CHAPTER ONE 1.

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. Enrons in 2001 of $63.8 billion and WorldComs 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.
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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 KUSOMs 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 Nepals context. Another major limitation of the study is that it has no expert opinion as per Nepals 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 Nepals 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 Nepals 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 Nepals 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.

In the law of United States, money laundering is the practice of engaging in financial transactions to conceal the identity, source, or destination of illegally earned wealth. 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." Money Laundering Prevention Act, 2008 of Nepal considers an asset to be laundered if ...anyone, directly or indirectly, earns from tax evasion or terrorist activities or invests in such activities or acquires, holds, possesses or utilizes assets and in case assets acquired, held or accumulated from investment of such assets is possessed, held or used, 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, 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, which may involve actions such as tax evasion or false accounting. Nowadays, money laundering has become more well-known in economic, political, and legal discussion since the financial crime has become more complex and critical issue. After September 11th 2001 terrorist attack in the United States, terrorism and terrorist financing have become more important issues in the debate on money laundering. As a result, international organizations have also focused on money laundering by terrorist organization. Money laundering is considered the third largest business in the world. 2.2.2 Money Laundering Process Money laundering is mostly used by drug traffickers, corrupt politicians and public officials, gangsters, terrorists, etc. Drug traffickers are the prime money launders since they deal almost entirely in cash which causes all sorts of logistics problems. This draws heavy attention of law enforcers.

Money laundering process involves three basic steps: 1. Placement In this stage, the launderer inserts the black money into a legal financial institution which is often in the form of cash bank deposits.The bank account is generally opened in the name of a corporation especially set up, with the assistance (willingly or subconsciously) of professionals such as lawyers, for the purpose of laundering money. These corporations or businesses are known as fronts, which conceals the illicit activities due to their legitimate appearance. 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. 2. 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. Several bank-to-bank transfers, wire transfers between different accounts in different names in different countries, making deposits and withdrawals to continually vary the amount of money in the accounts, changing the moneys currency, and purchasing high-value items to change the form of the money are included in this process. By increasing of layering the origin of money becomes undetectable through crossing and covering operations, purchases, electronic transfers, frequent transfers, 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, air-tickets, bankers drafts Commodity exchange contracts

Layering makes the black money white, leaving behind very few traces of the black money origination. 3. Integration At the integration stage, the money re-enters the mainstream economy in legitimate-looking form. It appears to come from a legal transaction. This may involve a final bank transfer into the account of a local business in which the launderer is investing. At this
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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. 2.2.3 The Popular Techniques of Money Laundering Criminals can use various techniques to launder money and come out clean. 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). The money is then deposited into one or more banks by one or more people (smurf). b) Deposits in overseas bank- Money launders often send the money to deposit in countries (offshore accounts) which allow anonymous banking i.e. allowing bank secrecy law. Some of such countries include Bahamas, Bahrain, the Cayman Islands, Hong Kong, Antilles, Panama and Singapore. c) Underground banking- Some countries in Asia have well-established, legal alternative banking systems that allow for undocumented deposits, 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. d) Shell companies- There are companies which have no other reasons to establish than to launder money. They take in black money in return of goods or services while not doing such transactions at all. It is only a dummy company used to trick people by the money launders. e) Investment in legitimate business- 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. . 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 - 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.

g) Getting hold of and selling of companies - From the layered money, the money launder acquire, including assets, a low value company which possess very little own property. Then the assets are revaluated, the company is sold and legal profit is realized. h) Insertions of phony companies - The laundries acquire control of a company of which true owners' identity is hidden for the authorities. Trading, financial transaction, forging of balance sheet loss/ profit, borrowings and exploitation of tax benefits are performed under the mask of this covering company.

2.2.4 Impacts of Money Laundering There can be various impacts of money laundering. Initially, there are ones who lose money as the result of the crime. Again, money laundering increases corruption and crime in the society. Money laundering also has impact on legitimate business. A launderer uses a front company to hide his/her illegal funds. This allows the front company to sells its products at low cost and hence capture the market by growing. This growth of front company again brings more opportunity to the launderer to move in more illicit funds. Money Laundering erodes the financial institutions involved in the process. The employees of such institutions are more prone to corruption since launderers always try to encourage them to do so. Also, when the effects of such practices become visible through bad treatment of other regular customers, people lose trust in such financial institutions. This mistrust hinders the economic development of the country, since financial institutions are the backbone of the financial development of any country and peoples mistrust results in less deposit into such institutions leaving with fewer funds for investments in productive sectors. Money launderers tend to divert the resources to more unproductive sectors by facilitating corruption, hence, bringing about economic depression. These days terrorism is on rise; let it be international highly organized ones or local less organized ones. These terrorist organizations receive funds mainly through money laundering. As most of the countries are acting against terrorism, no individual can easily supply funds to those organizations. Thus, they carry out a numerous and worldwide transactions to convert black money made through drug dealings, weapon sales, and human trafficking to ultimately
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send it to the hands of terrorists. A countrys 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. Furthermore, the impacts of money laundering can be listed as under: Losses to the victim- 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, 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, and this activity can lead to increase in market price of those assets Unfair competition-with lots of illegitimate money to spend and invest, launderers can

invest the money into a legal business and give subsidies in prices of products of such businesses, the honest business find it difficult to compete with such businesses Effect in Balance of Payment between countries- Launderers tend to spend in luxury

items and generally in imported ones. This spending does not support domestic economy and tend to increase the price of imported goods. Reduced government revenues- Tax evasion, a form of money laundering, reduces

government revenue. Changes in rates- Increase in crime (generation of money that needs to be laundered)

reduces the money demand; hence bring about a shift in exchange rates and interest rates. 2.2.5 Provisions against Money Laundering India In India The Prevention of Money-Laundering Act, 2004 came into effect on 1 July 2005. Section 3 of the Act states that those persons or entities who directly or indirectly attempt to
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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. 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. Section 12 (1) prescribes the obligations on banks, financial institutions and intermediaries (a) to maintain records detailing the nature and value of transactions which may be prescribed, whether such transactions comprise of a single transaction or a series of transactions integrally connected to each other, 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. Section 12 (2) prescribes that the records referred to in sub-section (1) as mentioned above, must be maintained for ten years after the transactions finished. The provisions of the Act are frequently reviewed and various amendments have been passed from time to time. United Kingdom Money laundering legislation in the UK is governed by four acts of primary legislation which are The Terrorism Act 2000, The Anti-Terrorist Crime & Security Act 2001, The Proceeds of Crime Act 2002 and Serious Organized Crime and Police Act 2005. Secondary regulation is provided by the Money Laundering Regulations 2003 and 2007. Professional guidance is provided by industry groups including the Joint Money Laundering Steering Group and the Law Society. Under the UK law, if a person enjoys, uses or controls criminal property by another person than he/she will commit money laundering offence. 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. United States
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The Money Laundering Control Act of 1986 defines money laundering as a federal crime. In the United States, 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 $500,000 or twice the value of the property involved in the transaction, whichever is greater, or imprisonment for not more than twenty years, or both. Nepal Money Laundering Prevention Act 2008 (refer to annex) provides provisions against money laundering in Nepal. This act has provided various provisions in this relation. It requires that any bank, financial institution or nonfinancial institution identify its customers and deal only after clearly identifying them. It has provided provisions to form a coordination committee, financial information unit, asset laundering prevention department and also has provided for their functions and duties. It has provided for appointment of an Investigation officer and has specified its functions, duties and powers. The investigating officer may order to freeze the assets, suspend account or transaction. The acts has provisioned equal amount of fine as that of the laundering offence for the one who launders, 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. It has also provided for the punishment of any bank or financial or nonfinancial institution involved in laundering offence. The act also has provisions for punishing those concealing or destroying evidences, creating obstacles, confiscate assets in such regards. Nepal Rastra Bank (NRB), 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). The central bank can take actions against any individual (person or institution), who does not provide the information on suspicious transactions to its FIU, under the prevailing Money Laundering Prevention Act 2008. One of the important components of the act is the Know Your Customer (KYC) system, which has been in place for the last few years. 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, false identity and
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performing elusive transactions that contributes to money laundering. Banks and financial institutions are should keep in place the KYC details of every customer. Banks and financial institutions are required to provide the Financial Information Cell (FIC) with the particulars of transactions of Rs. 1 million or above by way of deposit, payment or remittance through a single transaction or a multiple of transactions in a day, or of those of exchange transactions of Rs. 0.5 million or above. Also there is a provision to the effect that the source of funds in respect of a deposit of Rs. 1 million or above must be unveiled. 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. 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. Recipients of remittances of Rs. 1 million or above are also required to disclose the source of the money received. 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. Over the past few years money laundering has increased significantly in Nepal. Whenever there is a case, or suspicion, of money laundering, Nepal Rastra Bank issues orders to freeze the accounts and properties of the suspicious person or organization. In Unitys case also, Nepal Rastra Bank issued instructions to freeze the accounts and properties in the name of the promoters and associates involved in the Unity business. Combating money laundering, now that it has allegedly become a third largest business, requires that there be a global co-operation. Nepal has signed various agreements with various countries around the globe to co-operate to combat money laundering. These agreements allow for the exchange of information on bank balance, investments, and shares held by people suspected in money laundering. Nepal, being a member of the United Nations, has also taken huge responsibility of combating money laundering as required by the UN Convention against corruption that has separate article regarding 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.
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2.2.6 A Money Laundering Case White-collar Laundering Case The owner of Crazy Eddie's Electronics, Eddie Antar, in 1980s skimmed millions of dollars from the company. 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. In a series of trips to Israel, Antar carried millions of dollars attached to his body and also his suitcase. Antar made a series of separate deposits to a bank in Israel. On one trip, he made 12 deposits in a single day (Placement). Before U.S. or Israeli authorities had a chance to notice the sudden huge balance in the account, Antar had the Israeli bank wire transfer everything to Panama, where bank secrecy laws are in effect and from that account, Antar could make anonymous transfers to various offshore accounts (Layering).Antar then slowly wired the money from those accounts to the legitimate Crazy Eddie's Electronics bank account, where the money got mixed in with legitimate dollars and documented as revenue (Integration). Overall, Eddie Antar laundered more than $8 million. 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. Antar sold his stock and left with $30 million in profit. Authorities found him in Israel in 1992, and Israel extradited him to the United States to stand trial. He received an eight-year prison sentence. Here, Antar has employed all three basic steps of money laundering in his quest to transform the illegal money into legal. But, in the end, US authorities caught and punished him under the prevailing Anti money laundering law. This case shows how illegal money moves from a country to another, from an account to another, before it appears to be legal. It also shows how responsible people in an organization misuse the privilege for their individual benefits. 2.3 Insider Trading 2.3.1 Defining Insider Trading Insider trading is a term associated with both legal and illegal conduct. The legal insider trading is when the corporate insiders i.e. officers, directors, and the employees buy and sell stocks in

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their own companies. 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. However, the term insider trading is frequently used to refer illegal trading. The illegal insider trading is the trading of corporations stock or other securities like bonds or stock options by individuals with the potential access to non-public information about the company. In simple, 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. Illegal insider trading refers generally to buying or selling a security, in breach of a fiduciary duty or other relationship of trust and confidence, while in possession of material, nonpublic information about the security. According to Gower, 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, had the counter party been aware of the information in question. In that way, the insider can either make a profit or avoid loss depending on whether the information, once published, will derive the share price up or down. If an individual who has insider information, that may affect in the price of securities, 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, otherwise than in proper performance of his duties, is deemed to have performed insider dealing. Examples of insider trading can be as follows: The corporate officers, directors, and employees who trade the corporation's securities after learning of significant, confidential corporate developments are said to be involved in illegal insider trading. Employees of law, banking, brokerage and printing firms who were given such information to provide services to the corporation, if trade the corporations securities, are also said to be involved in insider trading Government employees who learn of confidential information because of their employment by the government, if earn undue benefit from that information, are said to be involved in insider trading
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Other persons who misappropriate, and take advantage of, confidential information from

their employers are also said to be involved in insider trading. 2.3.2 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. This kind of information that has effect on the decisions of investors is called material information. That information which has not been made public is insider information. The company executives mainly the director, shareholders including the accountant, the administrative assistant, financial analysts, senior managers as well as the research and development officers are considered to be insiders. Other individuals who are not employees, but with whom the company needs to share material information, like lawyers, brokers, bankers are also insiders. Trades made by these types of insiders in the company's own stock, based on material non-public information, are considered to be fraudulent since the insiders are violating the fiduciary duty that they owe to the shareholders. The corporate insider, simply by accepting employment, has made a contract with the shareholders to put the shareholders' interests before their own, in matters related to the corporation. When the insider buys or sells stocks based upon company owned information, he is violating his contract with the shareholders. 2.3.3 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. 2.3.4 Forms of Insider Trading Insider trading can take various forms. Lets look at some of them: 1) Buying securities in ones own company

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This is a legal type of insider trading that refers to the buying of securities in ones own company. It is legal to trade securities of the company to which one belongs. However, there is a fine line between legal insider trading and illegal trading. The reason behind trading the securities should be based on the information publicly accessible and not proprietary information. 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. For example, when somebody knows from some insider that a company is about to file bankruptcy, and sellshis/her stocks before the knowledge becomes public can constitute the illegal type of insider trading. 3) "Tipping off" someone who makes a trade When the information is shared to someone by an insider, and he/she enters into trade relying on the information, this act makes both the person guilty of insider trading. For example, 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. 4) Providing a service and making a trade The people who directly work for the company are not only the insiders. Even the people who provide service for the company cannot make trade based on information that is not available to the public. The service provider may be a lawyer, auditor, broker, or a banker providing some service to the company. 2.3.5 Impacts of Insider Trading Insider trading provides benefits only to those who have insider information. It does not bring benefit to the organisation or the general public. As a result public loses trust in the securities market. It provides undue advantages to those trading in insider information, while the outside investors cannot compete with them. This practice encourages people inside the organisation to involve in illegal activity of providing inside information that is not meant to be public to
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individuals outside the organisation, thus bringing in opportunities for their benefits. This makes people inside the organisation more corrupt. 2.3.6 Provisions against Insider Trading In the United States, the main tool for fighting insider trading is Securities Exchange Act 1934. Section 10(b) and rule 10b-5, which the Securities and Exchange Commission has promulgated under Section (10b), provide for fighting against insider trading in the US. In India, Securities and Exchange Board of India Regulations, 1992 has provisions against insider trading. No other provisions were available in Nepal against Insider Trading until Securities Act 2007 (refer to annex) was brought into force. Section 91 and section 92 of Securities Act 2007 explains what information falls under insider information, while section 101(a) of Securities Act 2007 has provisions regarding punishment against insider trading. Section 91(1) says that 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 of affecting the price of such securities if such information or notice is disclosed. Section 92 identifies the persons likely to be involved in insider trading. Any such person may be punished with the fine equivalent to the amount in controversy or an imprisonment not exceeding one year or both. Insider trading is punished under criminal regime in Nepal, but not under civil regime. 2.3.7 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. (BBLIL). There were two big parties involved in this case. On one side was the capital market regulator, Securities and Exchange Board of India (SEBI) and the other side was the Unilever subsidiary, Hindustan lever limited (HLL). 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, charging it for insider trading. SEBI conducted inquiries and in August 1997, issued a notice to the chairman, the executive directors and the company secretary and also directed HLL to pay compensation of Rs 3.4 crores
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to Unit Trust India (UTI) and also initiated criminal proceedings against five common directors of HLL and BBLIL: S.M. Datta, K.V. Dadiseth, R. Gopalakrishnan, A. Lahiri, and M.K. Sharma, who were on the core team which discussed the merger. Excerpt from SEBI says that ....it can be conclusively said that while entering into the transaction for purchase of 8 lakh shares of BBLIL from UTI, HLL was acting on the basis of the privileged information in its possession, regarding the impending merger of BBLIL with HLL. It also may be stated that, by its very nature, when it comes to motives and intentions, there may not always be any direct evidence. However, the chain of circumstances, the timing of the transaction, and other related factors, as discussed earlier, demonstrates beyond doubt that the transaction was founded upon and effected on the basis of unpublished price sensitive information about the impending merger." The above extract tells that the HLL bought the shares of BBLIL on the basis of unpublished price sensitive information and on this ground; SEBI has charged it for insider trading. In March 1998, an exhaustive order was passed by SEBI that sent waves of shock throughout the countrys corporate sector. SEBI held that HLL was using unpublished, price sensitive information to trade and therefore was guilty for insider trading. HLL brought the shares of BBLIL from UTI on March 25, 1996, 25 days before its merger with BBLIL at a price of Rs 350.35 per share (at a premium of 9.5 % of the ruling market price) and the announcement of merger was made on April, 1996. However, According to HLL, it received the information only because it was one of the parties to merger itself and not because of its connection to BBLIL. HLL says that it was important to make this distinction between it, because to be considered as an insider, HLL should have received the information by virtue of such connection with other company. HLL defended itself on the grounds that it was the primary party to the merger and from the point of view of insider trading, a primary party in the merger cannot be considered as an insider. The case was handled by the Appellate Authority of the Finance Minister. The Appellate court cited 21 press reports that indicated that the prospect of merger between HLL and BBLIL was widely known.The Appellate Authority said that under Regulation 11B, 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.
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CHAPTER THREE 3.1 Conclusion Money laundering and insider trading are two major forms of corporate crimes. These crimes do not always remain non-violent and can involve a large sum of money. While carrying out these crimes the offenders misuse their privileges and often defy the law of various countries.It is clear from the report that money laundering involves three basic steps: Placing,Layering, and Integration and can take place in various forms:Smurfing, Deposits in overseas bank,Underground banking, Shell companies, and Investment in legitimate business. Insider trading can also take various forms: Buying securities in your company, Illegal insider stock trading, "Tipping off" someone who makes a trade, and providing a service and making a trade. 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. Countries all over the world, including Nepal have made laws to regulate corporate world and discourage corporate crimes. In Nepal, Money (Asset) Laundering Prevention Act 2008 has provisions against money laundering while Securities Act 2007 provides against insider trading. Also, countries across the globe have now recognized the need for mutual co-operation in the quest to combat money laundering. 3.2 Recommendations There is no doubt that corporate crimes are rampant in our country. 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. Just drafting and issuing laws is not sufficient. Commitment from the government to properly implement these laws, determination from financial institutions to stop criminal activities from within, and implementation of proper policies by organizations to avoid such crimes is necessary. Moreover, 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, even at a danger to their lives.
20

Combating money laundering is not only a national issue. Thus, high-level co-operation between governments, agreements through various international organizations, and acting truly upon these agreements is need of the time to avoid these crimes.

21

Bibliography (n.d.). Retrieved september 3, 2010, from US government and securities exchange: http://www.sec.gov/answers/insider.htm (n.d.). Retrieved september 3, 2010, from life123: http://www.life123.com/careermoney/investing/insider-trading/types-of-insider-trading.shtml (n.d.). Retrieved september 3, 2010, from about.com:management: http://management.about.com/cs/businessethics/a/InsiderTrade702.htm (n.d.). Retrieved september 3, 2010, from how stuff works: http://money.howstuffworks.com/money-laundering3.htm (n.d.). Retrieved september 3, 2010, from link between terrorism and other forms of crime: http://www.icclr.law.ubc.ca/Publications/Reports/TNOC_LINKS_STUDY_REPORT.pdf (n.d.). Retrieved september 3, 2010, from money laundering methods and markets: http://www.piie.com/publications/chapters_preview/381/3iie3705.pdf (n.d.). Retrieved september 3, 2010, from gorkhapatra: http://www.gorkhapatra.org.np/detail.gopa.php?article_id=35645&cat_id=7

22

ANNEX

23

Money Laundering Prevention Act, 2063 (2008)

Date of Authentication and publication: 14 Baisakh 2064 (1 January 2008)

Preamble: Whereas, it is expedient to provide for legal provisions to prevent laundering of criminally earned money (assets), the LegislatureParliament has enacted this Act. Act No. 34 of the Year 2064 (2008)

Chapter - 1

Preliminary

1. Short Title, Extent, and Commencement: (1) This Act may be called" Money (Asset) Laundering Prevention Act, 2008". (2) The Act shall be applicable throughout Nepal and to any individual or corporate body, wherever may be residing, or located remitting, transferring or sending assets from Nepal to abroad or abroad to Nepal obtained by the act which is offence under this Act. (3) The Act shall come into force immediately. 2. Definition: Unless the subject or context otherwise requires, in this Act,24

(a) "Investigation Officer" means a personnel appointed or designated as per pursuant to Section 15. (b) "Offence" means the offence prescribed under chapter-2. (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, sale, distribution, transfer or investment and possession of any assets. (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, precious metals or other than those firm, company or institution as prescribed in Clause (h) 2) Any institution whether or not organized or registered as per the laws, 3) Any institution prescribed by Nepal Government by publishing notice in the Nepal Gazette. (d) "Prescribed or as prescribed" means prescribed or as prescribed in this Act or rules framed under therein. (e) "Department" means the Asset Laundering Investigation Department pursuant to Section 11. (f) "Bank" means a bank licensed by Rastra Bank for carrying out 'A' class financial transactions under the prevailing bank and financial institution law. (g) "Financial Institution" means financial institution licensed by Rastra Bank for carrying out 'B', 'C', and 'D' class financial transactions under the prevailing bank and financial institution law and the term also denotes the cooperatives, person, firm, company or institution holding license to purchase and sale of foreign currency or any other transactions, company holding license for insurance business, insurance broker and also securities market or business as per prevailing laws.
25

(h) "Financial Information Unit" means the Financial Information Unit constituted pursuant to Section 9. (i) "Rastra Bank" means Nepal Rastra Bank established under the prevailing Nepal Rastra Bank law. (j) "Public Servant" means any individual supposed to be public servant as per prevailing laws. (k) "Doubtful Transactions" means transactions appearing improbable economically, commercially or by business in general situation. (l) "Assets" means all kinds of moveable, immovable, tangible or intangible properties. (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.

Chapter-2

Provisions Relating to Offences

3. Assets not to Be Laundered: (1) Nobody shall launder or cause to launder assets.

26

(2) Any one committing acts pursuant to Sub-Section (1) shall be deemed to have committed offence as per this Act. 4. Assets Supposed to Have Laundered: Assets shall be supposed to have laundered in case anyone, directly or indirectly, earns from tax evasion or terrorist activities or invests in such activities or acquires, holds, 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, held or used, 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, 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, b) Offences under the prevailing foreign exchange regulation laws, c) Offences of murder, theft, cheating, forgery documents, counterfeiting, kidnap or abduction under the concerned prevailing laws, d) Offences under the prevailing drug control laws, e) Offences under the prevailing national park and wild animals conservation laws, f) Offences under the prevailing human trafficking and transportation control laws, g) Offences under the prevailing cooperatives laws, h) Offences under the prevailing forest laws, i) Offences under the prevailing corruption control laws, j) Offences under the prevailing bank and financial institution laws, k) Offences under the prevailing banking offence and punishment laws, l) Offences under the prevailing ancient monuments conversation laws, m) Other offences under any other law that Government of Nepal prescribes by publishing a notice in the Nepal Gazette.

27

Clarification: For the purpose of this Section, 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, 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, 2) Hague Convention for the Suppression of Unlawful Seizure of Aircraft, 1970, 3) Montral Convention for the Suppression of Unlawful Acts Against the Safety of Civil Aviation, 1971, 4) Convention on the Prevention and Punishment of Crime Against Internationally Protected Persons Including Diplomatic Agents, 1973, 5) International convention Against the Taking of Hostages, 1979, 6) SAARC Regional Convention on Suppression of Terrorism, 1987, 7) Any Convention against Terrorist Activities to which Nepal is a party. 5. Not to Attempt, Support or Provoke: No one should attempt, support or provoke others to commit offences stipulated in this chapter.

Chapter -3

Provision Relating to Identity, Transactions and Details of the Customers

6. Customers to be Identified: (1) Any bank, financial institution or nonfinancial institutions shall maintain clear identity of a person while
28

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. (2) Bank, financial institution or non-financial institution, while getting identification of the customer as per Sub-Section (1), shall require the person establishing business relationship or having transactions with it to submit the documents as follows:a. In case of a natural person his/her name, family surname, copy of citizenship or passport including other necessary documents evidencing his/her permanent residential address and profession or business, b. In case of the person or firm except provided in Clause (a), copy of the document certifying incorporation, establishment or registration of the institution, documents that presenting name, surname, address, profession, business of board of directors and executive director or proprietor of firm or partners of partnership firm, c. In case of business relation or transactions to be established or made on behalf of someone else, documents relating to principal's identity, address including power of attorney clarifying his/her business, d. Name, surname, address of close relative, person or institution benefiting from the transaction of the business relationship, e. In case of transactions made through negotiable instruments, name, surname and address of the issuer and payee of or from such instrument, f. Other documents as prescribed by the Financial Information Unit from time to time. (3) Bank, financial institution or non-financial institution shall keep a separate record of documents and transactions of each customer, pursuant
29

to Sub- Section (2), including date and nature of transactions, type of account if any and symbol number. 7. Liability of Government Entity, Bank, Financial Institution and NonFinancial Institution :-(1) The government entity, bank, financial

institution and non financial institution shall fulfill the following liabilities for the purpose of this Act:a. 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, b. 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, c. 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). (2) In case, 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, the concerned entity, bank, financial institution or non financial institution shall inform such details to the Financial Information Unit immediately. (3) Notwithstanding anything in Sub-Section (1), in case, there is any suspicion in the transactions of persons having regular business relation or transactions, the concerned entity, bank, financial institution or non-banking

30

financial institution shall inform the Financial Information Unit after making an inquiry. (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.

Chapter 4

Provisions for Coordination Committee and Financial Information Unit

8.

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, Ministry of Finance (b) Secretary, Ministry of Law, Justice and Parliamentary System Member (c) Secretary, Ministry of Home (d) Secretary, Ministry of Foreign Affairs (e) Deputy Governor, Nepal Rastra Bank Member Member Member Coordinator

31

(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. (3) The procedures of meeting of the Coordinate Committee pursuant to Sub-Section (1) shall be as determined by the committee itself. 9. Financial Information Unit: (1) There shall be a Financial Information Unit in Rastra Bank for collection and analysis of information relating to assets laundering. (2) The Governor of Rastra Bank shall appoint the chief of the Financial8 Information Unit from among the first class officers, at the least, of Rastra Bank. (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. 10. Functions, Powers and Duties of Financial Information Unit: (1) In addition to the functions, powers and duties mentioned at other places of this Act, the functions, powers and duties of the Financial Information Unit shall be as follows:a. To obtain details of transactions under Section 7 from

government entities, bank, financial institution and non-financial institution regularly and maintain records of those details by scrutinizing them, b. To conduct preliminary inquiry, in case the notice, details and documents available to it requires inquiry and investigation on assets laundering and send its details to the concerned Department, government entity, bank, financial institution and non-financial institution,
32

c. 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) , write to the Department with extensive 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), d. To send notice, details and documents regarding assets laundering to the Financial Information Units of other country and international organization, institutions reciprocally and receive such notice from concerned country and international organization and institution, e. To inspect transactions and records of bank, financial institution and non financial institution, to obtain any information or clarification9 about such transactions and records and their copies if necessary, f. To manage required training programs for the staffs of government entities, Departments and Financial Information Unit for prevention of assets laundering, g. To carry out other functions as prescribed. (2) The entity authorized to regulate bank, 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. (3) The Financial Information Unit may give necessary directives to the concerned bank, financial institution and non-financial institution about the method, form, time and other procedures regarding the submission of details, statistics, notices and information pursuant to Clause (a) of Sub33

Section (1) and it shall be the duty of such bank, financial institution and non-financial institution to abide by such directives.

Chapter -5

Provisions for Formation of the Department and its Functions, Duties and Powers

11. 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. (2) The chief of the Department shall be a first class officer of civil service. (3) The organizational structure of the Departmental and required number of staffs shall be as prescribed by the Government of Nepal. (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. 12. 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. To issue order to any concern government entity, bank, financial institution or non-financial institution to submit the concerned document, evidence or other required detail remained with such

34

entity, bank, financial institution and non-financial institution to the Department within a particular time limit, b. To conduct search operation of any concerned government entity, bank, financial institution or non-financial institution or of any other places, to seize, take control of concerned document, deed, material evidence and other evidence and hand its receipts to the concerned official, c. To get present and inquire, call explanation or clarification from the concern official of the concerned government entity, bank, financial institution or non-financial institution, other staff or a concerned person supposed to have obtained information of related facts as deemed by the Department, d. To release a person with a written condition to present at requirement or on dated attendance, 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), 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. e. To order the concerned entity to freeze assets, located in Nepal, 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, f. To require to freeze assets related to the offence under this Act in the course of inquiry and investigation of the offence. (2) In case any government entity, bank, financial institution or nonfinancial institution is communicated by the Department to submit any
35

documents or any other matters, freeze assets or provide information about any matter in the course of investigation and inquiry of the offences under this Act, the entity, bank, financial institution, concerned official, staff or agent of the non-financial institution not submitting such document or other matters, not freezing assets or not providing information and any official or staff of such entity, bank, financial institution or non-financial institution absenting even at the order of the Department to be present, 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.

Chapter-6

Provisions for Investigation and Inquiry

13. Complaint: (1) Any person, who has information that somebody has committed, going to committee or committing any act supposed to be an offence under this Act, may submit a complaint, application, information or notice to the Department in written or oral form. (2) The Department shall register complaint, application, information or notice in written form and oral complaint, application, information or notice shall be registered after giving it to a written form, obtained pursuant to Sub-Section (1). 14. 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

offence under this Act has been committed, being committed or going to be committed. (2) The Department, if it receives information that any offence under this Act has been committed, 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, hide or alter, 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, being committed or going to be committed immediately. (3) The Department shall obtain opinion of government attorney while conducting such immediate investigation and inquiry pursuant to SubSection (1). 15. 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, in order to conduct investigation and inquiry of the offences under this Act. (2) The Department, while appointing or designating any other staff in the service of government or public corporate body as an investigation officer, shall consult the chief of the concerned entity or corporate body. 16. Functions, Duties and Powers of the Investigation Officer: (1) The functions, powers and duties of the investigation officer, appointed or designated pursuant to Section 15, shall be as follows:a) To take necessary action by arresting the offender (suspect) immediately,

37

b) To conduct search or cause to conduct search operation of any office, residence, building, storage, vehicles or of any place in the course of investigation and inquiry, c) To exercise other powers vested to the Department. (2) The investigation officer, while proceeding pursuant to Sub-Section (1), may keep the offender (suspect) on date, 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. 17. 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, 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. (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, the investigation officer shall detain the offender with the approval of the adjudicating officer presenting the offender before such officer. (3) The Department, while requesting for permission as stipulated under Sub-Section (2), shall clearly mention the charges against the detainee, reasons and grounds thereon, 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. (4) If request is made to carry out investigation and inquiry continuing detention pursuant to Sub-Section (3), the adjudicating officer, after reviewing the concerned documents and process of investigation and inquiry
38

whether satisfactory or not, 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. (5) In case permission is requested to keep under custody as per SubSection (2), the detainee may file a petition to the adjudicating officer for his/her release with reasons and grounds thereof. 18. To Order for Freezing Assets: (1) The Department or investigation officer may give order to the concerned entity to prevent any transfer, pledge, sale/disposal of the assets collected by offence for a time period fixed, if it is deemed in the course of investigation and inquiry or there are reasonable grounds at hand that he/she may transfer, sale/dispose or conceal or transform such assets by any manner. (2) In case a written request is made to freeze assets pursuant to SubSection (1), the concerned entity shall freeze/withhold such assets preventing its transfer or pledge or sale/disposal. (3) The Department may impose fine to the chief of the concerned entity, who does not freeze the assets in contravention to the order pursuant to Sub- Section (1), up to fifty thousand rupees as per the report of the investigation officer. 19. Suspension of Account or Transactions: Notwithstanding anything mentioned in the prevailing laws, the Department may issue an order, in the course of a inquiry and investigation of an offence under this Act, to prevent transactions or freeze bank account of a person transacting with a bank, financial institution or nonfinancial institution if any information is obtained that he/she has maintained transactions or account with such bank, financial institution or non-financial institution. Provided that such transaction or account operated with a bank, financial institution, non-financial institution

39

situated or person living abroad, the Department shall make a request of freezing such transactions or account through a diplomatic channel. 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. 21. 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. (2) The Department may also demand support of Nepal police in course of inquiry and investigation of offence under this Act. 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. (3) The Department, if it deems by the nature of offence under investigation and inquires, 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. 22. Filing of a Case: (1) If any one, whosoever, is deemed to have committed an offence under this Act from investigation and inquiry, the Department shall write to the concerned government attorney for taking decision whether a case is to be filed against him/her or not. (2) In case the concerned government attorney decides to file a case, in response to writing pursuant to Sub-Section (1), the Department shall file the case with the court prescribed by the Government of Nepal by publishing notice in Nepal Gazette.

40

23. Limitation: There shall be no limitation to file a case relating to the offence under this Act. 24. Government to Be Plaintiff: The Government of Nepal shall be plaintiff in the case relating to any offences under this Act. 25. 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. (2) In case a person involved in the offence under any prevailing law is found to have committed offence under this Act, the entity or officer conducting investigation and inquiry of such offence shall inform the same to the Department. 26. 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, unless the prevailing law so requires. 27. Automatic Suspension: Any official or staff of any bank, 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, official or civil servant pursuant to Section 22. 28. 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, granted, gifted, provided loans, contribution or endowment more than his/her capacity, he/she is required to prove the source of earnings and in case he/she fails to

41

prove so he/she shall be deemed to have earned such assets by committing offences under this Act. 29. 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.

Chapter-7

Punishment

30. Punishment to the Offender: (1) Anyone committing offence under Section-3 shall be punished as follows, 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 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, (b) In case an office bearer, chief 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).

42

(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. 31. 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. (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. 32. 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. 33. Punishment for Creating Obstacles: If any person creates obstacles in the proceedings of investigation and inquiry undertaken under this Act, 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. 34. 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.

43

(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, the amount shall be dealt as per the deed with security.

Chapter -8

Miscellaneous

35. Seizure of Passport: Notwithstanding anything mentioned in prevailing laws, 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, and degree of the offence. 36. 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, the Department if case has not been filed, or the court hearing the case if the case has been filed, shall order to release such assets to the entity withholding such assets and the entity shall release such assets if such order is made. 37. 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, bank, financial institution or non-financial institution or by a staff, official or agent of such bank, financial institution or non-financial institution subject to the provisions mentioned in Section 7 and Clause (a) of Section 10, no such entity, bank, financial institution or nonfinancial institution or staff, official or agent of such entity, bank, financial institution or non-financial institution shall be taken any action in against.

44

38. 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, 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. (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 amount received from such auction sale shall be handed area to the person concerned. 39. 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, notwithstanding whatever mentioned in prevailing laws, 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. 40. Provisions Relating to Delivery of Notice: (1) Notwithstanding anything written in the prevailing laws, 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, if any, and the notice so delivered shall be deemed to have been duly delivered. (2) In case the office or representative as stipulated under Sub-Section (1) does not exist, 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, through telex,

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telefax or other means of telecommunication or through post by registration and the notice so delivered shall be deemed to be duly delivered. (3) Notwithstanding anything mentioned in Sub-Section (1) or (2), if there is a separate provision in any treaty where Government of Nepal or Nepal is a party, 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. 41. Notice to be Published: In case a report is received, in connection with the dispatch or delivery of a notice to any person under this Act or other 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, notwithstanding anything contained in the prevailing laws, 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, whether the case is investigated or is already lodged with the adjudicating officer. If such notice is so published, it shall be deemed to be duly delivered or delivered to such person, notwithstanding anything contained under this Act or other prevailing laws. 42. 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, the investigation officer may issue an order to keep his/her assets, entitlement, interest or concern within Nepal in status quo or to prevent it to take outside Nepal if he/she has any such assets, entitlement, 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.

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(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. The losses or harm caused to the Government of Nepal or public institution, if any, due to such non compliance of the order, shall also be recovered from such person. 43. No Obstruction to Adjudication and Decision Proceedings: Notwithstanding anything mentioned under the prevailing laws, 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. 44. Waiver May Be Given in Punishment: The investigation officer may provide waiver in the claim of punishment, in full or part, to a person extending cooperation in regard to the investigation and inquiry proceedings initiated under the Act presenting such person as his witness. Provided, 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. 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. (2) In case the persons pursuant to Sub-Section (1) are more than one, such amount shall be distributed proportionately. 46. Rules May be Formulated: The Government of Nepal may frame necessary Rules for implementation of the objectives of this Act.
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SECURITIES ACT, 2063 (2007)

Date of Authentication and Publication 30 Poush 2063 (January 14, 2007)

Chapter-9

Offenses Relating to Insider Trading in Securities and Transactions of Securities and Punishment

91. 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. Explanation: For the purposes of this Sub-section, "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
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of affecting the price of such securities if such information or notice is disclosed. (2) Notwithstanding anything contained in Sub-section (1), 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. 92. Persons likely to be involved in insider trading: For the purposes of this Act, 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, employee or a person, who can obtain any information or a notice in the capacity of a shareholder of that body corporate, (b) A person who can obtain any information or a notice in the capacity of a professional service provider to that body corporate, (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). 93. Information or notice deemed to have been made public: On any of the following conditions, 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, (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, (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,

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(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, (e) If it has been communicated to any specific class, out of the general public, (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. 94. False trading: For the purposes of this Act, if the following trading is done, such a trading shall be deemed to be a fake or false trading: (a) The actual ownership is not changed, even though the purchase or sale of securities is done directly or indirectly. (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. 95. Fluctuation in price: If an person causes stability, increase, 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 caused fluctuation in price. 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, 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,

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(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, (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. 97. To supply misleading statements: If a person intentionally commits any of the following acts to deceit others to purchase or sell securities, 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, misleading or fake, (b) To hide any fact or information with mala fide intention, (c) To make or publish a false or misleading statement, promise or projection with mala fide intention. 98. Fraudulent transaction: If a person intentionally commits the following transaction with intent to purchase, sell or exchange securities from, to or with any other person, such a person shall be deemed to have committed fraudulent transaction:(a) To make any technology, plan or commit any act to defraud others, or (b) To get a person to do any act or be engaged in any work by misrepresenting such a person. 99. 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, increased or stabilized the price of securities on the basis of statement that such a statement is false or
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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, 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. 100. Destroy or concealment of documents, statements or records: No person shall destroy, forge, conceal any documents, 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, statements or records demanded by the authority designated to make investigations pursuant to Section 103 in the course of investigations or any such documents, 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. 101. Punishment: (1) A person who commits an insider trading as referred to in Section 91 shall, upon being convicted of the offense of insider trading, 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. (2) A person who commits any act referred to in Sections 94, 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, and where any one has suffered any loss or damage from such an act, such loss or damage has also to be recovered. (3) A person who commits any act referred to in Sections 97, 98, 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, and where any

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one has suffered any loss or damage from such transactions, such loss or damage shall also be recovered. (4) If any one knowingly or with mala fide intention, does not maintain, make, prepare or submit such accounts, books, statements, reports, notices, information or similar other documents as required to be maintained, made, prepared or submitted under this Act or the Rules or Bye-laws framed under this Act within the time specified for the maintenance, making preparation or submission of such accounts, books, statements, reports, notices or information or if one makes, prepares or retains false statements or documents, the Board may punish such a person with a fine of fifty thousand rupees to two hundred thousand rupees. (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, stock exchange, securities business person or investor, the Board may punish such a person with a fine of fifty thousand rupees to two hundred thousand rupees. If any one has suffered any loss or damage from such act, the Board may also cause the recovery of compensation for actual loss or damage. (6) If any one issues securities, 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, the Board may punish such a person with a fine of fifty thousand rupees to one hundred fifty thousand rupees. (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
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done, the Board may punish such a person with a fine of twenty five thousand rupees to seventy five thousand rupees 102. Government of Nepal to be a plaintiff: The cases relating to the offenses referred to in Sections 91, 94, 95, 96, 97, 98, 99 and 100 shall be state cases to which Government of Nepal shall be a plaintiff. 103. 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, 94, 95, 96, 97, 98, 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, the Board may designate any officer as an investigating authority to conduct investigations of the case relating to such an offense. (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. (3) The investigating authority designated pursuant to Sub-section (1) may, in the course of conducting investigation, make necessary inquiry with, take depositions of, any person or body related with the offense or demand necessary documents, statements and records from such person or body. (4) The designated investigating authority shall, in conducting

investigation of and filing a case pursuant to this Section, shall obtain advice of the government attorney. 104. Investigation may be conducted upon holding in detention or suspension or release on bail: (1) Notwithstanding anything contained in the prevailing laws, if, in conducting investigation of any case held to be an offense referred to in this Act, there is a reasonable ground to believe that any person against whom action is being taken on the accusation of an
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offense referred to in this Act may abscond and disappear or it appears that there is any loss of or damage to any assets, 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. (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, the Board may write to the concerned body to suspend such a person. 105. 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, such loss and damage may also be recovered or realized from the offender of such offense. 106. Appeal: (1) Any stock exchange, securities business person, body corporate or concerned person dissatisfied with any punishment made by the Board pursuant to Sub-sections (4), (5), (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. (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. 107. Remedies against undue bias: If the Board receives any notice, information and statement that any enlisted company has committed any acts or transactions with undue bias and in a manner to be against the

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interests of its members, the Board may order such a company to do as follows: (a) To refrain from doing such transactions, (b) To determine procedures for conducting acts and transactions in a manner not to be against the interests of members, (c) To appoint a manager or trustee, specifying, inter alia, the functions and duties of such a manager or trustee, to do, on behalf of the company, all or any of the acts and transactions of the company, (d) To issue such orders as may be required to regulate and manage the activities of the company. 108. To be disqualified to be a director or general manager: If a director, general manager or any other person holding the equivalent office thereto is convicted and punished with the punishment referred to in Section 101, 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.

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