The tendency of Commission for the Investigation of Abuse of Authority (CIAA) to selectively prosecute corruption cases is not a new concern. While genuine corruption cases often remain uninvestigated, inadequately pursued, weakened, or deliberately diluted, the anti-graft body has repeatedly been accused of destroying the reputations of civil servants, who were not involved in corruption, thereby eroding their social capital and professional credibility.
Had the constitutional anti-graft body been performing its duties impartially and without favoritism, Prime Minister Balen Shah would not have needed to summon CIAA Chief Commissioner Prem Kumar Rai to Singha Durbar on Monday and pressure him to immediately proceed with the investigation into the passport printing procurement scandal.
NepalKhabar published the news – for the first time on Tuesday – of ‘how PM Balen Shah and his secretariate forced the CIAA chief and his entire team to immediate arrest the Department of Passports chief, and start probe into e-Passport tender deal.’
CIAA arrested Department of Passports Director General Tirtha Raj Aryal and Director Sunil KC only after the pressure from the PM office,
officials within the CIAA itself reportedly argue that the very fact a constitutional body had to be instructed by the Prime Minister's Office demonstrates Chief Commissioner Prem Rai’s alleged ‘excessive sympathy’ and leniency toward corrupt actors.
The CIAA is a constitutional body and can probe all the corruption cases – including that of Prime Minister – by itself without the direction of PM Office but lately it has become so weak and has been prosecuting the petty cases, though the country is mired in huge corruption cases. The excessive corruption and regulatory capture have led to the September 8-9 Gen Z movement, where billions worth property were damaged and human lives lost. But the CIAA could not see any of the high-profile cases.
According to CIAA insiders, Rai’s appointment by former Prime Minister KP Sharma Oli has also contributed to what they describe as a particular affinity toward Oli and several individuals associated with Oli, who are deemed ‘the most corrupts’ in Nepal.
Critics have long alleged that Rai has spent recent years focusing on relatively minor bribery cases involving low-level government employees and small sums of money while ignoring major corruption scandals worth millions and billions involving senior politicians and ministers.
Officials claim that Rai has consistently shown special consideration toward individuals appointed by or closely associated with Oli including cases involving former Insurance Authority Chair Sharad Ojha or Securities Board Chairman (SEBON) Chair Santosh Narayan Shrestha, despite the proofs.
Rai, who was appointed CIAA chief by then Prime Minister Oli on February 3, 2021, now has roughly eight months remaining in his tenure. Critics have further accused him of attempting to clear himself of corruption cases connected to him while placing blame exclusively on others.
One notable example, they argue, is the case concerning tax exemptions granted during the construction of the Pokhara Regional International Airport.
The CIAA’s recent actions related to the airport project have created significant concern within bureaucracy. However, legal analysts and critics have pointed to what they describe as a troubling pattern of ‘selective prosecution.’
While the indictment of former Finance Minister Gyanendra Bahadur Karki has been viewed as a rare example of ministerial accountability, critics argue that major omissions in the charge sheet and the decision to target only officials, who signed agreements with China’s Exim Bank raise serious questions about the rule of law and Nepal’s treatment of international and bilateral agreements.
The CIAA’s case is primarily based on the allegation that the state suffered losses of approximately Rs 3.62 billion through ‘improper tax exemptions’. Investigators argue that the original commercial contract signed in 2014 between the Civil Aviation Authority of Nepal (CAAN) and a Chinese contractor was a tax-inclusive agreement, meaning that all taxes and duties were to be borne by the contractor within the contract price.
However, a concessional loan agreement signed between the Governments of Nepal and China in 2016 specifically identified the same commercial contract and granted tax exemptions. The agreement was accompanied by a legal opinion from Ministry of Law affirming its validity and enforceability in Nepal. The loan agreement also authorized the parties – Ministry of Finance and China Exim Bank – to enter into supplementary implementation agreements.
Accordingly, a Project Implementation Agreement was signed on February 25, 2018, to facilitate the continuation of work on the project. This implementation agreement addressed various project-related matters. Clause 11 of Sub-Clause 2 under Article 3 specifically outlined procedures for implementing tax exemptions already provided under the loan agreement.
The CIAA nevertheless argues that the 2018 agreement improperly granted extensive exemptions from VAT, customs duties, and income tax to the contractor, thereby resulting in a 'double benefit.’
According to the CIAA, the contract price already included taxes, but the corresponding tax revenue was never deposited into the state treasury.
Finance Ministry officials, however, contend that foreign aid-funded projects are traditionally exempt from such taxes, and that the loan agreement itself had already superseded the tax provisions contained in the commercial contract.
Tax exemptions in foreign aid projects
At the center of the case is Kewal Prasad Bhandari, who served as head of the International Economic Cooperation Coordination Division (IECCD) under the Ministry of Finance and signed the agreement on behalf of the Government of Nepal. The then Director General of CAAN also signed the agreement.
The CIAA alleges that Bhandari and his team failed to properly discharge their responsibilities when they signed the 2018 implementation agreement, allegedly disregarding provisions contained in the 2014 commercial contract. Critics counter that the 2016 loan agreement had already granted tax exemptions to the project and effectively superseded the earlier contractual provisions. They argue that targeting only the officials responsible for implementing international assistance agreements while sparing political leaders and senior bureaucrats involved in granting and approving those exemptions violates the principle of administrative hierarchy and represents a selective interpretation of responsibility.
Documents obtained by NepalKhabar suggest that the International Economic Cooperation Coordination Division (IECCD) may have been operating under significant internal and external pressure. A June 2017 letter from the Chinese Embassy reportedly described such tax exemptions as a ‘standard practice’ for projects financed through concessional loans and requested facilitation of the process.
Likewise, emails exchanged in January 2018 indicate that China Exim Bank pressed for the immediate signing of the ‘final version’ of the implementation agreement. Analysts argue that Bhandari was merely tasked with implementing an agreement already approved through political and policy decisions.
Nevertheless, the CIAA alleges that the agreement was deliberately structured to provide tax exemptions through collusion.
Ministry of Finance records, however, indicate that the implementation agreement was formally approved by China’s Ministry of Commerce, signed by China Exim Bank, and endorsed by Nepal’s Ministry of Finance, Ministry of Culture, Tourism and Civil Aviation, and the Civil Aviation Authority of Nepal. The tax exemption itself had already been agreed upon by both governments.
The officials therefore argue that there is no evidence suggesting that the agreement was negotiated with an improper intent to evade taxes.
The omission of key names
One of the most significant weaknesses in the CIAA’s case, the lawyers argue, is the list of individuals excluded from prosecution.
While former Finance Minister Gyanendra Bahadur Karki has been charged for approving the 2018 agreement, other key figures – including current CIAA Chief Commissioner Prem Kumar Rai – and four Finance Ministers have not been named. Rai served as Tourism Secretary during critical early stages of the airport project.
In the wide-body aircraft procurement case involving Nepal Airlines Corporation (NAC), the Special Court had previously criticized the CIAA in writing for engaging in ‘selective prosecution’ by not charging Rai despite his involvement in the decision-making process.
Records also indicate that Rai played a significant role in land acquisition and initial administrative approvals related to the Pokhara Airport project.
The officials further point out that the CIAA has not seriously investigated major areas, where corruption risks were arguably higher, including runway construction, terminal construction, and procurement of goods and equipment.
Ironically, while serving as Tourism Secretary, Rai himself reportedly wrote to the Ministry of Finance stating that tax liabilities under the contract were problematic and requesting that appropriate decisions be made under the loan agreement framework. Yet the same tax-exemption arrangements later became the basis for this corruption case, while those responsible for making the policy decision were spared prosecution.
The role of the Auditor General
The CIAA’s case originated from observations made in the 60th Annual Report of the Office of the Auditor General (OAG), which classified the tax exemptions as an audit irregularity.
However, although the Auditor General had reviewed the project since fiscal year 2017-18, the issue was not categorized as an irregularity in the 56th through 59th annual reports. It appeared only in the 60th report and was omitted again from the 61st report.
Critics argue that this inconsistency suggests the Auditor General itself had not fully examined the legal basis of the tax exemptions.
Furthermore, Nepal’s Supreme Court has repeatedly held that an audit irregularity or arrears does not automatically constitute corruption. Such matters may require regularization or recovery, but not necessarily criminal prosecution.
Nonetheless, the CIAA appears to have relied heavily on the audit observation as the basis for filing corruption charges.
Political leaders granted immunity
Similarly, a former Finance Ministers, who oversaw significant portions of project implementation and tax-exemption decisions between 2018 and 2020, has not been charged.
Likewise, two Former Finance Ministers were also involved at various stages of the project but have not been included. And only Finance Ministers but the Tourism Ministers, who recommended tax exemptions have also escaped scrutiny.
Perhaps most notably, critics question why former Finance Secretary Lok Darshan Regmi and yet another former Finance Minister, who reportedly took the proposal for complete tax exemption of the commercial contract to the Cabinet, have been spared.
Legal experts argue that the ‘cheery picking’ or selective prosecution of a few officials responsible for implementing policies, while excluding those who formulated and approved them illustrates the breadth of the CIAA’s selective approach.
Legal and diplomatic implications
Legal experts believe the Special Court will now have to confront a case built on a fragile legal foundation.
The defense is expected to rely heavily on the doctrine of ‘policy decisions.’ Tax exemptions for foreign aid-funded projects have long been an established government strategy aimed at ensuring project viability. Taxing aid-funded projects would not only increase project costs but could also divert development assistance away from its intended purpose.
Nepal’s Foreign Aid Policy explicitly states that development assistance funds should not be used to pay taxes. Nepal has followed this practice for more than 75 years.
Former Finance Secretary Shankar Prasad Adhikari reportedly told investigators that the decision was made in good faith and was consistent with established aid policy.
The CIAA also recorded statements from the former Law Secretary, who had provided legal opinions on the loan agreement. The Law Secretary of the Government of Nepal, who is responsible for providing legal opinions on treaties, agreements, and other arrangements concluded between two countries, appears to have formally assisted in the filing of cases against fellow government officials by providing a completely incorrect interpretation of the tax exemption provision contained in Clause 7 of Schedule 6 of the loan agreement,” according to an official privy to the case.
While translating ‘The signing and the performance of the commercial contract are eligible for tax deductions and exemptions under the law of Nepal, and all applications and approving procedures for such tax deductions and exemptions have been fulfilled,’ into Nepali language, the secretary has helped build the case against his fellow officials, Lawyers argue.
Questions have therefore emerged regarding whether the CIAA independently assessed the agreement or relied excessively on selective and mis-interpretations and witness statements.
Information obtained by NepalKhabar reportedly indicates that discussions took place between Secretary Rajiv Gautam and CIAA Chief Commissioner Rai during the investigation, and that Gautam’s statement was taken over two days rather than the usual single-day process.
Moreover, the CIAA has not presented evidence of personal financial gain, bribery, or illicit enrichment by the accused. In the absence of such evidence, legal experts argue that the court may ultimately view the matter as an administrative error made in good faith or as a decision driven by diplomatic and policy considerations rather than criminal intent.
The Pokhara Airport case represents a significant chapter in Nepal’s struggle against large-scale infrastructure corruption. However, by prosecuting mid-level officials, who implemented agreements while appearing to shield powerful ministers and its own leadership, the CIAA risks being perceived less as an independent judicial institution and more as an instrument of political performance. Such cheery-picking of prosecution has also raised doubt to the incumbent government that the CIAA may not probe the passport case.
As the Pokhara Airport case proceeds before the Special Court, the judiciary will face the challenge of determining how government agencies should interpret and implement bilateral treaties and sovereign agreements. Since the loan agreement between Nepal and China falls within the framework of the Vienna Convention on the Law of Treaties, Nepal cannot simply disregard its obligations unilaterally.
Critics argue that contradictory positions taken by different state institutions – one recognizing tax exemptions under an international agreement and another insisting taxes should have been paid – have already weakened Nepal’s credibility.
Questions also remain regarding how China Exim Bank, the other party to the agreement and a financier of several ongoing projects in Nepal, may view future cooperation.
Ultimately, the controversy raises a broader question: Will the CIAA continue functioning as a protective shield for a small circle of powerful and well-connected individuals, while aggressively targeting weaker officials with little political backing, or will it fulfill its constitutional responsibility through impartial and legally consistent enforcement?
.
