This Commentary was first published in the The Reporter Weekly
"I am surprised to know this figure," Economist Dr. Madan Kumar Dahal said when I shared with him the total amount of illicit financial outflows from Nepal in the last decade ending 2009. The report-- 'Illicit Financial Flows from Developing Countries Over the Decade Ending 2009' –released recently says that total amount of illicit financial outflow from Nepal is estimated to be US $ 6.040 billion during the period.
Trade mispricing, proceeds of corruption and bribery are cited as the three major drivers of illicit financial outflow from Nepal by the report. Available information suggest that the trade mispricing contributes 83 percent of total l outflows from Nepal. This study by Global Financial Integrity (GFI) tracks the amount of illegal capital flow from 157 countries. The GFI has ranked all the countries on the basis of volume of total illicit financial outflows and Nepal is placed 83rd.
The total illicit financial outflow from Nepal is around 7.25 percent of our Gross Domestic Production (GDP) compared to the same time period. The amount of money thus lost is enough to run almost two fiscal years if the amount is compared with that of the annual budget of the government.
The GFI has taken into account the balance of payments (BoP), bilateral trade, and external debt data reported by member countries to the International Monetary Fund (IMF) and World Bank while preparing the report. Dr Dahal who is also an expert in Macro Economics, says that this report throws a challenge to the government to trace the way, and destination of the capital flight and those responsible for it. Senior officials from Ministry of Finance (MoF) and Nepal Rasrta Bank (NRB) were reluctant to be quoted.
The enactment of the Anti-Money Laundering Act-2008 and Anti-Money Laundering Regulations-2010 together with the establishment of Financial Information Unit (FIU) within the Nepal Rastra Bank (NRB) may be taken as attempts to deal with the problems of illicit financial outflows. But these acts, regulations and units do not appear as effective when Nepal is losing more due to trade-mispricing. The average contribution of trade-mispricing in Asia is just 53.9 percent where as in Nepal's case, the figure is well above -- 83 percent—the mark.
The illicit financial outflow has become a global problem that the governments from different countries are trying to address. But the same cannot be said about Nepal. While some cases of anti-money laundering in the supreme court of Nepal filed few months back have taken their own time, government bailing out the VAT fraud case worth billions of rupees—of late by transferring the investigating officials en masse—makes its intentions clear.
GFI, an NGO based in Washington DC defines illicit financial flows as 'proceeds from both illicit activities such as corruption (bribery and embezzlement of national wealth), criminal activity and the proceeds of licit business that become illicit when transported across borders in contravention of applicable laws and regulatory frameworks. And it has its own impacts. The illicit capital flight doesn't only create the illegal problems, but also weakens the capacity of economic indicators of reflecting the situation.