,54,997.86
2,20,396.49
361,56,797.18

On the basis of this report, among the
92 parties involved in this scandal, theRevenue Investigation Department so far
has filed 51 cases in court. The CIAA is
also conducting investigations of the public

officials for seperate charges of corruption.
E. Money Laundering
Money Laundering is a newly emerging
economic crime in Nepal. The threat ofmoney laundering has spread and national
economic reforms such as liberalization,market economy, creation of favorable
environments for foreign investors, andcasino businesses, have provided groundfor (and have intensified the possibility of)
the commission of such crimes. However,such economic crime has yet to be
identified, investigated and addressed in
Nepal. There is still a lack of legislation
making money laundering a criminal
offence. The adoption of necessary
measures for the identification, tracking,freezing, seizing and confiscation of
instrumentalities and the proceeds of crime
are yet to be realized.
F.

Smuggling
Smuggling is another form of economic
crime in the country. Violations of the
Customs Act, the Foreign Exchange Act,and other related laws foster such crimes.
Forged Letter of Credit documentation, as
well as forged customs receipts andregistration papers, are the common waysof smuggling goods and motor vehicles into
Nepal. The illicit trafficking of narcotics,
illegal import of gold and illegal export oftimber, precious bones of scare animals likethe tiger, rhinoceros, elephant etc, are othermajor smuggling items in the country,.
G. Illicit Drug Trafficking
Extensive international air links and theadoption of a liberal visa policy to promote
tourism in the country has made it easy
for criminals to misuse this facility toengage in drug trafficking. The nature ofillicit drug trafficking in Nepal at present
is as follows;• Some of the seizures show that people
from Mizoram and Burma smuggle
drugs into Nepal via land following

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RESOURCE MATERIAL SERIES No. 55

•

•

•

•

the route of the Golden Triangle(West Bengal of India to Kathmandu
Nepal)
Heroin has been found to be
smuggled into Nepal from Bangkok
and Pakistan by air.
A number of cases of hashish
smuggled from Nepal have beenintercepted and seized from carriers
at Kathmandu Airport, destined forHong Kong, Thailand, Singapore,
India and other countries.
Drug trafficking is also used for local
consumption. Drugs are smuggledfrom neighboring countries into
Nepal and are sold by peddlers.
Lists of the seized quantity ofnarcotics and the persons involved in
the transaction, sale and distributionof drugs, as well as the number ofarrested persons, are given inannexure A.

III. COUNTERMEASURES TO
COMBAT ECONOMIC CRIME
His Majesty’s Government of Nepal has
adopted various countermeasures toeffectively combat the growing challenges
posed by various economic crimes. To fightagainst such crime, a system based on laws
and regulations has been setforth in the
country. Various institutional efforts, aswell as a series of legislation, have been
designed and enforced. However, thecountermeasures that are being
undertaken may not prove adequate andmore is required to be done. The following
are some of the countermeasures adopted
in the country:
A. Constitutional and Statutory
Provisions• The Constitution of the Kingdom of
Nepal; Part 12 (1990)• The Commission for the Investigationof Abuse of Authority Act, 1991
• The Prevention of Corruption Act,

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1960
• The Custom Act, 2019 (1962)• The Foreign Exchange (Regulation)
Act, 2019 (1962)• The Income Tax Act, 1975
• The Excise Duties Act, 1959
• The Value Added Tax Act, 2052 (1996)• The Revenue Leakage (Investigation
and Control) Act, 1996
• The Narcotic Drug (Control) Act,
1976
• The Nepal Rastra Bank Act, 1953
• The State Cases Act, 2049 (1993)• The Extradition Act, 2045 (1989)
B. Institutional Efforts
Anti-Corruption Institutions
1. Commission for the Investigation of
Abuse of Authority (CIAA)The CIAA is a constitutional bodyestablishied under Article 97 of theConstitution of the Kingdom of Nepal,
1990. The Commission investigatescases of abuse of authority in terms ofcorruption, or improper conduct (maladministration) by any person holding
any public office. In other words, the
CIAA functions as an Ombudsman
institution, as well as an anticorruption institution. It has been
given the power to admonish such
persons, or forward recommendations
to the concerned authorities for
departmental or any other necessary
actions, if it finds upon its inquiry or
investigation that such persons havemisused their authority by improper
conduct. In cases of coruption, the
CIAA may bring, or cause to be brought,
an action against such persons, or any
other person involved therein, in acourt with jurisdiction in accordancewith law. The Prime Minister,
Ministers, Speaker of the House ofRepresentatives, members of
Parliament, and all bureaucrats areincluded within the jurisdiction of thecommission. The CIAA is the sole body

110TH INTERNATIONAL TRAINING COURSEPARTICIPANTS’ PAPERS
that looks after cases of corruption in
the country. However, it can delegate
some of its power to other statutory or
governmental organizations. The
number of complaints received by theCommission and its disposal arepresented in Annexure B.
2. Special Police Department (SDP)The SDP was established under thePrevention of Corruption Act, 1960. It
is the statutory body which exercises
the power delegated by the CIAA for
the investigation of cases of corruption
in the three districts of Kathmandu
valley.
3. District Administration Office (DAO)The DAO is the main administrative
agency of the government in the
districts. The CIAA has delegated someof its power to the Chief District Officerof the DAO to investigate cases ofcorruption within the district.
Other Economic Crime Control Institutions
1. Revenue Investigation Department(RID)
The RID is responsible for investigating
and prosecuting cases of revenue
pilferage by any person in the sector ofcustoms, excise duties, tax
administration for non-payment ofcustoms/excise duties, forging Lettersof Credit, stealing motor vehicles andtheir illicit trafficking etc. The
statistics of such crimes investigatedand prosecuted by the RID have notbeen published in a compiled form.
2. The District Administration Office(DAO)
The DAO exercises the power to hearsome cases of economic crime, like black
marketing, undue price fixing etc, as aquasi judiciary body under various
statutes.

3. The Narcotic Drug Control
Administration Division
The Narcotic Drug Control
Administration Division wasestablished under the Ministry of Home
Affairs. To control the cultivation,
production, manufacture, sale,purchase, storage, traffic, consumption,
export and import of narcotic drugs, theNarcotic Drugs (Control) Act 1976, wasenacted in the country. This Act is inline with the Single Convention on
Narcotic Drugs 1961, and the UN
Convention Against Illicit Trafficking
in Narcotic Drugs and Psychotropic
Substances 1988, to which Nepal is aparty. In addition to this, adoption of
the SAARC Convention on Narcotic
Drugs and Psychotropic Substances
1990, and the regular exchange of
information with SAARC member
countries (India, Pakistan,
Bangladesh, Sri Lanka, Bhutan,
Maldives) through the SAARC Drugs
Offences Monitoring Desk, represent
other efforts to combat such crime.
Nepal has an extradition treaty with
India, concluded on October 2, 1953. The
Extradition Act 2045 (1989) of Nepal has
also laid down the procedures to be adopted
for requests of extradition, or for requesting
punishment in cases where an offender has
committed a crime in one country andabsconded to another. These instruments
may become useful to combat economic
crime of a transnational nature.
IX. PROBLEMS IN THE
INVESTIGATION AND
PROSECUTION OF ECONOMIC
CRIMES, AND REFORMS
The legal system of the country does notdifferentiate between economic crime andother crimes committed against the State.
It is difficult, if not impossible, tospecifically define economic crime. To

207

RESOURCE MATERIAL SERIES No. 55
gather evidence in various white collar
crimes, and to determine responsibility ina particular offense, is difficult. Moreover,to prove the intention to commit a crime,
without detailed evidence, is rather
impossible in such crimes. Most of theeconomic crimes have an international
dimension. Their transnational character
is very complex due to the methods ofcommissioning. Nepal, having opened its
borders with India and China, and being
sandwiched between these two giants, issubject to crimes that have illegal crossboarder operations. Further, lack ofpolitical commitment to combat economic
crimes, accountability in political parties,
transparency in administration, proper
education and an over-all lack of trained
and motivated investigators, is a major
problem for the combat of economic crimein Nepal. Therefore the following
countermeasures to combat economic
crimes are highly desirable in Nepal:
1.
2.
3.

4.

5.
6.
7.

8.

9.
10.

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Establishment of a Special Court todeal with various economic crimes.
Burden of Proof should, in someinstances, be shifted to accused.
Better staffing, training andincentives for investigation
institutions.
Proper infrastructure and physicalfacilities in the investigative
agencies.
Public awareness campaigns
against economic crime activities.
Political commitment.
Code of Conduct for all public
officials, including elected
members.
Better co-ordination between
government departments andinvestigation agencies.
Free, independent and impartial
media.
International co-operation andmutual assistance.

V. CONCLUSION
With the expansion of development
activities and the advent of new technology,
the nature of the crime is changing and new
types of crimes are emerging. The
advancement of computer technology has
invited various computer crimes, but suchcrimes are new to the investigation
agencies and there are no countermeasuresdeveloped to combat them. However,various economic and computer crimes arecostly to society, and the entire country is
being penalized through inaction. The
struggle against such crimes is the struggle
against poverty, backwardness, and moral
declination. It is therefore, essential thatthe criminal justice system should givepriority to the detection and combatting ofsuch crimes. International co-operationand technical support in this field would
be highly beneficial to a developing country
like Nepal.

110TH INTERNATIONAL TRAINING COURSEPARTICIPANTS’ PAPERS
ANNEXURE A
SEIZED QUANTITY OF NARCOTIC DRUGS IN THE FISCAL YEAR 1996/97
Drug Type

Marijuana

Hashish

HeroinMorphine

Kilograms

2208

1251

10

—

Grams

867

742

794

739

Milligrams

50

252

185

—

ARRESTED PERSONS IN NARCOTIC DRUGS CASES
Foreigner
Fiscal Year

Resident/National

Male

FemaleMale

Female1994/95

641

40

104

8

1995/96

633

46

104

7

1996/97

534

18

58

—

209