Due to increasing impunity, informal financial system is also growing lately. Finance Ministry has suspected that some manpower agencies are involved in Hundi business, the illicit money transfer business through informal channels.

Hundi has emerged as a serious threat to national economy after fake Value Added Tax (VAT) bill and fake customs declaration form scam, a Finance Ministry source said, adding that operators of some manpower agencies are directly involved in the illegal transaction of money through Hundi.

The fact came into the light during the investigation of Rana Das, who is under arrest by Central Investigation Bureau (CIB) and Department of Revenue Investigation (DRI), the source revealed.

Das was arrested on September 23 from Lazimpat, Kathmandu. The Department of Revenue Investigation has estimated some Rs 190 million money transaction by Das through Hundi.

But the amount may go up since his connection has been found with unexpected businessman and houses, the ministry source said.
The government has considered Hundi as a financial crime since it helps economy to informalise and hurt the government coffer.

It is also the major way to move money to exporters, drug traffickers, tax evaders and even politicians, according to experts.

Hundi — an underground banking system that allows money transfer without leaving any paper record because there is no contract, bank statements or transaction record — is posing serious threat to the formal economy, the source added.

Hundi is also the means of capital flight, along with the source of illicit practices at the customs points, he said, adding that the Department of Revenue Investigation had been investigating nearly a dozen cases suspecting involvement of importing under-invoiced goods using Hundi.

“The arrest of Rana Das added a new dimension into the investigation,” he added.

Earlier, the department had considered that Hundi was limited only to import of under-invoiced goods and at personal level of foreign employees, the source said, “But the nexus of Hundi is now suspected widespread than earlier estimation of the department.”

“About half of 3.5 million Nepalis employed abroad are sending money through informal channel drying the banking channel,” he added.
Similarly, informal and illicit trade like Voice over Internet Protocol (VoIP) and Global System for Mobile Communications (GSM) over Internet Protocol have also promoted Hundi in the country, according to the department.

In the absence of proper law to check informal economy, it is difficult to track and arrest the offenders, the source said, adding that Hundi also bleeds the foreign exchange deposits.

Published on: 13 October 2011 | The Himalayan Times