The foreign currency was taken from various banks by individual firms for import of raw wool from Tibet during the first five months of the current fiscal year but the money eventually landed in various banks in Hong Kong and the wool came in a meager amount. [break]
According to information gleaned by myrepublica.com from various highly placed sources privy to the ongoing investigation, almost 90 percent of the misuse took place through drafts/telegraphic transfers (TT) issued by local banks for the import of raw wool used for carpet manufacturing.
The sources say the main purpose of this misuse is to take capital out of the country in US dollars. This is the largest ever foreign currency misuse in the financial history of Nepal.
“The most disturbing fact is that the entire misuse of foreign currency was done by producing fake customs declaration forms and Foreign Exchange Regulation Forms (FERF) -- both issued by custom offices to certify the entry of imported goods into the country,” said officials.
Central bank and Ministry of Finance investigating banks, firms that siphoned over Rs 8 billion worth foreign currency under the pretext of import of raw wool from Tibet
Instead of Letters of Credit (LC), drafts/TT are used in importing goods from Tibet due to complications in settling payments made though LC.
As per the standard rule, the payment of drafts/TT issued for the purpose of importing goods from Tibet should have been deposited in Tibet-based bank accounts. “However, the conversions of a majority of drafts/TT into cash were made at Hong Kong-based banks which clearly proves that the real motive behind the fake transaction is capital flight,” concludes a source.
How the system works
As per the standard practice, importing parties obtain drafts/TT in foreign currency denominations against the payment of Nepali currency in local banks in Nepal. Such drafts/TT are then used in paying the raw wool exporting parties in Tibet and the importing parties produce customs declaration along with FERF to the draft/TT issuing banks within 180 days as proof that the goods have entered the country.
If the draft/TT issuing banks don’t receive the documents from importing parties within the stipulated timeframe, the banks will have to label such transactions suspicious and forward them to the regulating agencies.
How were banks fooled?
In this series of cases, the importing firms submitted fraudulent customs declaration and FERF documents to the banks to close the transactions. The fact came to the light only after Tatopani Customs, the only road-connected border customs point between Nepal and Tibet, crosschecked the sample documents.
Officials say that since the investigation is still ongoing the exact amount of misuse could be higher. At this point myrepublica.com also doesn’t have information about the firms involved in this siphoning off of foreign currency.
But the investigation has shown that a majority of the drafts/TT were issued by Himalayan Bank and Nepal Investment Bank.
Next course of action
The officials say they will finish collecting all the required documents from the banks concerned and the Department of Customs by the end of this week. “After proper analyses we may start questioning the bank staff whether they knowingly assisted in the misuse of the foreign currency,” said one official.
The officials say lack of reliable wool import data at the customs offices is the major hindrance in the investigation. Since there is zero tariff on wool imports, customs officials do not maintain proper records of such imports.
prem@myrepublica.com
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