Cross Border Declaration or Disclosure (SR IX)

411. Nepal has one international airport (Tribhuvan International Airport, in Kathmandu) and 30 land border crossings (29 with India and one with China). As Nepal is landlocked, there are no maritime entry points into the country.

412. The Nepal Tourism Board reported on 4 January 2011 that the number of visitors to Nepal in 2010 arriving via the international airport was 448,769²⁹ and that it expects that number to double in 2011 which is designated “Nepal Tourism Year.” This designation is a

29 http://www.news.com.au/travel/news/nepal-attracts-record-number-of-tourists-in-2010/story-e6frfq80-1225981457587

push by the Government of Nepal to expand its tourism trade and industry and attract more visitors. There are no available figures on the number of persons crossing land borders in 2010 or in previous years.

Cross-border declaration system and bearer negotiable instruments

413. The Ministry of Finance and Customs Department have jointly issued a “Currency Declaration Form” applicable to foreign passengers entering the Tribhuvan International Airport in which those passengers are required to declare if they are carrying in excess of US$5,000 or its equivalent in foreign currency. The term “currency” is defined in the Foreign Exchange (Regulation) Act 1962 (FERA) s 2(a) as:

…any kind of currency notes, postal orders, postal notes, money orders, cheques, drafts, travellers cheques, letters of credit, bills of exchange, promissory notes and credit cards, and this term also includes similar other monetary instruments as may be prescribed by the [NRB] by publishing and broadcasting a public notice.

414. “Foreign currency” is also defined to mean “currency other than Nepalese currency” (s 2(b)). Bearer negotiable instruments are not included in either of these definitions and the NRB has not prescribed bearer negotiable instruments as “currency” in accordance with the power provided in the definition.

415. Nepal authorities have indicated that the declaration form is issued under the authority of s 5 of the FERA. That section provides that:

5. Restriction on export or import of certain currency and bullion: (1) The Government of Nepal may issue an order by a Notification in the Nepal Gazette, thereby restricting the importing of or sending any certain type of Nepalese currency or foreign currency by any person, firm, company or body into or to the whole or any certain area of Nepal, without obtaining the license from the Bank. In issuing such an order, the Government of Nepal may specify in the order that such a restriction is not application to any person, firm, company or body or to any certain type of Nepalese currency or foreign currency.

(2) No person, firm, company or body shall, without obtaining the license from the Bank, carry or send any foreign exchange, except the Nepalese currency or any foreign exchange obtained from the licensee, outside any area of Nepal. Provided that, the Government of Nepal may, by a Notification in the Nepal Gazette, issue an order exempting any foreign exchange from such a restriction.

416. This section, however, is focused on the importation of foreign currency for the purpose of the business of foreign exchange transactions in Nepal. It is not focused on the detection of proceeds of crime or terrorist funds crossing the border into Nepal. This The FERA section stipulates that a license from the NRB must be obtained in order to import foreign currency for this purpose. Furthermore, the preamble to the Act clearly articulates the purpose of the Act, namely:

…to further regulate the foreign exchange related transaction [sic] in order to maintain the economic interests of the general public.

417. The primary purpose of the declaration form, therefore, is to regulate foreign exchange transactions within the framework of the Act and not generally to detect currency movements across the border or specifically to detect the movement of criminal proceeds. Consequently, ML and TF detection methods (more below) are lacking in this respect.

418. There are four important things to note in relation to the currency declaration form:

 Only non-Nepalis are required to complete it;

 It requires only foreign currency to be disclosed;

 It requires only incoming passengers to complete the form, there is no outgoing form;

 The border currency declaration form is only applicable at the International Airport.

419. Nepal does not have a currency declaration form applicable for land border crossings;

any person crossing a land border into Nepal is not requested to disclose or declare if they are carrying any currency in any amount into the country.

420. Therefore, Nepali citizens carrying foreign currency into Nepal at the airport in excess of US$5,000 are not required to complete the form. Moreover, the form does not require foreign passengers to declare if they are carrying Nepali currency into Nepal in excess of the equivalent

$5,000. Although the FERA prohibits the movement of Nepali currency outside the country, government officials in a number of departments acknowledged that because of the porous Indo-Nepal border there is undetected cross-border movement of Nepali currency in an unknown amount every year. It is easy for the currency to be transported on foot out of Nepal, laundered through a number of transactions, and then flown back in undetected by a foreign air passenger who has purchased the currency outside Nepal.

Detection methods

421. The Nepal Government has designated the Customs Department to monitor foreign passenger currency declarations at the international airport. All arriving passengers are requested to make a currency declaration, however, the declaration is deficient in number of ways:

 It does not require that passengers state whether or not they are carrying cash or currency above the threshold amount of US$5,000. It simply requests that if the passenger is carrying that amount he or she must declare so.

 There is no statement on the form itself that legally requires passengers to complete the declaration form. Passengers are simply handed the form which on the reverse side states that “Travellers are required to declare foreign currency at red channel if the sum exceeds

$US5,000.”

 There appears to be no legal consequences for failure to truthfully complete the form.

While the form is purportedly issued under FERA, that statute does not provide that it is an offence to falsely complete the form or not complete it at all.

422. On this last point Nepali officials have pointed to s 17 of the FERA as the offence provision for falsely completed declarations or for declarations not completed. But s 17 states that:

s. 17 (1): If any person does any act in contravention of this Act or Rules framed there-under or order or direction or circulation or Notification or any procedure as prescribed by the Bank, the foreign exchange related with the offence shall be forfeited and such a person shall be fined additionally from the amount in question to three fold of such amount in question.

423. This section does not prescribe an offence in relation to the cross border declaration form for two reasons:

 Section 17 provides that a person must contravene the FERA or its Rules (the declaration form is not contained in any section of the FERA or the Rules); or

 If not done in contravention of the FERA or the Rules, the person must contravene an order, direction, circulation or Notification issued by the Bank (NRB). The declaration was not issued by the NRB; it was jointly issued by the Ministry of Finance and Customs Department.

424. Accordingly, failure to complete, or truthfully complete, the border declaration form is not something that attracts any penalty. And, Customs officials and DRI officials have confirmed that they have never taken any action to secure punishment for such action.

False declarations

425. Under FERA s 11A, the Nepal government has designated DRI to inquire and investigate into offences under the Act and for this purpose to request and obtain further information from any entity, person or offender. A DRI investigation officer may conduct searches, issue warrants, arrest, detain and control or seize any object, keep in custody etc. However the primary purpose of the FERA is to enforce foreign exchange offences (as noted above) and not to enforce border currency reports. As mentioned earlier there are no specific offences in the FERA relating to falsely completed border reports or undeclared cash. Moreover, the Government of Nepal has confirmed that to date it not encountered any falsely declared forms.

Stop/restrain powers

426. Section 11B of FERA provides that “If there is adequate reason and ground to doubt that any person has any foreign exchange in contravention of this Act, the body of such a person may be searched by an employee of at least Gazetted second class by the order of the investigating officer.” But this section applies only in contravention of the Act, that is, when the foreign currency is imported without a proper licence issued by the NRB.

427. This point is strengthened by the fact that Nepali citizens arriving at the airport do not have to complete the declaration form, even if they are carrying foreign currency. Only foreigners must complete it and even then there is no penalty associated with falsely completing it (as noted above).

Record keeping

428. Customs officers confirmed during the on-site visit that they have very rudimentary or no record keeping of declaration forms.

429. When passengers arrive at the airport with the form it is handed to a customs officer. If the form is not completed the officer assumes that the passenger is not carrying any foreign currency above the threshold and the passenger is free to proceed over the border into Nepal. In some cases, the form is simply handed back to the passenger and the passenger leaves with the form in hand.

430. If the form handed to a customs officer does indicate that the passenger is carrying in excess of the threshold of US$5,000 the customs officer may ask the passenger a series of questions to determine why. If satisfied that the currency is not the proceeds of crime, customs officials indicated to the evaluation team that the form is sent to the Customs central office in the airport where it is filed in a filing cabinet. There is no entry of the form data into an electronic data base.

Access to Information

431. Section 10 of ALPA permits the FIU to obtain data from governmental agencies which are prescribed as reporting entities by Gazette (s 2 ALPA). Customs is gazetted as reporting entity. The FIU issued an FIU AML Directive on 14 April 2010 containing a list of requirements for Customs and other government agencies in respect of ML and TF matters. The directive, however, requires Customs to report suspicious ML and TF activities only. Access by the FIU to Customs’ currency declaration information is not provided for in the directive. For this reason, there is no obligation on Customs to send information to the FIU if requested in

relation to border currency reports. Separately, the FIU and Customs have not entered into an MOU or other such instrument for the sharing of this information.

432. Not only is there is no legal obligation for Customs to send border currency declaration information, there is also no practice of forwarding it to the FIU. Both Customs and FIU officials have confirmed that no such information (albeit limited) has ever been forwarded to the FIU by Customs. Nor, for that matter, has the FIU ever requested such information.

National and international information sharing and cooperation

433. There is no arrangement for coordinated exchange of SR IX related information between domestic agencies in Nepal. And no cases involving information arising from a border cash report have been referred by the Customs to DRI. Moreover, there are no formal cooperation mechanisms with other countries and no statistics on providing any cooperation in this regard.

No other country has requested customs held information in relation to border currency reports and Nepal has never made a request for the same to other countries or jurisdictions.

Confiscation

434. The declaration system is in place only for incoming passengers but not (as noted earlier for the purposes of ML and TF enforcement). Nepal Police have seized illegal and counterfeit Indian currencies on a number of occasions. Counterfeit currency is a predicate offence to ML.

There is no mechanism in place to confiscate currency related to TF. Customs (and Immigration) authorities in Nepal are not familiar with the list of designated terrorists under UNSCR 1267 or any other foreign terrorist list. Immigration officials advised that they check Interpol lists only.

Movement of precious metals and stones

435. Cross border movement of gold, other precious metals and/or precious stones are not included in Nepal’s limited declaration system. Section 57 of the Customs Act 2008 provides taking the appropriate action against illegal importation and unusual cross-border movement of any thing including gold, precious metals and stones.

436. The Customs Act requires passengers to declare items carrying at the customs point.

Import or export of restricted items and items without payment of duty should be seized and confiscated by the customs authority. The following are recent statistics relating to seizures:

Recent Seizure Cases of Gold & Silver ( Custom) 

Date  Description of Seized Goods  Value of Seized Goods (NRps) 

Apr 2010  Silver 40.855Kg  1,037,358.00 

Aug 2010  Silver  4.8Kg  107,160.00 

Aug 2010  Gold 700gms/plus US $9,868.00  1,650,000.00 

750,000.00 

Additional elements

437. Nepal uses a declaration system only for the incoming passengers and it is not practiced in all of the customs ports. There is no procedure to inform passengers regarding the declaration system. Not all declaration forms are retained by Customs and those that are not shared with other government authorities. Nepal has not taken any specific measures to detect false declarations or specific measures to detect ML and TF.

Recommendation 30

438. The Customs Department is not adequately staffed, trained and funded. While the focus of activity for Nepal customs officials is at Tri00bhuvan International Airport, customs control and detection activities at land borders is almost entirely lacking. Moreover, technical and other resources, including AML/CFT training, are not provided to Customs authorities to fully and effectively perform their functions in relation to ML and TF.

439. Customs officials are public servants. Under ss 42(1) and 54B(1) & (2) of the Civil Service Act 1993 they are bound to maintain discipline, honesty, readiness, decent manner, impartiality, fairness and efficiency. Under s 65(c) of the Customs Act and 11G of FERA disclosing the secrecy of information is an offence. They are also bound by service code of conduct to ensure professional standards, integrity and confidentiality.

440. The Customs Department is responsible to control the revenue issues under Customs Act and some other duties designated by the Government under FERA, and they are not much aware about the ML/TF issues. The total number of customs officials is 1273 but no one has participated in any training programs on AML/CFT issues except a few participated in orientation program organised by FIU. As the Customs officials did not participate in any specialized training programs on AML/CFT, they are not following the required declaration procedures under this recommendation.

Recommendation 32 - statistics

441. The Customs department does not maintain comprehensive statistics and does not share information with other agencies. Despite the fact that not all cash declarations are kept by Customs, officials did provide the following information:

Recorded Foreign Currency Declarations at Tribhuvan Int’l Airport   2009/2010 ‐ Customs Office 

2009  2010 (to Aug) 

Currency  No of 

Declarations   Total Amount  Currency  No of 

Declarations   Total  Amount 

USD  84  1,069,777  USD  60  799,239 

Euro  33  359,540  Euro  33  2,82,185 

GBP  4  29,915  GBP  2  640 

CHF  3  50,800  CHF  2  7,510 

JPY  4  5,269,000  JPY  6  44,12,000 

SGD  1  12,000  NOK  1  37,000 

AUS  4  20,100  RUB  1  1,200 

BHAT  4  17,130  BHAT  2  16100 

DHS  2  55,000  Dhiran  2  60,500 

PAK  3  55,700  PAK  1  50,000 

AED  1  12,000  PESO  1  10,000 

KW  1  20,000  SF  1  6,400 

HKG  1  4,700  Riyal  1  25,000 

RMB  1  4,000  ‐  ‐  ‐ 

2.7.2 Recommendations and Comments

442. Considering the risk and vulnerabilities of cross border currency transportation to and from Nepal for ML and TF, Nepal should establish a comprehensive system to implement SRIX, including undertaking the following:

 identify false declarations or non declarations.

 Include all instruments defined as currency and bearer negotiable instruments in the declaration form and passenger, cargo and postal streams.

 Gold and other precious metals should be included in the declaration forms.

 Nepali Citizen should be included in the declaration system.

 Implement and enforce the existing declaration requirements for all the incoming and outgoing passengers.

 ensure effective monitoring mechanism for preventing illegal bulk cash smuggling with the exported or imported goods by covered van or lorry at the time of crossing the border.

 Customs should forward all the declared information to the FIU.

 Domestic and international cooperation should be ensured regarding information sharing.

 Customs authority should ensure electronic database for the currency movement and other precious metals movement information.

 The Customs Department should be adequately structured and supported by technical and other resources to perform its functions effectively to meet the requirements FATF standards.

 Nepal should fully implement the FATF Best Practices Paper for SR IX.

2.7.3 Compliance with Special Recommendation IX

RATING SUMMARY OF FACTORS UNDERLYING RATING

SR IX NC  Declaration system lacks legal basis.

 Applicable for the incoming passengers only at the (one) international airport.

 Not all entry points to Nepal are covered by the declaration systems.

 Bearer negotiable instruments are not covered in the declaration system and not included in the declaration form.

 Does not cover Nepali currency.

 Does not cover Nepali citizens, only foreigners.

 Gold, precious metals are not covered in the declaration form.

 Customs Department does not share the information with FIU.

 No effective coordination between Customs Department and FIU.

 Lack of effective implementation of declaration system.

 No effective monitoring system is in place for controlling bulk cash smuggling and cross border illegal movement of gold, precious metals and stones.

 No system is in place for confiscating currencies pursuant to UNSCRs sanction lists.

R 30 PC  Customs is not adequately structured with sufficient human and technical resources

 No training programmes arranged for customs officials.

 No training programs have been conducted to implement the requirements under SR IX.

 No comprehensive data management in Customs.

R 32 PC  Nepal does not maintain comprehensive statistics.

 Effectiveness:

o statistics on cross border currency movement only available from the Tribhuvan International Airport

In document Anti-Money Laundering and Combating Financing Terrorism (Page 82-90)