The suspension of Nepal Rastra Bank Governor Maha Prasad Adhikari threatens to further roil an economy already battered by covid-19. Adhikari had apparently refused to heed Finance Minister Janardan Sharma’s instruction to release Rs 400m of suspicious money from abroad deposited into Nepali bank accounts of one Prithvi Bahadur Shah. (The Supreme Court on April 19 overturned the governor's suspension.)
The country’s foreign reserves have shrunk to alarming levels. Remittance and tourism—the two backbones of Nepal’s economy—aren’t doing well either. Moreover, Nepal is already in the international spotlight as a conduit of illicit money.
Kamal Dev Bhattarai spoke to senior economist Dilli Raj Khanal on the possible implications of the government’s intervention in the central bank and its lax attitude on black money.
What are Nepal’s international commitments on combating money laundering?
Global Financial Integrity, a Washington-based think tank, maintains a record of illicit financial flows, corruption, illegal trade, and money laundering. It also tracks money laundering in Nepal.
Likewise, the Asia Pacific Group on Money Laundering, a regional anti-money laundering body, conducts a mutual evaluation of the country. Nepal actively participates in such international organizations to control money laundering. But there seems to have been little improvement.
Money laundering is a serious business. That is why we have laws and agencies to deal with it. Nepal introduced the Money Laundering Prevention Act in 2008 and the Department of Money Laundering Investigation was established in 2011. But again there has not been expected progress. As money laundering is linked to a country’s image, Nepal should take sufficient preventive measures. We are being closely watched by international organizations.
In 2021, the Finance Ministry amended laws such that income sources of investors in infrastructure will no longer be investigated. Won’t that promote money laundering and flow of black money?
Obviously, it will. The provision says the government will not seek the sources of investments made in nationally important hydropower projects, international airports, and other projects that use more than 50 percent domestic raw materials. This is a wrong approach as it contributes to money laundering. Some argue it will boost investments. But I personally do not see this as a valid reason.
What will be the implications of reports of Finance Minister Janardan Sharma trying to release money brought into Nepal from suspicious sources abroad?
This is a very serious case, which could have a big implication on the country’s economy and image. The finance ministry is mainly responsible for checking the flow of black money. It has also formulated anti-money laundering laws.
With this incident, the ministry has sullied its image. Governor Adhikari has been suspended on charges of defying Finance Minister Sharma’s directive to give clearance to suspicious black money. This could spoil Nepal’s image abroad. Bilateral and multilateral donor agencies want a country’s central bank to be autonomous and its economy transparent. The autonomy of our central bank is vital to building trust with them.
What is Nepal’s international reputation when it comes to combating money laundering?
Many international reports suggest Nepal has a parallel economy and facilitates illicit flow of money. Our image was already bad abroad before the governor’s dismissal.
We are not fully implementing laws related to prevention of money laundering in order to improve our image and to earn trust of donor agencies and investors. On the institutional front, it is a complete mess. The finance ministry is mending in the business of other bodies.
If the Financial Action Task Force blacklists Nepal, what will be the consequences?
There will be multifaceted impacts. The country’s image in the international stage will further slide. Many developed countries, donor agencies and multilateral financial institutions take money laundering seriously. It will be tough for us to get loans and assistance from World Bank, International Monetary Fund, and other institutions.
It could also affect our international trade. If we fail to curb money laundering and flow of illicit money, it could in the long run create a serious economic crisis. Our politicians are taking this issue lightly, which is a grave mistake. Financial integrity is a vital pillar of any economy. If that is lost, it will affect every aspect of the economy, including resource mobilization, banking, and other sectors.
