While the deposits from countries like India, Pakistan, and Bangladesh declined in 2022, the deposits from Nepal surged remarkably.
As it is a tradition for Swiss banks to not disclose the details of their clients (depositors), it is hard to ascertain the names and numbers of Nepalis with deposits in Swiss banks. Since they maintain a high level of secrecy in banking operations, Swiss banks have been blamed for long for fostering money-laundering as critics accuse the financial institutions of keeping money earned from illegal activities including serious crimes, tax evasion, corruption, and arms trafficking. Bankers in Nepal attribute the rise in deposits in Swiss banks to the trend of depositing commissions earned through multi-billion government contracts in foreign banks as well as a surge in illegal practices in trade such as over-invoicing when using letters of credit (LCs) for importing goods and services from overseas. Government officials and bankers say trade mispricing accounts for the bulk of illicit outflows from countries like Nepal. According to them, over-invoicing has emerged as one of the methods employed in trade-based money laundering schemes, facilitating the transfer of a larger sum from the importer to the exporter. As Nepali commercial banks don’t usually deposit their foreign currency in Swiss banks, bankers and government officials assume the funds parked in Swiss banks belong to affluent Nepalis. According to a former government secretary, the deposits in Swiss banks are largely kickbacks that politicians receive for large deals. The Nepal Rastra Bank (NRB) is also showing its attention to over-invoicing practices to check the capital flight. The central bank recently cautioned the chairpersons of banks and financial institutions (BFIs), expressing concern over the escalating trend of over-invoicing when LCs are used for importing goods and services from overseas. Central bank officials say they have received reports of certain BFIs and businessmen opening LCs at inflated prices exceeding the actual value of the goods, resulting in the outflow of capital. While the central bank has not made any public statements regarding capital flight through over-invoicing, NRB Governor Maha Prasad Adhikari warned during an interaction with the chairpersons of BFIs on June 6 that the NRB could take action against BFIs found to be facilitating capital flight through over-invoicing. “It has been found that a group of BFIs and businessmen has been involved in the practice of opening LCs at prices surpassing the actual value of the goods and services and the capital has been illicitly transferred out of the country. This is a serious matter,” a BFI chairman, who was present at the meeting, quoted Adhikari. “It is necessary to stop this trend immediately. If the BFIs do not stop it, we will be forced to take action against the banks found involved in such practices.” The law of the land bars Nepalis from investing abroad or opening accounts in foreign banks. But the law hasn’t been able to stop capital flight. Bankers say leading international private banks used to visit Nepal to meet high-net-worth individuals (HNWIs). “But the frequency of visits by representatives of leading private banks like HSBC, Credit Suisse, UBS, Deutsche Bank, EFG, Citi Bank, and Coutts has declined in recent years,” said a former banker. Apart from Switzerland, new destinations such as Singapore and Dubai have emerged as lucrative destinations for wealthy Nepalis to park their money abroad. While many countries are seriously working to curb the illicit outflow of money, the government in Nepal has never taken capital flight as a major issue. After the Centre for Investigative Journalism (CIJ) Nepal, in its NepaLeaks investigation in January 2019, revealed the involvement of 55 Nepalis and non-resident Nepalis in moving money from Nepal to offshore destinations, the then Finance Minister Yubaraj Khatiwada had formed a committee to investigate the matter. However, not much has been heard about the committee’s work after its formation.
