Nepal Corruption Report

Nepal’s court system is subject to pervasive corruption and executive influence, causing overall inefficiency in the sector. Judges frequently accept bribes from individuals and companies for favorable rulings (GCR 2015-2016). Accordingly, more than three-quarters of citizens believe the judiciary is corrupt (GCB 2013). Foreign investors report that executive interference in the judiciary does not affect business; however, the politicization of the institution is increasingly problematic (ICS 2016). In addition, the resolution of commercial disputes is a cumbersome process and typically drags on for years (ICS 2016). Overall, companies do not hold much faith in the ability of the courts to challenge government regulations or to settle disputes (GCR 2015-2016). Nonetheless, recent efforts suggest a willingness to improve the situation: In 2015, the Supreme Court impeached several poltical leaders on corruption charges (BTI 2016).

Nepal is a member of the International Centre for Settlement of Investment Disputes (ICSID) and has acceded to the New York Convention 1958 on the Recognition and Enforcement of Foreign Arbitral Awards.

Corruption risks in the Nepali police are high. Corruption is rife among low-level officers, who are often underpaid (HRR 2015). Another notable issue is impunity: Many engage in corruption and abuse of office with no consequences (HRR 2015). A sweeping majority of citizens perceive the police as corrupt (GCB 2013). Police cannot be relied upon to protect companies from crime, and the high-levels of crime and violence increase the costs of doing business (GCR 2015-2016).

Nepal’s public utility services are strongly affected by corruption, making it a very high-risk sector. Companies expect to pay facilitation payments and bribes in order to activate an electrical connection or when applying for other utilities (GCR 2015-2016; ES 2013). Similarly, gifts and informal payments are also often necessary when dealing with the authorities to obtain a construction permit (ES 2013). Companies complain of burdensome government regulations and and of bureaucracy that is subject to frequent changes (ICS 2016). When trying to get an investment licence, companies should expect delays and a general lack of transparency during the process (ICS 2016). Business start-up costs in Nepal are higher than in neighboring South Asian countries (DB 2016).

Nepali tax officials are prone to corruption, and some seek positions in the sector specifically for personal enrichment (CatC 2012). Businesses report that bribes and irregular payments are often exchanged when meeting with tax officials (GCR 2015-2016). Paying taxes in Nepal is time-consuming, taking 334 hours per year and requiring 34 procedures (DB 2016). Finally, there are reports of large companies engaging in tax avoidance schemes (CatC 2012).

Corruption is pervasive in Nepal’s public procurement sector: More than two-thirds of companies expect to give officials gifts or other irregular payments to secure public contracts (ES 2013; GCR 2015-2016). Systems of patronage are entrenched, and there are frequent reports of the embezzlement of public money (BTI 2016). Accordingly, companies report that funds are often diverted to individuals and companies due to corruption and find that favoritism towards well-connected companies influences procurement officials’ decisions (GCR 2015-2016). Interactions between companies and public officials can be avoided through the e-procurement web portal of Nepal, where tender notices are published and bids can be submitted. Nonetheless, the sector lacks transparency and regulation (ICS 2016). The Public Procurement Act requires open and competitive bidding for public contracts; however, fair bidding processes are impeded by cartels of contractors that pay kickbacks to government officials to receive lucrative contracts (CatC 2012).

In one corruption case from 2014, Smith & Wesson paid USD 2 million to resolve an SEC probe into corrupt payments made by the company in several countries, including Nepal. Reportedly, Smith & Wesson bribed Nepalese government officials, among others, to win public contracts (Wall Street Journal, July 2014). Companies are recommended to use a specialized public procurement due diligence tool to mitigate the risks associated with public procurement in Nepal.

Nepal’s forestry industry is weakened by illegal logging and widespread corruption (NFSS, Nov. 2013).

In 2016, the Norwegian company Statkraft informed the Investment Board of Nepal (IBN) that it was withdrawing from the Tamakoshi hydropower project because of the absence of necessary policies and regulatory framework and numerous bureaucratic hurdles (ICS 2015).