US embassy cable - 03KATHMANDU1175

S E C R E T SECTION 01 OF 03 KATHMANDU 001175 
 
SIPDIS 
 
DEPT FOR SA/INS 
LONDON FOR CGURNEY 
NSC FOR MILLARD 
TREASURY FOR OFAC/NEWCOMB AND TASK FORCE FOR TERRORIST 
FINANCING 
TREASURY ALSO FOR GENERAL COUNSEL/DAUFHAUSER AND DAS JZARATE 
JUSTICE FOR OFFICE OF THE DEPUTY ATTORNEY GENERAL/DLAUFMAN 
SECDEF FOR OSD/ISA LILIENFELD 
 
E.O. 12958: DECL: 06/19/2013 
TAGS: PGOV, PINS, PTER, NP, Maoist Insurgency 
SUBJECT: NEPAL:  UPDATE ON MAOIST SOURCES OF FINANCING 
 
REF: A. KATHMANDU 1099 
     B. KATHMANDU 567 
     C. KATHMANDU 1133 
     D. 2002 KATHMANDU 2254 
     E. 2002 KATHMANDU 2306 
 
Classified By: DCM Robert K. Boggs for reasons 1.5 (b) and (d). 
 
Summary 
======== 
 
1.  (S) Despite the agreed terms of the cease-fire with the 
Government of Nepal (GoN) barring extortion, Maoists have 
continued to press businesses and local residents for 
"donations," increasing both the breadth and scope of their 
demands.  In areas lacking a government presence, the Maoists 
have begun to collect taxes and royalties on natural resource 
harvests and skim proceeds from cannabis smuggling.  Contrary 
to earlier reports (refs D and E), the Maoists have lowered 
their profile in garnering funds from remittances.  The GoN 
has failed to reduce Maoist access to funds and does not 
appear to be in a position to do so in the near-term.  If 
reports are to be believed, Maoist fund-raising has increased 
since the commencement of the cease-fire.  Some sources 
indicate that these funds may be intended to build up 
military supplies for a resumption of hostilities.  End 
summary. 
 
Overview 
========= 
 
2.  (U)  Nepal's Maoists have adopted several methods to fund 
their activities.  The following provides a summary of 
Mission information on Maoist sources of finances, including 
extortion, taxation on natural resource harvests, drug 
trafficking, and remittances.  Also addressed are the limited 
activities of the Government of Nepal (GoN) to restrict 
Maoist finances. 
 
Extortion 
========== 
 
3.  (C) Nepal's Maoists have continued to extort money and 
food despite specific prohibitions in the March 13 Code of 
Conduct adopted as the basis for the current cease-fire (ref 
A).  Over the past three weeks, Maoist cadre have increased 
their efforts by demanding more funds and broadening their 
number of targets.  According to Sandip Shah, General Manager 
of Bhote Koshi Power and member of the wealthy Soaltee Group 
of Companies, the business group has been asked repeatedly 
for funds.  The amounts demanded has tripled since the 
beginning of the cease-fire.  Embassy interlocutors who 
reside in Kathmandu Valley report that the Maoists have 
launched widespread extortion drives on a house-to-house 
basis, with demands ranging up to USD 1,300. 
 
4.  (SBU) Throughout rural Nepal, Maoists systematically 
extort both food and funds to maintain their local forces. 
At a June 13 meeting of international donors to Nepal, 
attendees reported an up-tick in Maoist extortion activities 
nationwide and noted areas of particular concern: 
-- The German development agency GTZ reported that Maoist 
extortion from project staff in Ramechap District (60 kms 
East of Kathmandu) was increasing and may force the project 
to shut down; 
-- The UN Security Office saw a substantial increase of 
extortion in Dhankuta District (541 kms East of Kathmandu); 
and 
-- GTZ and the UK Department for International Development 
(DfID) reported a sizable increase in extortion from project 
staff in Surkhet District (in the Maoist-affected midwest) 
over the past month. 
At the same meeting DfID staff noted that villagers in Humla 
(a district in Nepal's northwest) expressed frustration that 
after six years of Maoist local governance and extortion, no 
services are being provided nor development taking place. 
5.  (C) An independent AmCit consultant provided the Embassy 
with a pre-publication draft of a paper on Nepal's Maoists. 
In a footnote, he details some of the extortion (termed 
"revolutionary taxation" by the Maoists) he observed in 
Maoist controlled areas.  Small shopkeepers in Rolpa (a 
midwestern district in the Maoist heartland) report payments 
of USD 0.65 per month; and government employees working in 
Maoist "occupied areas" report payments equal to one day's 
wages per month, USD 1.30 to 2.60.  He also reports that the 
Maoists are adopting kidnapping for ransom.  (Note:  The 
Mission has no confirmation of the use of kidnapping for 
ransom as a method of fund-raising.  End note.) 
 
6.  (C) The Maoists typically defend their continued practice 
of extortion by claiming funds so collected are "voluntarily" 
donated.  When a representative of a prominent American firm 
pressed the issue, he was told that traditional sources of 
financing--including bank robberies that reportedly had 
netted them USD 6 million--have been restricted by the 
cease-fire, requiring the Maoists to fund-raise in other 
ways.  In this particular instance, the Maoist representative 
stated that he took direction from Maoist negotiator and 
Central Committee member Krishna Bahadur Mahara (ref A). 
 
Taxation of Natural Resource Harvests 
====================================== 
 
7.  (SBU) The Embassy has learned through both press reports 
and visits to rural areas that the Maoists are collecting 
taxes on harvests of natural resources.  During a tour of 
Doti (a district in Nepal's far-west), the Ambassador was 
told by a district forestry official that the Maoists had 
taken over ranger posts and are now collecting fees for 
harvesting forest products.  Forestry fees were previously 
collected by forest rangers and placed in government coffers 
(ref B).  In an extreme case, the press reported June 14, 
Maoists in Baglung (a district in Nepal's midwest) were 
collecting royalties on the harvest of Yarchagumba (an 
herbal/insect product with a reported effect similar to 
Viagra).  The rare herb ranges in price from USD 1,300 to USD 
1,800 per kg in India and China.  Under normal circumstances, 
the government collects royalties of USD 260 per kg.  The 
destruction of forestry offices in the district has left a 
void in the government's collection capacity which the 
enterprising Maoists are only too eagerly filling.  The press 
also regularly reports that Maoists stop illicit timber 
harvesters in Nepal's lowlands and request funds for the 
harvesters' passage.  Those who pay are normally left alone, 
while those who refuse are usually beaten and have their 
timber confiscated.  (Comment:  The taxation of natural 
resource harvests is difficult to generalize.  Maoist 
activities reflect the resources available in their area of 
operation and the level of government presence.) 
 
Drug Trafficking 
================= 
 
8.  (C) Superintendent of Police for the Narcotic Drug 
Control Law Enforcement Unit Hemant Malla reported to poloff 
and econoff that Maoist insurgents in the middle hills of 
Nepal levy a tax on both the cultivation and transportation 
of cannabis.  Malla stated that most of the cannabis is 
smuggled to India.  He went on to report that there is some 
anecdotal evidence that the Maoists are taking a cut of from 
the Indian smugglers, but of an unknown amount.  One source 
told Malla that a 35 percent tax is being levied on cannabis 
sold to China through rural Dolpa (ref C).  The Dolpa route 
is not normally a significant route for cannabis smuggling, 
due to the lack of roads.  However, the closure of the 
Nepal-China border due to Severe Acute Respiratory Syndrome 
(SARS) led to an increase of cultivation and shipment through 
Dolpa. 
 
Remittances 
============ 
 
8.  (S) Embassy reports of increasing Maoist interference in 
remittances (refs D and E) during the November/December 2002 
timeframe could not be reaffirmed during interviews with 
contacts in June 2003.  Reports in late 2002 alleged that 
Maoists were designating individuals to be sent overseas for 
employment, were recruiting members from overseas to send 
remittances for the Maoist cause, and extorting remittances 
from recipient family members in Nepal.  In interviews in 
June 2003, however, interlocutors reported not receiving 
extortion requests.  (Note:  The lack of Maoist contact with 
manpower agencies and others involved in Nepal's growing 
remittance business does not match recent reports of the 
Maoists' fund-drive activities.  This change in Maoist 
approach came during a period when remittances were labeled 
in press and government statements as the only healthy 
economic sector.  The Embassy will continue to expand 
contacts in this area in an attempt to corroborate and 
account for this apparent shift.  End note.) 
 
GoN Actions 
============ 
 
9.  (C) The GoN has done very little to suppress Maoist 
fund-raising or to seize Maoist assets.  According to 
Executive Director Rajan Singh Bhandari, Nepal's central bank 
(NRB) seized roughly USD 65,000 from accounts of prominent 
Maoists in early 2002.  All of the accounts were held at the 
Agriculture Development Bank of Nepal.  The NRB has made no 
subsequent seizures and lacks a investigative arm to seek out 
further Maoist assets.  The NRB can claim, however, some 
success in moving remittance transfers from the traditional 
hundi/hawala to formal banking channels.  The NRB reports 
that this change increased its foreign exchange holdings by 
twenty-five percent in the last fiscal quarter. 
 
Comment 
======== 
 
10. (S) Maoist claims that they can no longer fund their 
activities through traditional sources, i.e., bank robberies, 
belies the scope of their financial operations.  Extortion in 
Kathmandu Valley and the increase in the demands on Nepalese 
business groups could well make up for the amounts stolen 
over the past seven years.  It appears that the GoN, out of 
fear of hampering the peace process, has restrained its 
police forces from arresting Maoist extorters.  The lack of 
GoN pressure may have emboldened the Maoists to grab as much 
as they can during the peace process.  The level of 
fund-raising seems to have increased beyond the revenues 
required to maintain Maoist cadres in the field.  Reports of 
excesses funds has fueled speculation that the Maoists may be 
using the money to restock and re-equip in possible 
preparation for a resumption of hostilities. 
MALINOWSKI