CNN Producer Note Follow Up

iReport —

The biggest fiscal or ‘white’ crime in Nepal’s history is just the tip of the iceberg and exposes the massive level of corruption and greed in all sectors of Nepal. Just a few of the details that have emerged are as follows :

VAT Fraud :

A number of well known Nepalese Corporates have emerged as front runners in this Multi Billion Nrs. Scam.  While well known Groups such as Chaudhary Group, Golccha Organization, Shanker Group, Vishal Group, Bhat Bhateni Supermarket,  Chameliya Hydropower have figured in previous reports.  Other Group such as Sharda Group (Reported Fraud of Nrs. 700 million), Triveni Group (Reported to have large amounts of fake VAT Bills) etc have briefly been exposed in the press then been swiftly suppressed. 

Moreover sources share that corporate houses including Murarka Group, KL Dugar Group, TM Dugar Group, ICTC Group, Maliram Shivkumar Group, Chainwala Group, Panchakanya Group, Hama Steel etc. are also involved in various levels and forms, but have managed to keep their names out of the media.   Almost all Automobile Importing companies, including MAW (Morang Auto Works), Jyoti Group etc. are involved in various scales in this scam.

Sources share that about 400+ companies have already been found to be using fake VAT Bills, and those represent potentially 80% of the Country’s Business Houses (if one considers each Group as a whole). 

Currently the investigation has centered around Kathmandu.  However mid sized corporates / industries operating even in the other industrial towns of Biratnagar, Bigunj, Bhairwaha etc are also involved in a large scale in this issue.

Moreover, sources confirm that even Government Corporations such as NEA, NOC, NTC etc. have figured when examining records of companies involved in this VAT Scam.  It is clear that this scam reaches into all sectors of the economy.  (Details of these Groups can be found by searching on the internet).

Industrial Fraud

Many (if not most) industries in Nepal are engaged in various forms of illegal activity causing losses to the Government of Billions of Rupees annually.  Some examples are;  the Woven Sack Industries who import raw materials under duty free guarantee for export - sell part of the finished product locally – and then generate fake export documents to rob the country of valuable Import Duty and VAT;  Biscuit Manufacturers who buy most of the Raw Materials of the books, then sell product locally without paying any VAT to the Government; Cement Industries which declare lower prices for sale etc.

These are just some examples, but most industries are involved in some manner of Revue Leakage.  A few years ago, Khetan Group and Gorkha Brewery (subsidiary of Carlsberg) were in the news when their trucks of beer were caught without excise stickers, and estimated loss to the national exchequer of Billions of Rupees annually.  This was again hushed up due to a well managed effort, with a small fine being paid for appearances sake.

Banking Fraud :

The latest to erupt is the Banking Fraud which threatens to derail Nepal’s entire economy and is wiping out the deposits of those small savers who can least afford it.  Two institutions which have virtually gone Bankrupt in the last couple of months are, Gorkha Development Bank , and Nepal Share Market Finance Company, have each got large deposit bases (Approx 4-5 Billion Nrs) and have exposed a nexus of Directors who are using these institutions as their personal property, and rampantly abusing the system.

Sources inside the Cental Bank share that as many as 20 to 30 Finance Companies and Development Banks are due to collapse imminently.  The papers reported recently that the Central Bank had 8 Commercial Banks who are on the watch list.  Again sources share that these banks are Machhapuchere, Kist, Kumari, Sunrise, NBB, Global, Mega and Civil.  Some of the new banks (such as Mega Bank) were found to spend large sums of money even before opening in buying fancy vehicles and offices for their Directors.

Another facet of Banking Fraud are rogue borrowers who manipulate their relationships and assets to build a huge pyramid of borrowing.  The most recent case is of Rakesh Adukia.  An Indian Citizen with businesses in Hong Kong, Rakesh built a massive (5 Billion Nrs+) asset base in Nepal of Shares and Properties, with primarily borrowed funds.  The latest estimate is that his total borrowing is of Nrs. 3 Billion, and his assets are now worth about 1.5 Billion, leaving a large gaping hole of Nrs. 1.5 Billion.

Other large  frauds such as the fake Government Voucher scam which surfaced two years ago (estimated revenue loss over 20 Billion Nrs.) have just languished without being investigated.  Efforts to bring in the Money Laundering act are stymied by resistance, especially as there is no system of wealth declaration in Nepal making it impossible to determine which funds are tax paid, and which are simply ancestral funds handed down.  Further with many Ministers and Bureaucrats being virtual billionaires with no known sources of income, any wealth declaration initiative will never get off the ground.

These are just some of the examples of what sources say is corruption on a historic scale.  With no real Political Stability in place, everyone seems to be in a race to rob the country the most.  Bureaucrats are using these scams to shy away from their own effectiveness.  No one is talking of the big issues such as 18 hour power shortage in a country with certified Hydropower Potential of 100,000 MW (only 700 MW is currently being produced), or 18-21% interest rates, or no local employment opportunities leading to over 3 Million workers going overseas.  Corruption in organizations such as NOC, NEA, NAC, NTC has reached historic highs, with an estimated 40% of all spending being estimated to be paid as kick backs.  All of these corporations enjoy virtual monopolies and massive state support, but with the exception of NTC they are all on the verge of bankruptcies with huge losses on their books.

What Nepal needs now is a sense of patriotism and respect for one’s country.  Whether one is a Politician, Bureaucrat, Professional or a Businessman, a genuine nationalistic feeling is a must to rebuild Nepal.  Quick decisions on core areas such as Hydropower are important.  Sops being handed out to industries which have no core-competence in Nepal need to be stopped.  Focus should be on the core areas, as well as improving lives of the people at the bottom of the Pyramid.

However, given the past 5 decades, once more this report will be read, discussed and hotly debated, before the next political crisis or scam takes place.  Meanwhile the ultimate loser will be those 25 million Nepalese who struggle to live a basic life of dignity and purpose, and whose only care is earning enough to survive.