Tight laws in offing against banking fraud

Kathmandu January 15- Parliament has been considering an amendment to the Banking Offence and Punishment Act that will put Dhukuti and cooperative operators convicted of embezzling money in jail for up to 10 years. Lawmakers moved to tighten the law due to a spurt in incidences of fraud in the sector.

The prison term ranges from a minimum of one year to 10 years based on the seriousness of the offence and the amount of the embezzled money returned. In addition to jail, offenders will be made to pay a fine equivalent to the fraud amount.

Those committing fraud amounting up to Rs5 million will be jailed from one to three years while those involved in fraud amounting to more than Rs500 million will have to serve a prison term of nine to 10 years.

The punishment is more severe for those committing fraud at Dhukutis and cooperatives than at banks and financial institutions. Offenders face a maximum jail term of 10 years if the embezzled amount totals more than Rs1 billion.

This is the first time that the government has prescribed punishment for those committing fraud while operating Dhukutis and cooperatives. The proposed amendment states that the penalty has been provisioned to discourage illegal transactions through Dhukutis and cooperatives and save public money.

A high-level commission formed under Gauri Bahadur Karki to probe troubled cooperatives two years ago had found that 150 troubled cooperatives had stolen Rs11 billion from 12,962 people. Likewise, a NepalRastra Bank (NRB) survey conducted in eight major cities in 2012 revealed that Dhukuti transactions were worth Rs5.18 billion.

Meanwhile, the amendment to the Banking Offence and Punishment Act has doubled the maximum jail term for those convicted of fraud in banks and financial institutions (BFIs) to 10 years from the current five years.

As a result of swelling fraud cases, particularly by those operating banking institutions, many BFIs have turned problematic. The amendment bill under discussion at Parliament has stated that a person guilty of embezzling over Rs1 billion will be put behind bars for eight to 10 years. Under the current law, banking fraud amounting to more than Rs10 million results in a jail term of three to five years.

NRB spokesperson Trilochan Pangeni said that the higher penalty has been proposed in the new bill as fraudsters had been serving lenient jail terms despite committing massive fraud. “Fraudsters even use political influence to escape prison,” he said.

The amendment bill has classed the level of punishment into several categories. While the existing act has provisioned that those committing fraud amounting to more than Rs10 million will serve the maximum jail term, the amendment bill has divided fraud of over Rs10 million into three categories, and the punishment has been fixed accordingly.

The immediate past executive chairman of Nepal Share Market & Finance Limited Yogendra Shrestha and the immediate managing director of Capital Merchant and Finance Company
Pawan Karki have been convicted of embezzling more than Rs1 billion.

However, the jail term for fraud amounting up to Rs1 million has been kept as before in the new bill. The penalty has been hiked for fraud amounting to more than Rs1 million.
 

The bill has stated that if the chairman, director or chief executive officer of a company is convicted of fraud, one year will be added to their jail terms. Most banking frauds that have appeared in recent years have been carried out with the involvement of the top officials of the concerned BFIs.

Punishment for fraud at Dhukuti and cooperatives

Fraud amount     Penalty (jail term)
Up to Rs5m    1-3 year
Rs5m-Rs50m    3-5 years
Rs50m-500m    5-7 years
Over Rs500m    9-10 years

 

Punishment for fraud at BFIs

Fraud amount     Penalty (jail term)
Up to Rs1m    up to 1 year
Rs1m-Rs5m    2-3 years
Rs5m-Rs10m    3-4 years
Rs10m-Rs100m    4-6 years
Rs100m-Rs1b    6-8 years
Over Rs1 billion    8-10 years

Source: TKP