Foreign investments

#NepaLeaks explained: Suspicious funds, tax havens and dodgy foreign investments

The Center for Investigative Journalism of Nepal released a report on Wednesday on how established and emerging businesses in Nepal are attracting investment from countries and territories that harbor illegal foreign wealth for the operation of cement factories, the betel nut trade and hotels. The five-part report is available on the CIJ website.

Here we have tried to answer some basic questions surrounding the report:

What is NepaLeaks?

NepaLeaks is a report prepared by the Center for Investigative Journalism Nepal (CIJ Nepal). This is the result of a year-long investigation carried out by the CIJ in collaboration with the International Consortium of Investigative Journalists (ICIJ).

This is supposed to be the biggest information reveal ever in Nepal on illegal wealth. It has five parts.

The revelation named and shamed various Nepali businessmen and politicians who invested money overseas. The report also shares the names of the businessmen who, with the help of tax havens like the British Virgin Islands, brought the money back to Nepal in the form of foreign direct investment.

Who investigated it?

The report is based on an investigation conducted by the CIJ with the help of reports provided by the ICIJ. Various international reports and documents published in 2017, such as Swiss Leaks, Offshore Leaks, Panama Papers and Paradise Papers were studied as the basis for the research. CIJ team members include journalists from various Nepalese media houses.

Its editor-in-chief is Shiva Gaule while its board includes Namrata Sharma, Dhruba Basnet, Ramji Dahal, Indra Shrestha, Chandra Kishore Jha, Indira Aryal, Rabin Sayami, Kiran Nepal and Nirmala Sharma. CIJ also enlisted the help of other journalists from Nepalese media houses to complete this report.

During the investigation, they scoured 3,000 Nepal-related pages from around 28,000,000 pages from the leaked documents. The CIJ interviewed nearly 70 people, including office staff, their assistants, relatives and stakeholders directly related to the issue. They looked at documents made available by the ICIJ, investigative journalists from six countries, company registry offices and court orders.

What’s in the report?

The report shows how more than 50 Nepalese have invested in several foreign countries. The report suggests that nearly a dozen business groups are involved in funneling their illegal wealth overseas and bringing the money back to the country in the name of foreign direct investment (FDI).

NepaLeaks explains their modus operandi and how it affects the country. The report explains how the money was taken out of Nepal during the insurgency period and deposited in banks around the world. The report adds that money deposited in foreign banks doubled during the 10-year period of insurgency. It is believed that the wealthy in Nepal wanted their money to be safe from the Maoists.

Most of the names were already known to the public. However, the names of businessman Ajeya Raj Sumargi and politician Rajendra Bajgain come as a surprise to many.

Is it illegal to invest overseas?

Yes, Nepalese law prohibits Nepalese from investing abroad. The Foreign Investment Restriction Act 1964 prohibits Nepalis from investing in a foreign country, to encourage investment for national development as the Nepalese economy struggles on its own.

A Nepalese citizen cannot invest in a foreign country without the permission of the Nepalese government. Non-Resident Nepalese (NRN) are allowed to do so. However, Nepalese citizens, and legally non-resident Nepalese, have been found to have evaded taxes from Nepal, invested money in countries where taxes are not strictly enforced, and repatriated the investment. Significant cases of tax evasion in Nepal are also linked to it. The CIJ survey does not include investments made by NRNs in countries with transparent financial systems, but only in tax havens.

Why is BVI investment controversial?

The British Virgin Islands, which many Nepalese may have barely heard of, ranks third after India and China in terms of FDI volume in Nepal. Of the total Rs. 137.67 billion received in the form of FDI over the past two decades, the share of BVI – a Caribbean island country – accounts for 45%.

According to the Ministry of Industry, several investors in the BVI have obtained approval from the Nepalese government to invest and establish industries worth 8 billion rupees, or 7% of the total GDP of the BVI. The total area of ​​this country is 153 square kilometers, barely as large as the Sandakpur Rural Municipality of Ilam.

The huge amount of FDI coming from this small country suggests the foul play in which traders are involved.

At a time when the government wants FDI to be used as a tool to bring much-needed funds to boost economic activities, this has painted a negative picture of how some Nepalese politicians and businessmen are using foreign direct investment to provide illegal funds. in the country.

Who are involved? What is their response?

Former lawmaker Birendra Mahato and his brother Upendra Mahato, Nepali Congress leader and tourism entrepreneur Rajendra Bajgain, Controversial businessman Ajeya Raj Sumargi, Mercantile CEO Sanjib Raj Bhandari, Chaudhary Group Managing Director Arun Kumar Chaudhary, the chairman of the Malla Rama Malla hotel are among those named in the report. The defendants refused to answer the questions posed by the CIJ.

One of the defendants, Chandra Prasad Dhakal of the IME group, however, held a press conference on Thursday and denied the charges.

What are the legal implications?

This document is not legally binding and the government cannot take any action based on this report as it does not have proper evidence of tax evasion. However, the government, with the help of this report, can launch investigations against those accused of tax evasion.

Read the full report here.