Nepal | February 28, 2020

Money laundering

• TOPICS

Dhananjay Shah

The issue of money laundering in Nepal has activated the role of the Department of Money Laundering Investigation – a government entity responsible for fighting money laundering and terrorist financing (AML/CFT) plus other forms of illegal earnings.

Money laundering is akin to laundering clothes. Money laundering is an attempt, or activity, to clean the dirty money to legitimise its illicit sources. While laundering clothes is good for health, laundering money is detrimental for the economy, progress and prosperity of a country.

To put it simply, money laundering is an endeavour, or the process, of converting the proceeds from criminal activities into legitimate income. The major sources of laundered funds are bribery and corruption, economic scam, trafficking, drugs dealing, tax evasion, smuggling, organised crimes and credit card frauds.

Money is laundered in three steps. First, placement. The proceeds of a crime are first brought into the financial
system. Second, layering. Multiple transactions, accounts, banks, intermediaries and countries are used to disguise the origin of the funds. Third, integration. Laundered funds are brought back in the system as legitimate funds.

There are five important techniques involved in the process of money laundering. One is through the use of shell companies, like “jhole companies” with no physical office with the real offices lying in the carrying bag. Another technique is exploiting weak spots in financial institutions. This happens when there is weak supervision of legal structures. Money is also laundered by means of smuggling of physical cash. Likewise, trade-based money laundering (TBML) is also a technique used to clean the money of illicit source through mis-invoicing. Also in vogue is the technique of mixing clean and dirty money in cash intensive business.

The nature and magnitude of money laundering depend on multiple factors: physiological condition, geography, technological advancements and new global trends. Money laundering goes beyond the borders. So it is treated as a transnational crime with global networks. A recent study confirms that the size of money laundering in the world is estimated at about 2-5 per cent of global gross domestic production. Nepal is vulnerable to money laundering because of our weak legal compliance, poor governance system and impunity.

 


A version of this article appears in print on February 06, 2020 of The Himalayan Times.


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