On August 23, the leaders of three private sector organizations—Federation of Nepalese Chambers of Commerce and Industry (FNCCI), Confederation of Nepalese Industries (CNI), and Nepal Chamber of Commerce (NCC)—called for supportive government policies rather than discouraging them. Speaking from the same platform, the presidents of these organizations voiced serious concerns over proposed amendments to certain laws, arguing that these changes could undermine the private sector's role and hinder its contribution to economic growth.

Of late, business leaders have been lobbying with the government and parliamentarians to revise amendments to two bills related to corruption control, which include provisions for addressing corruption within private enterprises. They argue that legislative measures aimed at controlling, rather than regulating the private sector, could harm the economy by stifling investment. The two bills to amend the Prevention of Corruption Act, 2002 and the Commission for the Investigation of Abuse of Authority (CIAA) Act, 1991, are currently under consideration in the federal parliament.

The proposed amendments aim to grant the CIAA, the anti-graft body, the authority to investigate and prosecute corruption within the private sector. Private sector leaders have called on ministers and parliamentarians to ensure that the amended laws do not target private enterprises. The proposed amendment to the Prevention of Corruption Act, 2002, seeks to broaden the law’s scope by incorporating sectors such as company, medical college and bank. The amendment defines any institution, company, committee, commission, institute, authority, corporation, board, centre, council, bank, medical college, and its affiliated hospital, or any other organization of a similar nature, that is partially owned or controlled by the government of Nepal, province government, or established under prevailing laws as a public institution

"Since there already are many agencies regulating the private sector, adding more could undermine the business environment and morale," Leelamani Paudyal, a legal adviser to the FNCCI, said during an interaction with ministers and parliamentarians. He called for the removal of the provision in the Bill. Paudyal noted that since the term 'company' is included under the definition of a public organization, most companies, which are registered from the private sector, would fall under this provision.

The Bill to Amend the Commission for the Investigation of Abuse of Authority Act, 1991, also includes provisions that allow the authority to investigate corruption and irregularities within the private sector. It proposes to grant the CIAA the power to conduct investigations into companies, banks, medical colleges and their affiliated hospitals, as well as other similar organised institutions. It appears that the private sector individuals and the companies they promote will fall within the CIAA’s jurisdiction if the Bill is passed in the current state. Section 2 (D) (1) of the Bill defines 'other person' as a legal entity involved in corrupt activities alongside a person holding public office. According to Paudyal, the revised provision that brings the private sector under the anti-graft body’s scope contradicts Article 239 of the Constitution of Nepal, 2015, and risks discouraging private sector investment. The Work, Duties, and Rights of the National Vigilance Center Bill, 2023, submitted by the government to Parliament, also contains provisions targeting the private sector. It includes provisions to coordinate between various agencies for developing and implementing strategies to control and prevent corruption in the private sector. It appears that the Bill aims to bring the private sector under the oversight of the National Vigilance Centre.

"The private sector is not, and cannot be, under the National Vigilance Centre," Paudyal stated in his presentation. "The private sector does not fall under national service, public positions or responsibilities."

The Bill defines the 'private sector' as companies, firms, agencies, associations, organizations, and guilds registered under prevailing Nepali laws. The three private sector organizations have expressed concern over the provisions in these bills during discussions in the parliamentary committee.

Nepal has signed the United Nations Convention against Corruption which obligates signatory countries to implement measures to prevent corruption in the private sector. The government argues that a legal framework is essential to address corruption in private enterprises. However, the private sector contends that such measures may lead to adverse effects similar to those experienced by government employees who are now reluctant to sign documents due to fears of CIAA scrutiny.

Chandra Prasad Dhakal, President of the FNCCI, argues that the proposed revisions to include private sector companies should be abandoned. Dhakal contends that it is counterproductive for the government to undermine the role and investment of the private sector while enacting laws that affect it. "Some 18 laws related to the private sector are currently under discussion in the federal parliament," he said. "If these laws are passed as it is, they could harm the economy."

NCC President Kamlesh Agrawal also criticised the government's attempt to implement contradictory regulations while claiming to foster a private sector-friendly environment. "There already are different regulatory bodies that oversee the private sector," Agrawal said. “Introducing additional authorities and vigilance centres will affect the investment climate in the country. Investors will be deterred by such fear and uncertainty."

Rajesh Kumar Agrawal, President of the CNI, called for the need for policy stability given the economy's weak state over the past two years. "With nearly two dozen bodies already regulating the private sector, discussions about introducing a new law that would further increase oversight raise concerns. How can the private sector remain strong and resilient under such conditions?" questioned Agrawal.

Concerns over Bafia amendment

Business leaders have expressed concerns about restrictions on loan access for individuals holding more than one percent of shares in banks and financial institutions. The Banks and Financial Institutions Act (First Amendment) Bill, 2024, proposes prohibiting such shareholders from obtaining loans from any institution.

This bill is currently being reviewed by the Finance Committee of the House of Representatives.

FNCCI President Dhakal said economic growth could be hindered if businesspeople are barred from investing in other sectors due to their bank ownership. “How can the development of industry, investment and infrastructure as well as job creation be possible if business owners are restricted from diversifying their investments?” Dhakal questioned, urging the government to reconsider such restrictive measures. He warned that these provisions could stifle job creation and economic development during critical periods of revenue collection and growth.

Section 52(1) of the Banks and Financial Institutions (First Amendment) Bill, 2024, is particularly contentious. This clause aims to differentiate 'bankers' and 'businessmen’, stating: "Banks and financial institutions are prohibited from providing any loan or facility to individuals associated with them or those who hold significant ownership in any bank."

Another strict provision in the Bill is that individuals who have borrowed more than one percent of the paid-up capital cannot serve as directors of the same bank or financial institution. "A person will be disqualified from becoming a director if their total commercial debt, incurred by themselves, their family or any related company or organization, exceeds one percent of the paid-up capital of the bank or financial institution they wish to join as a director," the Bill states. This provision is aimed at preventing conflicts of interest by restricting businessmen from holding dual roles as bankers and business owners. Since most of the banks in Nepal are controlled by large business houses, businessmen with significant stakes in banks are opposing this provision.

(The report was originally publihsed on the   September, 2024 issue   of the New Business Age Magazine.)