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1 Background of the Study Corporate crime also considered as white collar crime demonstrates a very wide range of corporate misbehavior that includes money laundering, insider trading, and corporate frauds. The trend of corporate crimes activities has been increasing. The cost of corporate crime exceeds far more than the cost of thefts, burglaries, arsons, and robberies put together. Enron’s in 2001 of $63.8 billion and WorldCom’s bankruptcy of $103.4 billion in 2002 are the largest bankruptcies in U.S. history, and both were a result of corporate crimes. Corporate Crimes has also been increasing in Nepal. Money Laundering and Insider Trading are common practices for sure in the corporate world in our country, the state regulations being so ineffective. Thus, there is a need to know how these crimes are committed, who the main players are, what their impacts are, and what legal remedies are provided against them. This report tries to serve these needs. 1.2 Objectives of the study The primary objectives of this report can be listed asfollows: • • • To know what Money Laundering and Insider Trading are To know how Money Laundering and Insider Trading work To analyze the legal remedies for Money Laundering and Insider Trading in Nepal
1.3 Research Methodology This research paper utilizes theoretical data related to law as well as some cases on money laundering and insider trading. As such, data have been collected from internet and as it is very difficult to find cases regarding money laundering and insider trading from Nepal so some international cases has been collected from internet and analyzed. Regarding the laws, data has been collected from Nepalese law books as well as international laws from the internet. We can say that we have exclusively used secondary data mainly from internet for our research purpose. 1.4 Literature review
With the growth of money laundering and insider trading practices worldwide as well as in Nepal, it is hardly surprising that these topics are the hot topic of discussion today. In an attempt to know how these things are utilized in practical field, studies have focused on methods most of the money launders and the traders used, how they have revolutionized the practices so as to avoid being caught and have also given examples of how one can know how and when these crimes are done. While some research articles have focused only on the description of the methodology of the money laundering process and forms of the insider trading, other article have sought to show how money laundering and insider trading can be affectively minimized. The national and international laws regarding the money laundering has also been included and discussed to emphasize on how it is defined in different parts of the world, how it is treated, punishment regarding the crimes and ways to minimize it. The key sections regarding money laundering from the laws of USA, India, UK and Nepal has been pointed out with some details. It is surprising to find out that the definition of money laundering is not same in different parts of the world and the consequences are also different while the purpose of law regardless of geographical location is the same i.e. to punish the culprit as well as to restrict its use. The details about how money laundering has been tried to be minimized in financial institution as well as the head bank i.e. Nepal Rastra bank with some provisions and key areas has been discussed in details in the case of money laundering activities in Nepal. Some of the important points of Anti-Money Laundering (AML) Act, 2064, have been highlighted and discussed. As far as process of money laundering is concerned, its main parts have been described and popular techniques regarding it have also been explained in detail. The definition of insider trading has been given and emphasis has been put on to explain it in a simple but effective way. We have also included definition of Gower which has been chosen as it makes the term insider trading more easy to understand. Some examples of the insider trading has also been included reflecting the ways it can be done in. Omitting definition and discussion of ‘insider’ and ‘insider information’ would be a blunder when one is talking about insider trading and we have also included these two terms elaborated in simplified way to make the part more effective and clear. There are various important forms of insider trading that has been discussed along with the consequence of it. Acts regarding insider trading in Nepal has also been included and explained.
The case for money laundering has been chosen as such that it not only highlights about how money laundering is done but also gives details about what processes are there to do it. For this, the white collar laundering case occurring in 1988 about the owner named Eddie Antar who through series of money laundering tactics laundered more than 8 million dollars, has been discussed along with the consequences. Case of money laundering from Nepal was very difficult to find and since this research is based on internet articles and as Nepal is still way behind in terms of digitizing data, Nepalese case regarding money laundering has not been included. One case regarding the insider trading has been discussed in detail i.e. about Hindustan Lever Company (HLL) and the Brooke Bond Lipton India Ltd. (BBLIL) where the insider trading and its effects have been discussed in detail. 1.5 Limitations of the study The study was carried out as a part of course completion of the KUSOM’s MBA second term Corporate Law subject. The major limitations during the course of the study were the time factor. As the time was limited the scope of study was very limited as well as the subjects dealt in the paper could not be probed in depth. Also the cases dealt in the study could not be handled with depth as well as analyzed completely under Nepal’s context. Another major limitation of the study is that it has no expert opinion as per Nepal’s context due to the time constraint factor. The scope of the study is limited to the two broad topics money laundering and insider trading. However as this topics are very vast, the paper tends just to shed some light over the same in Nepal’s context. It was not possible to go for the quantitative analysis to estimate the volume of transaction in the money laundering process or the size of economic loss or gain associated with the insider trading in Nepal. It was also not possible to use the primary sources of data as well. Though rampant practice of both money laundering and insider trading can be observed in Nepal, the study could use very little or no examples of the sample cases in Nepal. The use of secondary sources made the authenticity of the study vulnerable to the nature and authenticity of the secondary sources. The reliance on the secondary sources and the use of academic works in developing the concepts in the paper and delivering it to the concerned audience makes it little difficult to cross checks the facts, concepts used herein.
Also the lack of proper documentation of the legal cases made it very difficult to find cases under appropriate law in Nepal’s context. Furthermore there was very little academic works on legal aspects of money laundering and the insider trading in Nepal, so it was difficult to work on these legal issues in Nepal’s context.
CHAPTER TWO 2.1 Corporate Crime Corporate crime or white collar crime is the criminal offences by business and people inside them. Generally these crimes are non-violent, but sometimes they involve kidnapping, murdering and assisting in terrorist activities. The persons who commit these crimes seem high level business people that work in various organizations. They neither have tattoos inscribed nor look violent. They take undue privilege of their posts in their organizations and carry out these crimes through fraud and dishonesty. Corporate crime can take various forms. Sometimes it takes the form of insider trading; other times money laundering, while some other times securities fraud. Corporate crime is like a mild poison that does not show its effects on the outside but in the inside it can be very dangerous and involve billions of dollars. In this report we are focusing specially on two forms of corporate crimes: 1) Money Laundering, and 2) Insider Trading. First, we will define each of these two, then discuss what impact each have on business and outside, and also legal provisions in Nepal to combat them. 2.2 Money Laundering 2.2.1 Defining Money Laundering Money laundering is the act of converting or transferring property, which has been obtained from criminal or unlawful activities, for disguising or hiding illegal origin of that property or to help someone who is involved in this activity so as to be safe from legal consequence that might have arisen from the same. In simple words, it is the act of washing black money into white. It provides the criminals with a legitimate cover for their source of income if done successfully. Money laundering plays a primary role in fulfilling the objectives of the drug trafficker, the terrorist, the organized criminal, the insider dealer, the tax evader and many others who need to avoid attention from the authorities who find that these people suddenly get a lot of wealth.
. money laundering has become more well-known in economic. earns from tax evasion or terrorist activities or invests in such activities or acquires. Money laundering is considered the third largest business in the world. political.2 Money Laundering Process Money laundering is mostly used by drug traffickers. 2008 of Nepal considers an asset to be laundered if “…. Nowadays..2. international organizations have also focused on money laundering by terrorist organization. After September 11th 2001 terrorist attack in the United States. or destination of illegally earned wealth. held or accumulated from investment of such assets is possessed.In the law of United States. This draws heavy attention of law enforcers. held or used." Money Laundering Prevention Act. terrorists. money laundering is the practice of engaging in financial transactions to conceal the identity. holds. Drug traffickers are the prime money launders since they deal almost entirely in cash which causes all sorts of logistics problems. gangsters. source.anyone. 2. and legal discussion since the financial crime has become more complex and critical issue. 6 . which may involve actions such as tax evasion or false accounting. possesses or utilizes assets…………… and in case assets acquired. directly or indirectly. conceal or transfer such assets with an objective of avoiding legal actions to the person having such assets……” In the past. the term money laundering was defined as any financial transaction which generates an asset or a value as the result of an illegal activity. terrorism and terrorist financing have become more important issues in the debate on money laundering. As a result. utilized or consumed or committed any other act so as to present such assets as legally acquired or earned assets or conceals sources of origin of such assets or assists any one to transform. etc. Money laundering has been defined more broadly in UK law system as "taking any action with property of any form which is either wholly or in part the proceeds of a crime that will disguise the fact that that property is the proceeds of a crime or obscure the beneficial ownership of said property. corrupt politicians and public officials.
purchases. with the assistance (willingly or subconsciously) of professionals such as lawyers. frequent transfers. Placement – In this stage. wire transfers between different accounts in different names in different countries. At this 7 . which conceals the illicit activities due to their legitimate appearance. air-tickets. banker’s drafts Commodity exchange contracts Layering makes the black money white.Money laundering process involves three basic steps: 1. Integration – At the integration stage. Several bank-to-bank transfers. the money re-enters the mainstream economy in legitimate-looking form. changing the money’s currency. leaving behind very few traces of the black money origination. such as: • • • • Repeated buying and selling of bearer securities Repeated buying and selling of registered securities with involvement of owner Buying and selling of travelers cheque. the launderer inserts the black money into a legal financial institution which is often in the form of cash bank deposits. This is the most crucial stage of the laundering process as large amounts of cash are pretty noticeable. and banks are required to report high-value transactions. It appears to come from a legal transaction. By increasing of layering the origin of money becomes undetectable through crossing and covering operations. These corporations or businesses are known as “fronts”.The bank account is generally opened in the name of a corporation especially set up. This may involve a final bank transfer into the account of a local business in which the launderer is investing. and purchasing high-value items to change the form of the money are included in this process. Layering – Layering is the second step of money laundering. It includes sending the money through various financial transactions to change its form and make it difficult to follow and is the most complex process in the money laundering scheme. for the purpose of laundering money. 3. electronic transfers. 2. making deposits and withdrawals to continually vary the amount of money in the accounts.
withdrawals and transfers including ‘hawala’ in Pakistan and India and Fie Chen system in China which leave no paper trail and operate outside of government control and thus have become a perfect platform for money launders as well. the Cayman Islands. c) Underground banking.There are companies which have no other reasons to establish than to launder money. legal alternative banking systems that allow for undocumented deposits.Some countries in Asia have well-established. d) Shell companies.Money launders often send the money to deposit in countries (offshore accounts) which allow anonymous banking i.Products or services are purchased at artificially high price (in this case the "profit" remains at the seller) or at artificially low price (in this case the "profit" remains at the buyer) from the money passed through several transactions. Hong Kong. Some of these techniques can be: a) Smurfing-It is the process where the big amount of illicit money is broken down into smaller less suspicious amount (below 1000$ in the case of USA). Bahrain. e) Investment in legitimate business. Panama and Singapore. . Some of such countries include Bahamas. They take in black money in return of goods or services while not doing such transactions at all. allowing bank secrecy law. The money is then deposited into one or more banks by one or more people (smurf).Sometimes money launders invest in companies such as casino or brokerage firms that deals in so much money it is easy for the black money to be mixed in and no one can get a hint about the money.point. the criminal can use the money without getting caught and is very difficult to catch a launderer if there is lack of documentation of the previous stage. Antilles.2. b) Deposits in overseas bank. It is only a dummy company used to trick people by the money launders. 8 . These businesses may be front companies that in reality do provide a good or service but whose real purpose is to clean the launderer's money f) Technique of over or undercharge .e. 2.3 The Popular Techniques of Money Laundering Criminals can use various techniques to launder money and come out clean.
forging of balance sheet loss/ profit.The laundries acquire control of a company of which true owners' identity is hidden for the authorities. hence. Also. 2. and human trafficking to ultimately 9 . These terrorist organizations receive funds mainly through money laundering. Then the assets are revaluated. h) Insertions of phony companies . since financial institutions are the backbone of the financial development of any country and people’s mistrust results in less deposit into such institutions leaving with fewer funds for investments in productive sectors. Again. These days terrorism is on rise. bringing about economic depression.4 Impacts of Money Laundering There can be various impacts of money laundering. This mistrust hinders the economic development of the country. This allows the front company to sells its products at low cost and hence capture the market by growing. no individual can easily supply funds to those organizations. they carry out a numerous and worldwide transactions to convert black money made through drug dealings.2. when the effects of such practices become visible through bad treatment of other regular customers. Trading. financial transaction. This growth of front company again brings more opportunity to the launderer to move in more illicit funds. A launderer uses a front company to hide his/her illegal funds. people lose trust in such financial institutions. a low value company which possess very little own property. Money Laundering erodes the financial institutions involved in the process. As most of the countries are acting against terrorism. Money laundering also has impact on legitimate business.From the layered money. money laundering increases corruption and crime in the society. the money launder acquire. including assets.g) Getting hold of and selling of companies . The employees of such institutions are more prone to corruption since launderers always try to encourage them to do so. there are ones who lose money as the result of the crime. Money launderers tend to divert the resources to more unproductive sectors by facilitating corruption. Initially. weapon sales. borrowings and exploitation of tax benefits are performed under the mask of this covering company. let it be international highly organized ones or local less organized ones. the company is sold and legal profit is realized. Thus.
Furthermore. launderers can invest the money into a legal business and give subsidies in prices of products of such businesses. hence bring about a shift in exchange rates and interest rates. • Reduced government revenues. a form of money laundering.the money to be laundered results from transfer of money from a victim to the offender by the use of a predicate offence • Distortion of investment-launderers are more focused to escape detection rather than maximizing returns on the investment of money to be laundered.2.Tax evasion.send it to the hands of terrorists. the honest business find it difficult to compete with such businesses • Effect in Balance of Payment between countries. and this activity can lead to increase in market price of those assets • Unfair competition-with lots of illegitimate money to spend and invest. 2004 came into effect on 1 July 2005. A country’s failure to combat money laundering effectively encourages people to involve more into criminal acts and legitimize so earned money through complicated process of money laundering.Increase in crime (generation of money that needs to be laundered) reduces the money demand. 2.Launderers tend to spend in luxury items and generally in imported ones. thus. they usually invest in unproductive sectors • Artificial increase in prices-launderers are willing to pay higher than the actual price of any asset and also purchase unwanted property. reduces government revenue. Section 3 of the Act states that those persons or entities who directly or indirectly attempt to 10 . This spending does not support domestic economy and tend to increase the price of imported goods. the impacts of money laundering can be listed as under: • Losses to the victim. • Changes in rates.5 Provisions against Money Laundering India In India The Prevention of Money-Laundering Act.
if a person enjoys. The Anti-Terrorist Crime & Security Act 2001. Professional guidance is provided by industry groups including the Joint Money Laundering Steering Group and the Law Society. must be maintained for ten years after the transactions finished. Secondary regulation is provided by the Money Laundering Regulations 2003 and 2007. Section 12 (1) prescribes the obligations on banks. The UK legislation was loosen up slightly in 2005 to allow banks and financial institutions to continue with low value transactions which involved suspected criminal property without requiring specific consent for every transactions but requiring the reporting of all such transactions. financial institutions and intermediaries (a) to maintain records detailing the nature and value of transactions which may be prescribed. Section 12 (2) prescribes that the records referred to in sub-section (1) as mentioned above. Section 4 of the Act prescribes punishment for money-laundering with rigorous imprisonment for a term which shall not be less than three years but which may extend to seven years and shall also be liable to fine which may extend to five lakhs rupees and for the offences mentioned [elsewhere] the punishment shall be up to ten years. and where such series of transactions take place within a month. (b) to furnish information of transactions referred to in clause (a) to the Director within such time as may be prescribed and to (c) verify and maintain the records of the identity of all its clients. United States 11 .indulge or knowingly assist or knowingly are party or are actually involved in any process or activity connected with the proceeds of crime and projecting it as untainted propertys shall be guilty of offense of money-laundering. The provisions of the Act are frequently reviewed and various amendments have been passed from time to time. uses or controls criminal property by another person than he/she will commit money laundering offence. United Kingdom Money laundering legislation in the UK is governed by four acts of primary legislation which are The Terrorism Act 2000. The Proceeds of Crime Act 2002 and Serious Organized Crime and Police Act 2005. Under the UK law. whether such transactions comprise of a single transaction or a series of transactions integrally connected to each other.
One of the important components of the act is the Know Your Customer (KYC) system. financial institution or nonfinancial institution identify its customers and deal only after clearly identifying them. The act also has provisions for punishing those concealing or destroying evidences. whichever is greater. Nepal Money Laundering Prevention Act 2008 (refer to annex) provides provisions against money laundering in Nepal.The Money Laundering Control Act of 1986 defines money laundering as a federal crime. false identity and 12 . the central bank of Nepal. has also issued various directives to banking and financial sectors so that they keep an eye on the suspected financial transactions and report all transactions involving big money and those involving suspicion to the Financial Information Unit (FIU). duties and powers. Nepal Rastra Bank (NRB). creating obstacles. The acts has provisioned equal amount of fine as that of the laundering offence for the one who launders. asset laundering prevention department and also has provided for their functions and duties. or both. financial information unit. under the prevailing Money Laundering Prevention Act 2008. Federal law says that whoever knowingly conducts or attempts to conduct a financial transaction which in fact involves the proceeds of specified unlawful activity with the intent to promote the carrying on of specified unlawful activity shall be sentenced to a fine of not more than $500. The central bank can take actions against any individual (person or institution). The basic force of the system is to enable banks and financial institutions to know about the various facts and figures about their customers like change in behavior. It has also provided for the punishment of any bank or financial or nonfinancial institution involved in laundering offence. It has provided provisions to form a coordination committee. It requires that any bank. It has provided for appointment of an Investigation officer and has specified its functions. This act has provided various provisions in this relation. In the United States.000 or twice the value of the property involved in the transaction. ten percent more for the chief or the staff of a bank or any public servant for involvement in such offence and half of that fined to the offender for one who provokes to commit such offence. confiscate assets in such regards. who does not provide the information on suspicious transactions to its FIU. suspend account or transaction. or imprisonment for not more than twenty years. The investigating officer may order to freeze the assets. which has been in place for the last few years.
has also taken huge responsibility of combating money laundering as required by the UN Convention against corruption that has separate article regarding money laundering. The FIC also has authority to take action or a penalty on any bank or financial institution who fails to submit the required reports to it within the predetermined timeframe. 1 million or above must be unveiled. 0. Nepal. Over the past few years money laundering has increased significantly in Nepal. Banks and financial institutions are required to provide the Financial Information Cell (FIC) with the particulars of transactions of Rs. They are also supposed to keep record on even the details of non-account holders sending or receiving remittances so that such records can be regained when required.5 million or above. now that it has allegedly become a third largest business. Nepal Rastra Bank issued instructions to freeze the accounts and properties in the name of the promoters and associates involved in the Unity business. or of those of exchange transactions of Rs. Also there is a provision to the effect that the source of funds in respect of a deposit of Rs. Nepal Rastra Bank issues orders to freeze the accounts and properties of the suspicious person or organization. 1 million or above are also required to disclose the source of the money received. Banks and financial institutions are should keep in place the KYC details of every customer. 13 . 1 million or above by way of deposit. These agreements allow for the exchange of information on bank balance. being a member of the United Nations. Combating money laundering. or suspicion. Recipients of remittances of Rs. Whenever there is a case. requires that there be a global co-operation. payment or remittance through a single transaction or a multiple of transactions in a day. and shares held by people suspected in money laundering.performing elusive transactions that contributes to money laundering. Being a signatory of this convention requires that Nepal and member countries institute a regulatory and supervisory mechanism so as to cooperate with national and international bodies and also monitor the movements of cash and negotiable instruments. In Unity’s case also. Nepal has signed various agreements with various countries around the globe to co-operate to combat money laundering. investments. of money laundering. Banks and financial institutions have set up a mechanism to detect and prevent moneylaundering activities and are required to discuss on such matters once in three months while they should send reports of the same on semester basis to the FIC.
before it appears to be legal. in 1980s skimmed millions of dollars from the company.3. Overall. and the employees buy and sell stocks in 14 . or Israeli authorities had a chance to notice the sudden huge balance in the account. directors. he made 12 deposits in a single day (Placement). Antar carried millions of dollars attached to his body and also his suitcase. from an account to another. Antar made a series of separate deposits to a bank in Israel. and Israel extradited him to the United States to stand trial.e. His scheme boosted the initial offering stock price so that the company ended up worth $40 million more than it would have been without the added revenue. Before U. Authorities found him in Israel in 1992. It also shows how responsible people in an organization misuse the privilege for their individual benefits.3 Insider Trading 2.6 A Money Laundering Case White-collar Laundering Case The owner of Crazy Eddie's Electronics. Eddie Antar. in the end. 2. He received an eight-year prison sentence.Antar then slowly wired the money from those accounts to the legitimate Crazy Eddie's Electronics bank account. Antar had the Israeli bank wire transfer everything to Panama. This case shows how illegal money moves from a country to another. He along with his co-conspirators decided they could make better use of the money if they sent it back to the company disguised as revenue. Antar has employed all three basic steps of money laundering in his quest to transform the illegal money into legal. Here.2. On one trip. In a series of trips to Israel. where bank secrecy laws are in effect and from that account.1 Defining Insider Trading Insider trading is a term associated with both legal and illegal conduct. US authorities caught and punished him under the prevailing Anti money laundering law. The legal insider trading is when the corporate insiders i. officers. Antar could make anonymous transfers to various offshore accounts (Layering).S. But. Antar sold his stock and left with $30 million in profit. Eddie Antar laundered more than $8 million.2. where the money got mixed in with legitimate dollars and documented as revenue (Integration).
that are not made public and may affect the price of the securities deals in securities on the basis of those information or encourages another person to deal in the securities on the basis of those information or discloses the information. In that way. are said to be involved in insider trading 15 . the insider can either make a profit or avoid loss depending on whether the information.” If an individual who has insider information. are also said to be involved in insider trading • Government employees who learn of confidential information because of their employment by the government.their own companies. banking. In simple. had the counter party been aware of the information in question. “ insider dealing occurs when a person in possession of price sensitive information about a company buys or sells shares in that company and so obtains better terms in the contract of sale than would have been the case. in breach of a fiduciary duty or other relationship of trust and confidence. will derive the share price up or down. • Employees of law. that may affect in the price of securities. confidential corporate developments are said to be involved in illegal insider trading. According to Gower. while in possession of material. directors. the term insider trading is frequently used to refer illegal trading. and employees who trade the corporation's securities after learning of significant. if trade the corporation’s securities. brokerage and printing firms who were given such information to provide services to the corporation. However. The trading is said to be legal only if the trading is done in a way that does not take advantage of non-public information. once published. Illegal insider trading refers generally to buying or selling a security. nonpublic information about the security. The illegal insider trading is the trading of corporation’s stock or other securities like bonds or stock options by individuals with the potential access to non-public information about the company. Examples of insider trading can be as follows: • The corporate officers. is deemed to have performed insider dealing. otherwise than in proper performance of his duties. if earn undue benefit from that information. insider trading is the trading in a security (buying or selling a stock) based on material information that is not available to the general public.
The company executives mainly the director. 2.3. in matters related to the corporation.4 Forms of Insider Trading Insider trading can take various forms. brokers. That information which has not been made public is insider information. 2. 2. confidential information from their employers are also said to be involved in insider trading. has made a contract with the shareholders to put the shareholders' interests before their own. bankers are also insiders.• Other persons who misappropriate. The corporate insider. like lawyers. Trades made by these types of insiders in the company's own stock. Other individuals who are not employees. but with whom the company needs to share material information. When the insider buys or sells stocks based upon company owned information. simply by accepting employment. financial analysts. based on material non-public information. he is violating his contract with the shareholders. senior managers as well as the research and development officers are considered to be insiders. This kind of information that has effect on the decisions of investors is called material information. are considered to be fraudulent since the insiders are violating the fiduciary duty that they owe to the shareholders. Let’s look at some of them: 1) Buying securities in one’s own company 16 . the administrative assistant. shareholders including the accountant. and take advantage of.3.3.3 Insider Information Insider information refers to the information related to particular securities or a particular issuing corporate body of securities that has not been made public and if such information were made public would be likely to have a significant effect on the price or value of shares and securities.2 Insider A company insider is anyone who has access to the important information about the company that affects itsstock price or might influence the decisions of the investors.
4) Providing a service and making a trade The people who directly work for the company are not only the insiders. This practice encourages people inside the organisation to involve in illegal activity of providing inside information that is not meant to be public to 17 . The service provider may be a lawyer. broker. It is legal to trade securities of the company to which one belongs. It does not bring benefit to the organisation or the general public. and sellshis/her stocks before the knowledge becomes public can constitute the illegal type of insider trading. when somebody knows from some insider that a company is about to file bankruptcy. The reason behind trading the securities should be based on the information publicly accessible and not proprietary information. Even the people who provide service for the company cannot make trade based on information that is not available to the public. It provides undue advantages to those trading in insider information. However.3. For example. this act makes both the person guilty of insider trading. For example. 2.5 Impacts of Insider Trading Insider trading provides benefits only to those who have insider information. auditor. or a banker providing some service to the company. 3) "Tipping off" someone who makes a trade When the information is shared to someone by an insider. sharing insider information with a family member who then makes a trade based on that information can land both the individual and the family member in trouble for insider trading. 2) Illegal insider stock trading The type of insider trading that is based upon some information which is not disclosed publicly is illegal insider trading. As a result public loses trust in the securities market. while the outside investors cannot compete with them. there is a fine line between legal insider trading and illegal trading.This is a legal type of insider trading that refers to the buying of securities in one’s own company. and he/she enters into trade relying on the information.
Securities and Exchange Board of India (SEBI) and the other side was the Unilever subsidiary. In India. but not under civil regime. This makes people inside the organisation more corrupt. Any such person may be punished with the fine equivalent to the amount in controversy or an imprisonment not exceeding one year or both.3.6 Provisions against Insider Trading In the United States. This case happened when HLL purchases eight lakhs worth of shares of BBLIL just two weeks prior to the public announcement of the merger of the two companies. SEBI passed an order against HLL. Securities and Exchange Board of India Regulations. Insider trading is punished under criminal regime in Nepal. which the Securities and Exchange Commission has promulgated under Section (10b). while section 101(a) of Securities Act 2007 has provisions regarding punishment against insider trading.” Section 92 identifies the persons likely to be involved in insider trading. provide for fighting against insider trading in the US. On one side was the capital market regulator. Section 10(b) and rule 10b-5. charging it for insider trading. thus bringing in opportunities for their benefits. 1992 has provisions against insider trading. 2.4 crores 18 . Section 91 and section 92 of Securities Act 2007 explains what information falls under insider information. (BBLIL). the executive directors and the company secretary and also directed HLL to pay compensation of Rs 3. the main tool for fighting insider trading is Securities Exchange Act 1934. Section 91(1) says that insider information or notice means “…. There were two big parties involved in this case.3. 2. SEBI conducted inquiries and in August 1997.individuals outside the organisation.any such specific kind of information or notice not published by a body corporate issuing any securities as may be capable of affecting the price of such securities if such information or notice is disclosed. issued a notice to the chairman. Hindustan lever limited (HLL). No other provisions were available in Nepal against Insider Trading until Securities Act 2007 (refer to annex) was brought into force.7 An Insider Trading Case One of the most popular cases in insider trading was the case of Hindustan Lever Company (HLL) and the Brooke Bond Lipton India Ltd.
the chain of circumstances. HLL defended itself on the grounds that it was the primary party to the merger and from the point of view of insider trading. SEBI held that HLL was using unpublished." The above extract tells that the HLL bought the shares of BBLIL on the basis of unpublished price sensitive information and on this ground. HLL was acting on the basis of the privileged information in its possession. However. Sharma.The Appellate Authority said that under Regulation 11B. a primary party in the merger cannot be considered as an insider. R.5 % of the ruling market price) and the announcement of merger was made on April. K.. 19 .35 per share (at a premium of 9. 1996. Datta.it can be conclusively said that while entering into the transaction for purchase of 8 lakh shares of BBLIL from UTI. SEBI was not capable of initiating investigations and then taking recourse to powers under the Act for awarding compensation without passing an order under the above mentioned regulation. The Appellate court cited 21 press reports that indicated that the prospect of merger between HLL and BBLIL was widely known. Dadiseth. the timing of the transaction. A. The case was handled by the Appellate Authority of the Finance Minister. However.. there may not always be any direct evidence.M. and M. It also may be stated that. because to be considered as an insider.. Gopalakrishnan. and other related factors. Excerpt from SEBI says that “. According to HLL. 1996. price sensitive information to trade and therefore was guilty for insider trading. demonstrates beyond doubt that the transaction was founded upon and effected on the basis of unpublished price sensitive information about the impending merger. 25 days before its merger with BBLIL at a price of Rs 350. an exhaustive order was passed by SEBI that sent waves of shock throughout the country’s corporate sector. regarding the impending merger of BBLIL with HLL. it received the information only because it was one of the parties to merger itself and not because of its connection to BBLIL. as discussed earlier. by its very nature. HLL brought the shares of BBLIL from UTI on March 25.K. who were on the core team which discussed the merger. HLL should have received the information by virtue of such connection with other company. In March 1998.to Unit Trust India (UTI) and also initiated criminal proceedings against five common directors of HLL and BBLIL: S. HLL says that it was important to make this distinction between it. when it comes to motives and intentions.V. SEBI has charged it for insider trading. Lahiri.
It is clear from the report that money laundering involves three basic steps: Placing. They are problems not only for the particular organizations but also for the whole human society since they help corporate world and governments become corrupt and at many times assist terrorism.Underground banking. determination from financial institutions to stop criminal activities from within. Shell companies. Commitment from the government to properly implement these laws.2 Recommendations There is no doubt that corporate crimes are rampant in our country. including Nepal have made laws to regulate corporate world and discourage corporate crimes. 3. Also. Just drafting and issuing laws is not sufficient. countries across the globe have now recognized the need for mutual co-operation in the quest to combat money laundering. tighter regulations are necessary that will make people think twice before they indulge in such crimes that provide them with individual benefits while leaving other large population at loss. Countries all over the world. Moreover.1 Conclusion Money laundering and insider trading are two major forms of corporate crimes. Illegal insider stock trading.CHAPTER THREE 3. and implementation of proper policies by organizations to avoid such crimes is necessary. In Nepal. Deposits in overseas bank. and providing a service and making a trade. Insider trading can also take various forms: Buying securities in your company. While carrying out these crimes the offenders misuse their privileges and often defy the law of various countries. 20 . and Investment in legitimate business.Layering. No doubt there are provisions against money laundering and insider trading but what is lacking is determination and sincerity on the part of concerned parties to stop these crimes. "Tipping off" someone who makes a trade. and Integration and can take place in various forms:Smurfing. Money (Asset) Laundering Prevention Act 2008 has provisions against money laundering while Securities Act 2007 provides against insider trading. These crimes do not always remain non-violent and can involve a large sum of money. even at a danger to their lives.
high-level co-operation between governments. and acting truly upon these agreements is need of the time to avoid these crimes.Combating money laundering is not only a national issue. Thus. 21 . agreements through various international organizations.
d.shtml (n.org.).gov/answers/insider.com/publications/chapters_preview/381/3iie3705. from life123: http://www.gorkhapatra. 2010.d.php?article_id=35645&cat_id=7 22 . Retrieved september 3. from how stuff works: http://money.howstuffworks.com/money-laundering3.).d.law. from money laundering methods and markets: http://www. Retrieved september 3.d.gopa.ubc.htm (n.piie.d.icclr.com/careermoney/investing/insider-trading/types-of-insider-trading. Retrieved september 3. from US government and securities exchange: http://www. Retrieved september 3. 2010.np/detail.ca/Publications/Reports/TNOC_LINKS_STUDY_REPORT.sec.htm (n. from gorkhapatra: http://www.).pdf (n.pdf (n.). from about.Bibliography (n. 2010.).about.d.com:management: http://management. from link between terrorism and other forms of crime: http://www.). 2010.life123. 2010.htm (n. Retrieved september 3. 2010. 2010.).d. Retrieved september 3.com/cs/businessethics/a/InsiderTrade702. Retrieved september 3.
ANNEX 23 .
and Commencement: (1) This Act may be called" Money (Asset) Laundering Prevention Act. Extent. Definition: Unless the subject or context otherwise requires. in this Act. Short Title. 2063 (2008) Date of Authentication and publication: 14 Baisakh 2064 (1 January 2008) Preamble: Whereas. 2008". 34 of the Year 2064 (2008) Chapter . or located remitting. Act No. (2) The Act shall be applicable throughout Nepal and to any individual or corporate body. wherever may be residing. it is expedient to provide for legal provisions to prevent laundering of criminally earned money (assets).1 Preliminary 1.Money Laundering Prevention Act. (3) The Act shall come into force immediately. 2.24 . transferring or sending assets from Nepal to abroad or abroad to Nepal obtained by the act which is offence under this Act. the LegislatureParliament has enacted this Act.
person. (d) "Prescribed or as prescribed" means prescribed or as prescribed in this Act or rules framed under therein. precious metals or other than those firm. 3) Any institution prescribed by Nepal Government by publishing notice in the Nepal Gazette. company or institution holding license to purchase and sale of foreign currency or any other transactions. (g) "Financial Institution" means financial institution licensed by Rastra Bank for carrying out 'B'. sale. and 'D' class financial transactions under the prevailing bank and financial institution law and the term also denotes the cooperatives. (f) "Bank" means a bank licensed by Rastra Bank for carrying out 'A' class financial transactions under the prevailing bank and financial institution law. firm. (c) "Transactions" means any act or agreement made in order to carry out any economic or business activities and the term also includes the transactions purchase. company holding license for insurance business. (e) "Department" means the Asset Laundering Investigation Department pursuant to Section 11. 'C'. 25 . (b) "Offence" means the offence prescribed under chapter-2. insurance broker and also securities market or business as per prevailing laws. (c) "Non-Financial Institution" means the following institutions:1) Any firm or company registered as per prevailing laws to carry out any trade or business including casino. distribution. transfer or investment and possession of any assets.(a) "Investigation Officer" means a personnel appointed or designated as per pursuant to Section 15. company or institution as prescribed in Clause (h) 2) Any institution whether or not organized or registered as per the laws.
Assets not to Be Laundered: (1) Nobody shall launder or cause to launder assets. (j) "Public Servant" means any individual supposed to be public servant as per prevailing laws. tangible or intangible properties.(h) "Financial Information Unit" means the Financial Information Unit constituted pursuant to Section 9. (m) "Government Office" means the Land Revenue Office. Office of the Company Registrar and the term also denotes entity prescribed by the Government of Nepal by publishing notice in the Nepal Gazette. commercially or by business in general situation. immovable. Chapter-2 Provisions Relating to Offences 3. (l) "Assets" means all kinds of moveable. (k) "Doubtful Transactions" means transactions appearing improbable economically. 26 . (i) "Rastra Bank" means Nepal Rastra Bank established under the prevailing Nepal Rastra Bank law.
cheating. earns from tax evasion or terrorist activities or invests in such activities or acquires. c) Offences of murder. conceal or transfer such assets with an objective of avoiding legal actions to the person having such assets:a) Offences under the prevailing arms and ammunitions laws. 27 . directly or indirectly.(2) Any one committing acts pursuant to Sub-Section (1) shall be deemed to have committed offence as per this Act. d) Offences under the prevailing drug control laws. m) Other offences under any other law that Government of Nepal prescribes by publishing a notice in the Nepal Gazette. kidnap or abduction under the concerned prevailing laws. l) Offences under the prevailing ancient monuments conversation laws. g) Offences under the prevailing cooperatives laws. counterfeiting. i) Offences under the prevailing corruption control laws. theft. k) Offences under the prevailing banking offence and punishment laws. b) Offences under the prevailing foreign exchange regulation laws. forgery documents. held or used. holds. j) Offences under the prevailing bank and financial institution laws. utilized or consumed or committed any other act so as to present such assets as legally acquired or earned assets or conceals sources of origin of such assets or assists any one to transform. e) Offences under the prevailing national park and wild animals conservation laws. Assets Supposed to Have Laundered: Assets shall be supposed to have laundered in case anyone. f) Offences under the prevailing human trafficking and transportation control laws. 4. possesses or utilizes assets by committing any or all offences stipulated as follows and in case assets acquired. held or accumulated from investment of such assets is possessed. h) Offences under the prevailing forest laws.
7) Any Convention against Terrorist Activities to which Nepal is a party. financial institution or nonfinancial institutions shall maintain clear identity of a person while 28 . in case any one has committed any act supposed to be an offence under the following conventions or provided or collected any money by any means for murdering or physically disabling any person knowingly or with grounds that such money is being used for committing such offence. 1970. 4) Convention on the Prevention and Punishment of Crime Against Internationally Protected Persons Including Diplomatic Agents. support or provoke others to commit offences stipulated in this chapter. Support or Provoke: No one should attempt. 1987. 5. Not to Attempt. 1973. 2) Hague Convention for the Suppression of Unlawful Seizure of Aircraft. 6) SAARC Regional Convention on Suppression of Terrorism. 1979. Transactions and Details of the Customers 6. 3) Montréal Convention for the Suppression of Unlawful Acts Against the Safety of Civil Aviation.Clarification: For the purpose of this Section. Chapter -3 Provision Relating to Identity. 5) International convention Against the Taking of Hostages. 1971. he/she shall be supposed to have invested in terrorist activities:1) Tokyo Convention on Offences and Certain Other Acts Committed on Board Aircraft. 1963. Customers to be Identified: (1) Any bank.
surname. family surname. f. address of close relative. establishment or registration of the institution. business of board of directors and executive director or proprietor of firm or partners of partnership firm. (2) Bank. address including power of attorney clarifying his/her business. Name. documents relating to principal's identity. Other documents as prescribed by the Financial Information Unit from time to time. In case of the person or firm except provided in Clause (a). financial institution or non-financial institution. name. financial institution or non-financial institution shall keep a separate record of documents and transactions of each customer. (3) Bank. address. person or institution benefiting from the transaction of the business relationship. d. documents that presenting name. copy of citizenship or passport including other necessary documents evidencing his/her permanent residential address and profession or business. shall require the person establishing business relationship or having transactions with it to submit the documents as follows:a. while getting identification of the customer as per Sub-Section (1). In case of a natural person his/her name. pursuant 29 . In case of business relation or transactions to be established or made on behalf of someone else. profession. copy of the document certifying incorporation. c.establishing any kind of business relationship with him/her or transacting the amount more than the limit at one or several transactions as prescribed by Rastra Bank from time to time by publishing notice. surname and address of the issuer and payee of or from such instrument. surname. In case of transactions made through negotiable instruments. e. b.
Financial Institution and NonFinancial Institution :-(1) The government entity. (3) Notwithstanding anything in Sub-Section (1). c. in case. there is any suspicion in the transactions of persons having regular business relation or transactions. To maintain records of amount transacted beyond the limit prescribed by Rastra Bank at a single or in a series of transactions by a person. bank. (2) In case. bank. b. 7. bank. the concerned entity. the concerned entity. financial institution and non financial institution shall fulfill the following liabilities for the purpose of this Act:a. including date and nature of transactions.Section (2). To investigate and inquire any transactions which seem to be doubtful or transacted with the motive of assets laundering or so laundered or there are reasonable grounds for getting into suspicion. To inform the Financial Information Unit about the transactions made under Clause (a) within seven days of event and immediately for the transactions made under clause (b). Bank.to Sub. financial institution or non financial institution shall inform such details to the Financial Information Unit immediately. Liability of Government Entity. any information has not been supplied to the Financial Information Unit pursuant to Sub-Section (1) or something different in details or information has been received after the supply of details or information in the course of transaction. type of account if any and symbol number. financial institution or non-banking 30 .
financial institution shall inform the Financial Information Unit after making an inquiry. Justice and Parliamentary System Member (c) Secretary. Ministry of Finance (b) Secretary. Chapter – 4 Provisions for Coordination Committee and Financial Information Unit 8. Ministry of Home (d) Secretary. Ministry of Law. Formation of Coordination Committee: (1) There shall be Coordination Committee to coordinate inter-related entities and to provide essential suggestions to the Government of Nepal in regard to the prevention of assets laundering as follows:(a) Secretary. (4) The records of transaction referred to in this Section shall be maintained secured at least for a period of five years from the date of such transaction. Ministry of Foreign Affairs (e) Deputy Governor. Nepal Rastra Bank Member Member Member Coordinator 31 .
Functions. Financial Information Unit: (1) There shall be a Financial Information Unit in Rastra Bank for collection and analysis of information relating to assets laundering. in case the notice. financial institution and non-financial institution regularly and maintain records of those details by scrutinizing them. financial institution and non-financial institution.(2) The chief of the Financial Information Unit shall act as a secretary of the Coordination Committee pursuant to Sub-Section (1) and the Financial Information Unit shall work as Secretariat of the Coordination Committee. government entity. (2) The Governor of Rastra Bank shall appoint the chief of the Financial8 Information Unit from among the first class officers. 9. (3) The procedures of meeting of the Coordinate Committee pursuant to Sub-Section (1) shall be as determined by the committee itself. details and documents available to it requires inquiry and investigation on assets laundering and send its details to the concerned Department. (3) The Office of the Financial Information Unit shall be placed in Rastra Bank and the Rastra Bank shall manage the staffs required for it. bank. b. To conduct preliminary inquiry. powers and duties mentioned at other places of this Act. Powers and Duties of Financial Information Unit: (1) In addition to the functions. To obtain details of transactions under Section 7 from government entities. 10. of Rastra Bank. bank. the functions. 32 . at the least. powers and duties of the Financial Information Unit shall be as follows:a.
To manage required training programs for the staffs of government entities. f. To send notice. g. notices and information pursuant to Clause (a) of Sub33 . statistics. form. e. financial institution and non financial institution. write to the Department with extensive details. To communicate the Department the details received pursuant to Clause (a) or including the extensive details if it appears doubtful or arises any doubt or prevails reasonable ground not to believe the transaction upon conducting the inquiry pursuant to Clause (b) . Departments and Financial Information Unit for prevention of assets laundering. to obtain any information or clarification9 about such transactions and records and their copies if necessary. time and other procedures regarding the submission of details. should there appear doubtful transactions or looks dubious or there are reasonable grounds to doubt in the details received pursuant to clause (a) or from the inquiry made pursuant to clause (b). financial institution and non-financial institution about the method. financial institution and nonfinancial institution under prevailing laws may receive information from the Financial Information Unit and may provide information available with it to the Unit. details and documents regarding assets laundering to the Financial Information Units of other country and international organization. (3) The Financial Information Unit may give necessary directives to the concerned bank.c. To inspect transactions and records of bank. institutions reciprocally and receive such notice from concerned country and international organization and institution. To carry out other functions as prescribed. d. (2) The entity authorized to regulate bank.
Duties and Powers 11. 12. financial institution and non-financial institution to abide by such directives.Section (1) and it shall be the duty of such bank. To issue order to any concern government entity. Powers of the Department for Investigation and Inquiry: (1) The Department may exercise the following powers in course of investigation and inquiry of the offences under this Act:a. Chapter -5 Provisions for Formation of the Department and its Functions. evidence or other required detail remained with such 34 . Establishment of the Department: (1) The Government of Nepal shall establish an Asset Laundering Prevention Department to make investigation and inquiry of offences under this Act. bank. (3) The organizational structure of the Departmental and required number of staffs shall be as prescribed by the Government of Nepal. financial institution or non-financial institution to submit the concerned document. (2) The chief of the Department shall be a first class officer of civil service. (4) The Government of Nepal may prescribe any entity to conduct investigation and inquiry of the offences pursuant to Sub-Section (1) before the establishment of the Department.
of a concerned person at the request of another nation where the offence under this Act has occurred or any other international organization or in accordance with bilateral or multilateral treaty or agreement or on the other grounds like that. bank. To release a person with a written condition to present at requirement or on dated attendance. b. (2) In case any government entity. or release with guarantee or bail in case there are reasonable grounds that he/she may disappear or to keep under custody at the failure of providing guarantee or bail with the permission of the court after the inquiry. explanation or clarification as per Clause (c). c. financial institution or non-financial institution or of any other places.entity. deed. bank. financial institution or non-financial institution. financial institution and non-financial institution to the Department within a particular time limit. take control of concerned document. Provided that the concerned person shall not be placed under custody for more than the period punishable for offences under this Act when decision is given against him/her. material evidence and other evidence and hand its receipts to the concerned official. To require to freeze assets related to the offence under this Act in the course of inquiry and investigation of the offence. bank. e. To order the concerned entity to freeze assets. to seize. To get present and inquire. other staff or a concerned person supposed to have obtained information of related facts as deemed by the Department. financial institution or nonfinancial institution is communicated by the Department to submit any 35 . d. f. call explanation or clarification from the concern official of the concerned government entity. located in Nepal. bank. To conduct search operation of any concerned government entity.
the Department may require him/her to submit documents or matter or to freeze assets or to provide required information by arresting him/her and may fine him/her up to one thousand rupees. the entity. not freezing assets or not providing information and any official or staff of such entity. obtained pursuant to Sub-Section (1). bank. Complaint: (1) Any person. information or notice shall be registered after giving it to a written form. 14. application. may submit a complaint. information or notice to the Department in written or oral form. information or notice in written form and oral complaint. who has information that somebody has committed.documents or any other matters. Chapter-6 Provisions for Investigation and Inquiry 13. financial institution or non-financial institution absenting even at the order of the Department to be present. application. Investigation and Inquiry: (1) The Department shall conduct necessary investigation and inquiry if it receives information from a complaint pursuant to Section 13 or information pursuant to Clause (c) of Sub-Section (1) of Section 10 or from any other method or source that any 36 . financial institution. freeze assets or provide information about any matter in the course of investigation and inquiry of the offences under this Act. staff or agent of the non-financial institution not submitting such document or other matters. going to committee or committing any act supposed to be an offence under this Act. (2) The Department shall register complaint. application. bank. concerned official.
hide or alter. Duties and Powers of the Investigation Officer: (1) The functions. if it receives information that any offence under this Act has been committed.offence under this Act has been committed. (2) The Department. Functions. (2) The Department. powers and duties of the investigation officer. (3) The Department shall obtain opinion of government attorney while conducting such immediate investigation and inquiry pursuant to SubSection (1). while appointing or designating any other staff in the service of government or public corporate body as an investigation officer. appointed or designated pursuant to Section 15. being committed or going to be committed immediately. being committed or going to be committed and there is reasonable ground that the person involved in the offence may abscond or destroy evidence or document. shall consult the chief of the concerned entity or corporate body. 16. 15. being committed or going to be committed. in order to conduct investigation and inquiry of the offences under this Act. may take control of any document or asset or arrest the person involved in the offence by conducting search operation at the place where offence was committed. To Appoint or Designate Investigation Officer: (1) The Department may appoint or designate any officer of the Department or other officer in the service of government or of any public corporate body as an investigation officer. 37 . shall be as follows:a) To take necessary action by arresting the offender (suspect) immediately.
shall clearly mention the charges against the detainee. (4) If request is made to carry out investigation and inquiry continuing detention pursuant to Sub-Section (3). release him/her by obtaining bail or guarantee or keep under custody with the permission of the court if he/she fails to provide bail or guarantee. vehicles or of any place in the course of investigation and inquiry. while proceeding pursuant to Sub-Section (1). after reviewing the concerned documents and process of investigation and inquiry 38 . description of the affidavit of statement if any obtained and justification for continuing the investigation and inquiry proceedings by detaining him/her under custody before the adjudicating officer. the investigation officer shall detain the offender with the approval of the adjudicating officer presenting the offender before such officer. reasons and grounds thereon. c) To exercise other powers vested to the Department. 17. (2) The investigation officer. (3) The Department. residence. the adjudicating officer. if there are sufficient grounds that he/she may extinct or destroy any evidence or create obstacles or perverse effects in the proceedings of investigation and inquiry providing him/her a warrant as per prevailing laws. may keep the offender (suspect) on date. while requesting for permission as stipulated under Sub-Section (2).b) To conduct search or cause to conduct search operation of any office. (2) In case the investigation and inquiry could not be completed within twenty four hours and it is deemed necessary to continue the investigation and inquiry by detaining him/her further under custody. building. To Keep Under Custody for Investigation and Inquiry: (1) The investigation officer may detain the person against whom proceedings have been initiated as per this Act. storage.
the detainee may file a petition to the adjudicating officer for his/her release with reasons and grounds thereof. non-financial institution 39 . financial institution or nonfinancial institution if any information is obtained that he/she has maintained transactions or account with such bank. 19. (3) The Department may impose fine to the chief of the concerned entity. financial institution or non-financial institution. 18. pledge. the concerned entity shall freeze/withhold such assets preventing its transfer or pledge or sale/disposal. sale/disposal of the assets collected by offence for a time period fixed. (2) In case a written request is made to freeze assets pursuant to SubSection (1).Section (1). Provided that such transaction or account operated with a bank. up to fifty thousand rupees as per the report of the investigation officer. financial institution. in the course of a inquiry and investigation of an offence under this Act. who does not freeze the assets in contravention to the order pursuant to Sub. sale/dispose or conceal or transform such assets by any manner. (5) In case permission is requested to keep under custody as per SubSection (2). Suspension of Account or Transactions: Notwithstanding anything mentioned in the prevailing laws.whether satisfactory or not. To Order for Freezing Assets: (1) The Department or investigation officer may give order to the concerned entity to prevent any transfer. to prevent transactions or freeze bank account of a person transacting with a bank. may grant permission for detaining him/her up to ninety days at a time or time by time but not-exceeding thirty days at a time. if it is deemed in the course of investigation and inquiry or there are reasonable grounds at hand that he/she may transfer. the Department may issue an order.
in response to writing pursuant to Sub-Section (1). is deemed to have committed an offence under this Act from investigation and inquiry. 21. the Department shall write to the concerned government attorney for taking decision whether a case is to be filed against him/her or not. if it deems by the nature of offence under investigation and inquires. 22. It shall be the duty of the concerned police officer or of the police staff to provide support to the Department if such support is demanded. the Department shall make a request of freezing such transactions or account through a diplomatic channel. Filing of a Case: (1) If any one. the Department shall file the case with the court prescribed by the Government of Nepal by publishing notice in Nepal Gazette. Support of Other Entities May Be Obtained: (1) The Department may demand support of any entities or public corporate bodies in the course of conducting inquiry and investigation of offence under this Act and it shall be the duty of such entities and bodies to provide support to the Department at the time of demand.situated or person living abroad. 20. Seized Assets and Documents to Be Kept Secured: The investigation officer should keep the assets and documents seized in course of inquiry and investigation under this Act safe. (2) The Department may also demand support of Nepal police in course of inquiry and investigation of offence under this Act. (2) In case the concerned government attorney decides to file a case. 40 . (3) The Department. whosoever. consults with the specialist belonging with an entity or involves him/her in investigation and inquiry and such entity shall have to avail or depute such specialist to the Department notwithstanding whatever has been mentioned in prevailing laws.
he/she is required to prove the source of earnings and in case he/she fails to 41 . granted. (2) In case a person involved in the offence under any prevailing law is found to have committed offence under this Act. No Obstacle to Sue Under Prevailing Laws: (1) A case may be filed under other prevailing laws if the offence under this Act is also punishable under any other prevailing law. Government to Be Plaintiff: The Government of Nepal shall be plaintiff in the case relating to any offences under this Act. Automatic Suspension: Any official or staff of any bank. unless the prevailing law so requires. Assets Deemed to Have Gained by Laundering: In case assets of a person sued for an offence under this Act is found to be unnatural in comparison to the income source or financial condition or one is living a life unnaturally high in standard or proved to have donated. provided loans. contribution or endowment more than his/her capacity. 25. Not to Violate Confidentiality: (1) No Investigation Officer or staff or person involved in the investigation and inquiry shall violate confidentiality of any matter or submitted document that came to his/her notice in the course of investigation and inquiry or in performing his/her duty. the entity or officer conducting investigation and inquiry of such offence shall inform the same to the Department. 26. official or civil servant pursuant to Section 22.23. financial institution or non-financial institution or civil servant shall be deemed to be in automatic suspension for a period he/she is under custody as per this Act or for a period the case is decided if any case has been filed against such staff. Limitation: There shall be no limitation to file a case relating to the offence under this Act. 27. gifted. 24. 28.
Chapter-7 Punishment 30. Offence not Required to be Proved: Notwithstanding whatever mentioned in this Act or in the prevailing law. it shall not be necessary to have the acts or offence occurred as mentioned in the Section 4 for penalizing the offence under Section 3 and it shall not be deemed to be barred to penalize for the offence under Section 3 simply because there was not filed against such act or offence or the case was dismissed in case it was filed or charge therein was not proved. financial institution or nonfinancial institution who has committed offence or in case such staff is not identified for the person working as a chief at the time of committal. 42 . in accordance with the degree of offence committed:(a) Fine equal to the amount involved in the offence or imprisonment from one year to four years or both punishments to any person or staff of a bank. financial institution or non-financial institution or public servant has committed offence. ten percent more than the punishment mentioned in Clause (a).prove so he/she shall be deemed to have earned such assets by committing offences under this Act. (b) In case an office bearer. 29. chief or staff of a bank. Punishment to the Offender: (1) Anyone committing offence under Section-3 shall be punished as follows.
32. 43 . Assets to be Confiscated: (1) Any assets obtained from an offence under this Act and assets accumulated thereof and assets utilized for committing such offence shall be confiscated. Imposing Fines: (1) There shall be a fine of five hundred thousands rupees to a bank or financial institution and from twenty five thousands to one hundred thousands Rupees to a non-financial institution as per the degree of offence for the act of not submitting documents to the Financial Information Unit pursuant to Section 7 and Clause (a) of Section 10. 34. Punishment for Concealing or Destroying Evidences: Any person who commits the offence of concealing or destroying evidence related to acts deemed to be an offence under this Act shall be liable for the imprisonment from one month to three months or fine from fifty thousand rupees to one hundred thousands rupees fine or both in accordance with the degree of offence committed and person assisting for committing such act shall be punished half of such punishment.(2) The person assisting or provoking to commit or causing to commit an offence under this Act shall be punished half of the punishment to be done to the offender. Punishment for Creating Obstacles: If any person creates obstacles in the proceedings of investigation and inquiry undertaken under this Act. (2) The Financial Information Unit shall punish pursuant to Sub-Section (1) and person not satisfied with the punishment may appeal to the Appellate Court within thirty five days of such punishment. 33. the adjudicating officer may punish him/her with an imprisonment up to six months or a fine up to five thousand rupees or both based on the report of investigation Officer. 31.
36. bank. financial institution or non-financial institution subject to the provisions mentioned in Section 7 and Clause (a) of Section 10. financial institution or non-financial institution or by a staff. official or agent of such entity. Not to be Liable for Providing Information: In case any loss occurs to a person because of submission of information to the Financial Information Unit by a government entity. 37. 44 . official or agent of such bank. Chapter -8 Miscellaneous 35.(2) In case entitlement to assets pursuant to Sub-Section (1) has been transferred to someone else and an amount has been quoted in such act of transfer. financial institution or nonfinancial institution or staff. the Department if case has not been filed. bank. the amount shall be dealt as per the deed with security. or the court hearing the case if the case has been filed. and degree of the offence. Seizure of Passport: Notwithstanding anything mentioned in prevailing laws. Assets to Be Released: In case the asset withheld pursuant to Section 18 found that it was not obtained by committing an offence under this Act. shall order to release such assets to the entity withholding such assets and the entity shall release such assets if such order is made. financial institution or non-financial institution shall be taken any action in against. the Department may issue an order to the concerned office for not issuing new passport or to seize already issued passport if so required as per the circumstance. no such entity. bank.
through telex. a notice to be delivered in the name of a foreign person in connection with an offense under this Act shall be delivered in the name of an office or representative of such person in Nepal. notwithstanding whatever mentioned in prevailing laws. the notice shall be delivered at the main place of business of such person or his/her permanent residential address or at the mailing address if provided by him/her in the course of business. the amount received from such auction sale shall be handed area to the person concerned. (2) In case the office or representative as stipulated under Sub-Section (1) does not exist. Departmental Action to the Staff involved in Investigation and Inquiry: If any Investigation officer or staff of the Department acts with a view to cause troubles or tension to others knowingly in the course of investigation and inquiry of the offences under this Act or in doing any other acts. Auction to be Made: (1) The goods seized in course of taking action against an offence under this Act may be auctioned by fulfilling the procedures as prescribed by the prevailing laws. Provisions Relating to Delivery of Notice: (1) Notwithstanding anything written in the prevailing laws. 40.38. 39. 45 . and the notice so delivered shall be deemed to have been duly delivered. (2) The proceeds obtained from auction sale pursuant to Sub-Section (1) shall be balanced in the deposit account and if it is decided to provide such goods to the owner later. the secretary of the concerned Ministry if such staff is chief of the Department or the chief of the Department if one is other staff shall take Departmental action against him/her. if any. if there is possibility of damage by rust or loss of any kind or breakage or rotting or loss of price due to ageing or lack of maintenance and protection due to lack of appropriate placement.
Order to Freeze the Assets of a Foreigner: (1) If any foreign person does not appear in front of the investigation officer as per the notice or even after such notice is delivered to him/her pursuant to Section 40. If such notice is so published. entitlement. 42. in connection with the dispatch or delivery of a notice to any person under this Act or other prevailing laws. interest or concern in the form as determined by the investigation officer till he/she presents him/herself before the investigation officer and it shall be the duty of the all concerned to comply with such order. it shall be deemed to be duly delivered or delivered to such person. if there is a separate provision in any treaty where Government of Nepal or Nepal is a party. notwithstanding anything contained in the prevailing laws. that the notice could not be dispatched or delivered for the reason that the address of such person could not be identified or for any other reasons. a public notice to this effect shall be published in a national level newspaper (in an English daily in regard to a foreigner) at least two times extending him/her a time period of thirty days and furnishing thereon the abridged particulars of the case. 46 . (3) Notwithstanding anything mentioned in Sub-Section (1) or (2). the investigation officer may issue an order to keep his/her assets. notwithstanding anything contained under this Act or other prevailing laws. 41.telefax or other means of telecommunication or through post by registration and the notice so delivered shall be deemed to be duly delivered. interest or concern within Nepal in status quo or to prevent it to take outside Nepal if he/she has any such assets. entitlement. whether the case is investigated or is already lodged with the adjudicating officer. there shall be no obstruction in delivering the notice in the name of a person residing in foreign country in the manner as specified in the same. Notice to be Published: In case a report is received.
44. Reward: (1) Any person may be given an amount equal to ten percent of the amount claimed or one million rupees whichever is lesser as reward if he/she has made a complaint against an offence under this Act along with cooperation extended for investigation and inquiry or in collection of other evidence and proof. Provided. such amount shall be distributed proportionately. if any. the adjudication and decision proceedings of a case under this Act shall no longer be affected even if the offender dies before or after the date of filing a case. notwithstanding anything mentioned in this Act or in prevailing laws a lawsuit may be reregistered against such person if his cooperation could not be established from other evidence or if he/she makes statement before the adjudicating officer against the cooperation extended by him/her to the investigation and inquiry officer 45. to a person extending cooperation in regard to the investigation and inquiry proceedings initiated under the Act presenting such person as his witness.(2) Person not complying with the order issued pursuant to Sub-Section (1) shall be punished with a fine up to Rupees one hundred thousand by the investigation officer. 46. Rules May be Formulated: The Government of Nepal may frame necessary Rules for implementation of the objectives of this Act. No Obstruction to Adjudication and Decision Proceedings: Notwithstanding anything mentioned under the prevailing laws. in full or part. 43. The losses or harm caused to the Government of Nepal or public institution. shall also be recovered from such person. due to such non compliance of the order. 47 . Waiver May Be Given in Punishment: The investigation officer may provide waiver in the claim of punishment. (2) In case the persons pursuant to Sub-Section (1) are more than one.
Insider trading: (1) If any person deals in securities or causes any other person to deal in securities on the basis of any insider information or notice that are unpublished or communicates any information or notice known to such a person in the course of the discharge of his or her duties in manner likely to affect the price of securities such a person shall be deemed to have been committed an insider trading in securities. "insider information or notice" means any such specific kind of information or notice not published by a body corporate issuing any securities as may be capable 48 . 2063 (2007) Date of Authentication and Publication 30 Poush 2063 (January 14. Explanation: For the purposes of this Sub-section. 2007) Chapter-9 Offenses Relating to Insider Trading in Securities and Transactions of Securities and Punishment 91.SECURITIES ACT.
(c) A person who can obtain any information or a notice having a direct or indirect contact with the person or source as specified in Clauses (a) and (b). (2) Notwithstanding anything contained in Sub-section (1). 92. Persons likely to be involved in insider trading: For the purposes of this Act. Information or notice deemed to have been made public: On any of the following conditions. (b) A person who can obtain any information or a notice in the capacity of a professional service provider to that body corporate. any information or notice shall be deemed to have been made public: (a) If any matter has been published with intent to inform the investors and their business advisers in accordance with the Byelaws of a stock exchange.of affecting the price of such securities if such information or notice is disclosed. 49 . the following persons shall be deemed to be those who have access to the insider information or notice not published by any body corporate: (a) A director. 93. any transactions already carried on shall not be deemed to be affected at all merely by the reason that an insider trading has been committed. (b) If there is a provision made under the law that the general public can see an information or a notice contained in any records. who can obtain any information or a notice in the capacity of a shareholder of that body corporate. employee or a person. (c) If there is a provision that any person desiring to deal in securities is escorted to the business room of a stock exchange so that such a person can know such an information or a notice.
increase. such a person shall be deemed to have caused fluctuation in price. Fluctuation in price: If an person causes stability. 50 . (f) If there is a provision that information can be obtained only upon payment of fees or if such information or a notice has been published outside Nepal. if the following trading is done. (e) If it has been communicated to any specific class. False trading: For the purposes of this Act. even though the purchase or sale of securities is done directly or indirectly. such a trading shall be deemed to be a fake or false trading: (a) The actual ownership is not changed. decrease or frequent change in the price of securities by doing or causing to be done a fake or artificial or false trading. such a person shall be deemed to have affected the stock exchange: (a) To increase the market price of securities issued by any company with the intent to encourage others to purchase or sell the securities or to avoid the purchase or sale of such securities. 94. 96. To affect stock exchange: If an person individually or in association with others commits any of the following acts to affect directly or indirectly the transaction in securities.(d) If there is a provision that any person desiring to obtain or see such information or notice or get a copy thereof can obtain and see the same. out of the general public. 95. (b) An offer is made to purchase or sell securities on the line of same price upon knowing the price offered by another for sale or purchase.
sell or exchange securities from. plan or commit any act to defraud others. (c) To make or publish a false or misleading statement. or (b) To get a person to do any act or be engaged in any work by misrepresenting such a person. such a person shall be deemed to have committed fraudulent transaction:(a) To make any technology. Fraudulent transaction: If a person intentionally commits the following transaction with intent to purchase. (b) To hide any fact or information with mala fide intention. Prohibition on transaction of securities by fraud or misrepresentation: If a person knowingly induces to other to purchase or sale the securities or causes to be reduced. 97. increased or stabilized the price of securities on the basis of statement that such a statement is false or 51 . (c) To stabilize the market price of securities issued by any company with the intent to encourage others to purchase or sell the securities or avoid the purchase or sale of such securities. 98. misleading or fake. to or with any other person. To supply misleading statements: If a person intentionally commits any of the following acts to deceit others to purchase or sell securities. 99.(b) To decrease the market price of securities issued by any company with the intent to encourage others to purchase or sell the securities or to avoid the purchase or sale of such securities. promise or projection with mala fide intention. such a person shall be deemed to have committed an act of misleading:(a) To make or publish any statements or projection related statements with knowledge that such a statement is false.
conceal any documents. such loss or damage has also to be recovered. (2) A person who commits any act referred to in Sections 94. and where any 52 . 98. and where any one has suffered any loss or damage from such an act. be liable to the punishment with a fine equal to the amount in controversy or with imprisonment for a term not exceeding one year or with both punishments. statements or records demanded by the authority designated to make investigations pursuant to Section 103 in the course of investigations or any such documents. (3) A person who commits any act referred to in Sections 97. statements or records demanded by the Board or the authority authorized by the Board in the course of inspection and inquiry pursuant to Section 85 or any documents. Punishment: (1) A person who commits an insider trading as referred to in Section 91 shall. such a person who does or causes to be done such act shall be deemed to have done transactions in securities by fraud or misrepresentation. 99 and 100 shall be liable to the punishment with a fine of one hundred thousand rupees to three hundred thousand rupees or with imprisonment for a term not exceeding two years or with both punishments. Destroy or concealment of documents. forge. statements or records: No person shall destroy. 100. 101. 95 and 96 shall be liable to the punishment with a fine of fifty thousand rupees to one hundred thousand rupees or with imprisonment for a term not exceeding one year or with both punishments.misleading or that any statement has become or misleading by the reason that any matter is omitted from or hidden or not included in such a statement. upon being convicted of the offense of insider trading. statements or records as required to be maintained by that person under this Act or the Rules or Bye-laws framed under this Act or shall aid and abet the commission of such act.
the Board may punish such a person with a fine of fifty thousand rupees to two hundred thousand rupees. (4) If any one knowingly or with mala fide intention. statements. books.one has suffered any loss or damage from such transactions. reports. carries on or causes to be carried on a stock exchange or operate or causes to be operated securities transaction in the capacity of a securities business person without fulfilling such requirements as required to be fulfilled under this Act or the Rules or Byelaws framed under this Act. books. information or similar other documents as required to be maintained. notices or information or if one makes. prepares or retains false statements or documents. stock exchange. (6) If any one issues securities. making preparation or submission of such accounts. made. the Board may punish such a person with a fine of fifty thousand rupees to two hundred thousand rupees. make. statements. (7) If any person violates this Act or the Rules or Bye-laws framed under this Act or any orders or directions issued there under or any terms and conditions specified by the Board or fails to do any such act as required to be done by such a person or commits any such act as required not to be 53 . prepared or submitted under this Act or the Rules or Bye-laws framed under this Act within the time specified for the maintenance. If any one has suffered any loss or damage from such act. reports. does not maintain. the Board may also cause the recovery of compensation for actual loss or damage. (5) If any one knowingly commits any act in contravention of this Act or the Rules or Bye-laws framed under this Act or the orders or directions issued under this Act and thereby causes any loss or damage to any body corporate. such loss or damage shall also be recovered. the Board may punish such a person with a fine of fifty thousand rupees to one hundred fifty thousand rupees. securities business person or investor. notices. prepare or submit such accounts.
statements and records from such person or body. 99 and 100 shall be state cases to which Government of Nepal shall be a plaintiff. if. in the course of conducting investigation. 95. Investigation may be conducted upon holding in detention or suspension or release on bail: (1) Notwithstanding anything contained in the prevailing laws. the Board may punish such a person with a fine of twenty five thousand rupees to seventy five thousand rupees 102. there is a reasonable ground to believe that any person against whom action is being taken on the accusation of an 54 . 103. 104. take depositions of. 98. make necessary inquiry with. Government of Nepal to be a plaintiff: The cases relating to the offenses referred to in Sections 91. shall obtain advice of the government attorney. Investigation and filing of a case: (1) If a complaint is made by any one that any one has committed the offense referred to in Sections 91. 96.done. 98. 94. the Board may designate any officer as an investigating authority to conduct investigations of the case relating to such an offense. 97. in conducting investigation of any case held to be an offense referred to in this Act. 99 and 100 or the Board receives in any manner an information relating to such an offense or the Board believes that any one has committed such an offense. any person or body related with the offense or demand necessary documents. 94. (4) The designated investigating authority shall. (3) The investigating authority designated pursuant to Sub-section (1) may. 97. in conducting investigation of and filing a case pursuant to this Section. 96. (2) The investigating authority designated pursuant to Sub-section (1) shall conduct investigations as prescribed in relation to such an offense and file a case in the concerned District Court within thirty five days after the date of completion of investigations. 95.
Remedies against undue bias: If the Board receives any notice.offense referred to in this Act may abscond and disappear or it appears that there is any loss of or damage to any assets. (5). such loss and damage may also be recovered or realized from the offender of such offense. the Board may write to the concerned body to suspend such a person. 107. 105. (2) Any person dissatisfied with any order or direction issued by the Board pursuant to Chapter-8 may file an appeal in the concerned Appellate Court within thirty five days after the date of receipt of a notice of such order or direction. Compensation to be paid: If any one has sustained any loss or damage by the reason of effect in the price of securities purchased or sold by any one as a result of the commission of an offense punishable under this Chapter. (6) and (7) of Section 101 may file an appeal in the concerned Appellate Court within thirty five days after the date of imposition of such a punishment. information and statement that any enlisted company has committed any acts or transactions with undue bias and in a manner to be against the 55 . the Board may require such a person to furnish necessary bail or guarantee of asset and may hold such a person in custody in the event of failure to furnish such bail or guarantee. securities business person. body corporate or concerned person dissatisfied with any punishment made by the Board pursuant to Sub-sections (4). (2) If there is a reasonable ground that any person against whom action is being taken on the accusation of an offense referred to in this Act may temper with or destroy any evidence that can be produced against such a person or may obstruct or hinder the investigation of the case if such a person continues to hold office. 106. Appeal: (1) Any stock exchange.
the Board may order such a company to do as follows: (a) To refrain from doing such transactions. specifying. (c) To appoint a manager or trustee. 56 . all or any of the acts and transactions of the company. general manager or any other person holding the equivalent office thereto is convicted and punished with the punishment referred to in Section 101. to do.interests of its members. To be disqualified to be a director or general manager: If a director. 108. the functions and duties of such a manager or trustee. on behalf of the company. inter alia. such a person shall be disqualified for becoming a director. general manager or an office equivalent thereto in any public limited company or a body or a period up to ten years from the date of such punishment. (d) To issue such orders as may be required to regulate and manage the activities of the company. (b) To determine procedures for conducting acts and transactions in a manner not to be against the interests of members.
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