Research On Informal Economy, Financial Crimes And Penal Law In Nepal
Case 1: Digital Wallet Money Laundering Scam (2025)
Facts:
A syndicate operating across multiple districts used digital wallets, informal remittance channels, and gold smuggling to launder approximately NPR 17.86 billion. They disguised remittance flows to avoid detection, moving money across borders illegally.
Legal Issues:
Violation of the Money Laundering and Prevention of Corruption sections under Nepal’s Criminal Code.
Use of informal financial channels (digital wallets and remittances) outside regulatory oversight.
Application of criminal liability to cyber‑enabled financial crimes in informal contexts.
Outcome:
21 arrests were made across 11 districts.
Investigations focused on tracing hidden flows and holding the syndicate accountable.
Significance:
This case illustrates the intersection of the informal economy and financial crime, demonstrating that even unregulated digital financial practices can trigger criminal liability under Nepalese law.
Case 2: Cooperative Fraud – Oriental Savings & Credit Cooperative
Facts:
Several cooperatives, including Oriental Cooperative, collapsed after mismanagement and embezzlement. Officials diverted depositor funds into real estate investments without authorization.
Legal Issues:
Misappropriation and breach of trust under the Criminal Code.
Crimes arising in informal financial intermediation where regulatory oversight is weak.
Outcome:
Investigations were launched, and some cooperative officials faced prosecution for embezzlement.
Regulatory reforms were proposed to prevent future collapses.
Significance:
Highlights the risks in informal financial institutions and the need for penal law to address crimes occurring outside formal banking structures.
Case 3: Unauthorized Cryptocurrency and Forex Trading Fraud (2024-25)
Facts:
A family-run operation conducted unauthorized cryptocurrency trading and foreign exchange transactions. They avoided regulatory compliance, collected deposits, and engaged in online scams to defraud investors of NPR 376.4 million.
Legal Issues:
Fraud and tax evasion.
Unauthorized operation of cryptocurrency and forex platforms violating Nepalese financial regulations.
Penal liability for crimes in informal digital finance.
Outcome:
Three individuals were convicted, with prison terms imposed.
Ongoing investigations targeted larger networks.
Significance:
Demonstrates how technological innovations in the informal economy facilitate new forms of financial crime, requiring adaptation of penal law.
Case 4: Hundi and Informal Cross-Border Trade
Facts:
Informal money transfer via hundi systems and unrecorded cross-border trade with India enabled tax evasion and capital flight. Many businesses used these mechanisms to move large sums of money abroad without reporting.
Legal Issues:
Money laundering and tax evasion under the Criminal Code.
Conduct facilitated by unregulated informal financial systems.
Outcome:
Nepal faced scrutiny from international bodies for weak enforcement.
Several business operators were investigated and fined; systemic issues remain.
Significance:
Shows the link between informal economy practices and large-scale financial crimes affecting national economic stability.
Case 5: EPF Loan Fraud Case (2024)
Facts:
Officials of a private textile company obtained a loan from the Employee Provident Fund (EPF) using fabricated documents. Public funds were misused, causing financial loss.
Legal Issues:
Corruption and breach of trust under the Penal Code.
Use of fraudulent documents to access formal financial institutions.
Outcome:
The Supreme Court upheld convictions of the company officials.
Established precedent for applying criminal law to financial crimes affecting public institutions.
Significance:
Illustrates that financial crimes can occur in both formal and informal contexts, and the penal system enforces accountability.
Case 6: Informal Rural Credit Market Abuse (Palpa District)
Facts:
In rural Palpa, informal lenders provided loans without regulatory oversight. Many borrowers were charged exorbitant interest rates, and coercion was sometimes used to recover debts.
Legal Issues:
Potential crimes include usury, fraud, and coercion under Nepalese law.
Informal credit markets operating outside formal supervision facilitate financial abuse.
Outcome:
Investigations highlighted vulnerabilities in informal credit.
Reforms were suggested to integrate rural credit into formal banking oversight.
Significance:
Reveals structural risks in the informal economy and the role of penal law in protecting borrowers from exploitation.
Key Takeaways from the Cases:
Informal financial practices (digital wallets, hundi, cooperatives, rural lenders) create vulnerabilities for financial crime.
Penal law applies to both formal and informal contexts, including cyber-enabled financial crime, embezzlement, fraud, and corruption.
Regulatory oversight gaps make prosecution challenging but not impossible.
Technology and informal economies are increasingly intertwined, requiring law to evolve.
Cases demonstrate the importance of integrating informal financial activities into formal oversight to reduce crime risks.
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