Nepali deposits in Swiss banks rise after two-year decline
KATHMANDU, AUG 19 -
The amount of Nepali money in Swiss banks has once again risen after a two-year decline. A country-by-country breakdown of accounts in “Banks of Switzerland 2010” published by Swiss National Bank (SNB) reveals that Nepali assets were worth Swiss francs 97.148 million (Rs 8.95 billion), up from Swiss francs 68.885 million (Rs 6.353 billion) in 2009.
The Kathmandu Post on May 27, 2009 (see “The Swiss Connection”) had revealed that Nepali money worth Swiss francs 108 million—a 10-year high—was deposited in various Swiss banks in 2007. However, the amount declined in 2008 and 2009 before surging in 2010.
Why and how have the deposits increased? No one has an easy answer. But bankers say that a decline in tourism revenue and the trend of depositing kickbacks in foreign banks might be the reason behind this increase. Interestingly, earnings from tourism declined last year despite record tourist arrivals. “Travel agents might be asking their counterparts abroad to deposit money owed to them for services rendered in banks there instead of sending it to Nepal,” said a banker.
Another reason behind the surge in deposits, according to bankers, is that commissions earned through multi-million dollar government contracts are generally deposited in offshore accounts. Former Finance Secretary Rameshwor Khanal said typically the money in Swiss banks is largely kickbacks that are paid to politicians for large deals. “Swiss banks earlier held money of former royals, but of late, most of the deposits are related to commissions,” said Khanal.
As Nepali commercial banks don’t usually deposit their foreign currency in Swiss banks, it can be assumed that the money must have come from affluent Nepalis. “The money in foreign banks belongs to people involved in the commission business and politicians,” said a senior government official.
Nepal may not contain many people with a high net worth, but it hasn’t stopped leading international private banks from coming to Nepal. Bankers said representatives of leading private banks like HSBC, Credit Suisse, UBS, Duetse, EFG, City and Coutts visit Nepal every year to meet individuals with a high net worth.
According to a banker, representatives of these private banks generally sell personalised services that include deposits, equity trading, commodity trading and bond exchange facility. And the minimum amount these private banks receive from an individual in Nepal is in the range of US$ 500,000 to US$ 1 million. “The frequency of visits from international private banks increases each time there is a political crisis in Nepal,” said the CEO of a local bank. “For them, a crisis in Nepal is an opportunity.”
And Switzerland is not the only destination; new destinations have emerged for wealthy Nepalis to invest abroad. “Hong Kong, Singapore and Dubai have lately emerged as lucrative destinations for Nepali investors,” said a banker.
As of now, Nepali law bars investing abroad or keeping accounts in foreign banks. But that hasn’t stopped money from going abroad through illegal channels. A recent UN report has placed the country in the sixth position among the Least Developed Countries (LDCs) exporting funds illegally.
A report commissioned by the United Nations Development Programme (UNDP) entitled “Illicit Financial Flows from the Least Developed Countries: 1990-2008” has for the first time recorded the extent of capital flight and exposed the gaping floodgates in the Nepali financial system. According to the report, US$ 9.1 billion in capital was siphoned out of the country during the period 1990-2008. On average, US$ 480.4 million went out of the country annually.
The UN report stated that trade mis-pricing accounted for the bulk (65-70 percent) of illicit outflows from the LDCs, and the propensity for mis-pricing has increased along with increasing external trade. This holds true for Nepal as well. Sources said businessmen associated with dealership of international products generally keep some part of their commissions earned in foreign banks.
Even when many countries are seriously working to curb the outflow of illicit capital, capital flight has never been a major issue in Nepal. Nepali authorities have neither tried to curb the illicit flow of money nor have they tried to promote investments abroad in a legal way.
Four years ago, an attempt was made to initiate a process for Nepali entrepreneurs to invest abroad. The Finance Ministry started work on amending the Ban on Nepali Investment in Foreign Countries Act 1964. The idea then was to allow investment in certain sectors where Nepali companies have competency.
According to Khanal, Nepal can allow investments abroad selectively. “Restaurant chains like Nanglo can be allowed to open outlets abroad,” said Khanal. “As banking in Central Asian countries is still at a developing stage, Nepali banks can be allowed to go there.”
Source: Kantipur
The amount of Nepali money in Swiss banks has once again risen after a two-year decline. A country-by-country breakdown of accounts in “Banks of Switzerland 2010” published by Swiss National Bank (SNB) reveals that Nepali assets were worth Swiss francs 97.148 million (Rs 8.95 billion), up from Swiss francs 68.885 million (Rs 6.353 billion) in 2009.
The Kathmandu Post on May 27, 2009 (see “The Swiss Connection”) had revealed that Nepali money worth Swiss francs 108 million—a 10-year high—was deposited in various Swiss banks in 2007. However, the amount declined in 2008 and 2009 before surging in 2010.
Why and how have the deposits increased? No one has an easy answer. But bankers say that a decline in tourism revenue and the trend of depositing kickbacks in foreign banks might be the reason behind this increase. Interestingly, earnings from tourism declined last year despite record tourist arrivals. “Travel agents might be asking their counterparts abroad to deposit money owed to them for services rendered in banks there instead of sending it to Nepal,” said a banker.
Another reason behind the surge in deposits, according to bankers, is that commissions earned through multi-million dollar government contracts are generally deposited in offshore accounts. Former Finance Secretary Rameshwor Khanal said typically the money in Swiss banks is largely kickbacks that are paid to politicians for large deals. “Swiss banks earlier held money of former royals, but of late, most of the deposits are related to commissions,” said Khanal.
As Nepali commercial banks don’t usually deposit their foreign currency in Swiss banks, it can be assumed that the money must have come from affluent Nepalis. “The money in foreign banks belongs to people involved in the commission business and politicians,” said a senior government official.
Nepal may not contain many people with a high net worth, but it hasn’t stopped leading international private banks from coming to Nepal. Bankers said representatives of leading private banks like HSBC, Credit Suisse, UBS, Duetse, EFG, City and Coutts visit Nepal every year to meet individuals with a high net worth.
According to a banker, representatives of these private banks generally sell personalised services that include deposits, equity trading, commodity trading and bond exchange facility. And the minimum amount these private banks receive from an individual in Nepal is in the range of US$ 500,000 to US$ 1 million. “The frequency of visits from international private banks increases each time there is a political crisis in Nepal,” said the CEO of a local bank. “For them, a crisis in Nepal is an opportunity.”
And Switzerland is not the only destination; new destinations have emerged for wealthy Nepalis to invest abroad. “Hong Kong, Singapore and Dubai have lately emerged as lucrative destinations for Nepali investors,” said a banker.
As of now, Nepali law bars investing abroad or keeping accounts in foreign banks. But that hasn’t stopped money from going abroad through illegal channels. A recent UN report has placed the country in the sixth position among the Least Developed Countries (LDCs) exporting funds illegally.
A report commissioned by the United Nations Development Programme (UNDP) entitled “Illicit Financial Flows from the Least Developed Countries: 1990-2008” has for the first time recorded the extent of capital flight and exposed the gaping floodgates in the Nepali financial system. According to the report, US$ 9.1 billion in capital was siphoned out of the country during the period 1990-2008. On average, US$ 480.4 million went out of the country annually.
The UN report stated that trade mis-pricing accounted for the bulk (65-70 percent) of illicit outflows from the LDCs, and the propensity for mis-pricing has increased along with increasing external trade. This holds true for Nepal as well. Sources said businessmen associated with dealership of international products generally keep some part of their commissions earned in foreign banks.
Even when many countries are seriously working to curb the outflow of illicit capital, capital flight has never been a major issue in Nepal. Nepali authorities have neither tried to curb the illicit flow of money nor have they tried to promote investments abroad in a legal way.
Four years ago, an attempt was made to initiate a process for Nepali entrepreneurs to invest abroad. The Finance Ministry started work on amending the Ban on Nepali Investment in Foreign Countries Act 1964. The idea then was to allow investment in certain sectors where Nepali companies have competency.
According to Khanal, Nepal can allow investments abroad selectively. “Restaurant chains like Nanglo can be allowed to open outlets abroad,” said Khanal. “As banking in Central Asian countries is still at a developing stage, Nepali banks can be allowed to go there.”
Source: Kantipur
