Since the last few years, the government has been tightening its grip on informal economy, making it mandatory to make businesses transparent and report to the agencies concerned. Still, enforcement officials say ‘hundi’ is thriving in the country.

If police officials’ statements are anything to go by, Nepal’s ‘hundi’ operation is controlled and operated by around 30 people. These 30 people, according to them, are the ones facilitating the whole transaction of under-valuation of imported goods, capital flight and crime related to money.

Any fund transfer without prior approval of the central bank is termed ‘hundi.’

“Based on our investigation, there are only some 30 persons involved in this business. Out of them, only 10 are involved in large scale hundi business,” said Upendra Kanta Aryal, the director of the Central Bureau of Investigation (CBI).

However, the state has failed to control the illegal business, although very few persons are involved in it. According to the Nepal Rastra Bank (NRB), the only authorities that can investigate and punish people involved in the business are the Department of Revenue Investigation (DRI) and the police.

The DRI has so far filed a case against one person involved in the ‘hundi’ business. The police have been accused of taking bribe from them and letting them scot-free.

Baikuntha Aryal, the joint secretary at the Ministry of Finance, said ‘hundi’ has made capital flight easier. He also said it has promoted revenue leakage through under-invoicing as importers send additional amount to sellers through the ‘hundi’ after showing under-invoiced bills at the customs offices. The remittance in foreign exchange is being used in foreign lands, while their families at home receive the amount in Nepali rupees. It has also eased whitening black money. People involved in the ‘hundi’ business have brought about a deviation in foreign exchange transactions.

The exact scale of ‘hundi’ transactions has not come to light yet.

“The amount to be received from South Korea should be around Rs 9 billion, but currently, less than Rs 1 billion is being received through the formal channel,” said Aryal. “The rest comes through hundi.”

A team from the Finance Ministry that reached South Korea recently found that the salary being earned by Nepali workers was diverted to the US through Hong Kong. A director of Capital Merchant, Pawan Karki, was found to have diverted the foreign exchange earned by Nepali workers in Korea to the US.

Aryal said the families of workers here, however, receive money in Nepali rupees.

A recent study conducted by the United Nations Development Fund (UNDP) on illicit capital flow from least developed countries showed US$ 9.1 billion (Rs 657.93 billion) in capital was siphoned out of Nepal during the period 1990-2008. On an average, US$ 480.4 million (Rs 34.73 billion) went out of the country annually.

The illicit outward flow of capital from Nepal has increased to such an extent that it has outpaced the official development assistance (ODA). For every dollar received in ODA, 1.1 dollar exits Nepal in illicit flow, according to the report.

The outflow during 1990-2008, amounting to Rs 657.93 billion, is equivalent to 8.07 percent of Nepal’s Gross Domestic Product (GDP) for the period.

Economic Advisor to the Prime Minister, Rameshwor Khanal, said the money earned illegally is being siphoned off after the government made it mandatory for people to show the source of income while purchasing expensive property, depositing money in banks and purchasing vehicles.

“Capital flight is natural when people are not assured of the safety of their capital,” he said.

According to the report, trade mis-pricing accounts for the bulk (65-70 percent) of illicit outflows from LDCs, and the propensity for mis-pricing has increased along with increasing external trade. This holds true for Nepal as well.

Khanal also believes that 70 percent of the amount is siphoned off to repay the amount more than what has been mentioned in the bills.

There are suspicions that under-invoicing is rampant in import of goods from China. As renowned companies don’t want to issue bills at the rate less than the actual price, the importers register their own companies in Singapore,

Hong Kong and Dubai and import goods from them at under-invoiced rates.

Lately, capital flight has grown due to migration of Nepalis to other countries. A large number of Nepalis migrated to the UK after the latter allowed former British soldiers and their families to resettle there.

Published on: 7 February 2012 | The Kathmandu Post