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Introduction

The relationship between impunity and corruption challenges the stability of governments, the enforcement of rule of law, and the generation of national wealth. When impunity takes hold within the state apparatus, it creates an operational environment where the formal costs and legal risks of engaging in corrupt behaviour are entirely neutralized by those holding power. The deliberate political influence in law, legal institutions, and processes transcends mere bribery and threatens the very fabric of governance, breeding social, political, and economic conflicts.

1. Theoretical Framework of Impunity and Corruption

Scholars define two types of impunity. De facto impunity occurs when the state, despite possessing relevant legal statutes, systematically fails to investigate and prosecute those responsible for legal violations due to a lack of institutional capacity, a deficit of political will, or deeply entrenched political interference.¹ Conversely, de jure impunity arises when a nation’s legal frameworks contain explicit, codified provisions that grant immunity from prosecution, legally shielding political, military, or bureaucratic personnel from any form of accountability.¹

When legal frameworks either lack the necessary enforcement mechanisms to prosecute or are deliberately engineered by the legislature to protect the elite, the resulting culture of impunity severely degrades institutional trust. The impact of such a dynamic is immense. Systemic corruption undermines public confidence in institutional effectiveness and fairness, which are the absolute cornerstones of regime legitimacy.

Theoretical frameworks explore how institutional weaknesses contribute to this nexus. Elinor Ostrom‘s Institutional Analysis and Development (IAD) framework is particularly relevant. Applying the IAD framework to developing democracies reveals how inadequate structures allow political patronage to flourish, as the political landscape often witnesses the favouring of loyal supporters with positions and benefits, thereby superseding public welfare.

Phenomenological interpretations utilizing principal-agent theory, collective action theory, and game theory demonstrate that corrupt behaviour often becomes a normalized “way of life”.² In systems characterized by particularism, where limited public resources are selectively distributed based on political loyalty rather than universal rights, informal norms frequently prevail over the formal rule of law. This creates a clientelist system wherein corruption thrives unchecked, shielded by networks of powerful actors who systematically block any challenges to the status quo.³

2. History of Impunity in Nepal

The pervasive culture of impunity in modern Nepal is not a contemporary aberration but a phenomenon deeply embedded in the nation’s historical, political, and social evolution. The historical roots date back to the Rana regime (1846-1951), the centralized oligarchic system, where the ruling family and high-level administration operated above the law^_.4 Financial irregularities committed by the elite supporting the government were almost never investigated, and on the rare occasions they were acknowledged, investigations never resulted in punishments.

This foundational culture of exemption transitioned. This foundational culture of elite exemption transitioned seamlessly into the Panchayat regime, the party-less democratic system that governed Nepal from 1960 until 1990. Politicians aligned with the system were effectively immune to any form of corruption investigation. One of the notable scandals of the era is the “Carpet Scandal” circa 1976, in which the then Prime Minister Tulsi Giri was convicted with 90 other individuals. Four years later, Giri was cleared even though some businessmen got fined.⁵

The transition to a multiparty democracy in 1990 and the subsequent establishment of a federal democratic republic in 2008 following the abolition of the monarchy were hailed as departures from autocratic governance. However, the legacy of impunity proved highly resilient. The pro-Panchayat leaders easily assimilated with or created pro-democracy parties without any investigation into embezzlements or abuse of authority. In the absence of inadequate legal frameworks and insufficient constitutional checks and balances, political parties quickly adopted the practice of protecting their cadres from prosecution. A paradoxical coexistence of democracy and corruption emerged, where the formal institutions of democratic governance exist, but their substance is entirely undermined by weak institutional accountability and systemic political patronage.⁴

Furthermore, Nepal’s ten-year civil war (1996–2006) between Maoist insurgents and state security forces has severely compounded the culture of impunity. During the conflict, human rights violations occurred, including extrajudicial killings, torture, and enforced disappearances.¹ The Comprehensive Peace Agreement of 2006 included explicit commitments to establish a High-Level Truth and Reconciliation Commission to probe these severe violations and ensure accountability.⁶ Yet, for decades, transitional justice has been consistently thwarted through political maneuvering. While over 60,000 individuals have reached out to Nepal’s Truth and Reconciliation Commission and the Commission on Investigation of Disappeared Persons, few cases have been investigated, and none have been completed.⁶

Last year, on September 8, Nepal’s Gen Z came out to protest corruption. Chaos ensued after the protests went violent and the state turned brutal, overturning the government within 27 hours. The nation still awaits justice. Reports, such as those from the Karki Commission and the National Human Rights Commission, have recommended investigation against former prime minister KP Sharma Oli; former home minister Ramesh Lekhak; the then inspector generals of Nepal Police and Armed Police Force; and the head of the National Investigation Department of Nepal.²⁶ Ironically, many names that have been called out as suspicious and requiring further investigations have now become MPs and ministers, turning the demands of rule of law and accountability on their head.

The failure to prosecute well-documented conflict-related crimes has reinforced a societal and institutional understanding that the political elite, whether civilian or military, rarely faces consequences for gross human rights abuses or grand corruption.¹ The Supreme Court has occasionally attempted to intervene, ruling that courts must provide justice and invalidating amnesty provisions, but practical enforcement remains elusive.⁷ As said earlier, in Nepal, both de facto and de jure forms of impunity operate simultaneously, leading to grave violations and utterly undermining faith in the government.¹

3. Legal and Institutional Weaknesses

The Commission for the Investigation of Abuse of Authority (CIAA) and the Special Court are the major anti-corruption institutions in Nepal. Part 21 of the Constitution of Nepal mandates the CIAA to investigate and prosecute corruption among public officials. It was originally established by the 1991 Constitution and continued under subsequent constitutional frameworks. Following the massive political upheavals of 2006, the jurisdiction of the anti-graft efforts was expanded to encompass former judges and military personnel, domains that had previously been strictly insulated from prosecution under the 1991 Constitution.³ However, deliberate loopholes and political influence encourage impunity.

3.1 The “Policy Decision” Loophole

A primary mechanism sustaining de jure impunity in modern Nepal is the so-called “policy decision” loophole, formally codified in Section 4(b) of the CIAA Act of 1991. This legislative provision explicitly states:

The Commission, pursuant to the Act, shall not take any action in matters relating to any business or decisions taken at meetings of any House of Parliament or of any committee or any policy decisions taken by the Council of Ministers or any committee thereof or judicial actions of a court of law.

The law does not allow the CIAA to conduct investigations on any decision made by the members of the parliament, the council of ministers, or the judges. Also, because the law fails to provide a rigorous, restrictive, and legally binding definition of what constitutes a “policy decision,” politicians and bureaucrats routinely exploit this ambiguity. There is a pervasive and growing tendency among policymakers at the federal, provincial, and local levels to elevate routine administrative actions, public procurement contracts, and lucrative resource distributions to the Cabinet level solely to shield them from CIAA scrutiny.⁸

The CIAA itself has decried this tendency, officially requesting an end to the practice of taking issues supposed to be decided by a specific ministry or department directly to the Cabinet.⁸ This deliberate misclassification creates a system where high-level officeholders can indulge in grand corruption with absolute legal immunity, effectively transferring the legal risk away from individual ministers to a collective, unprosecutable body.⁹

A proposed third amendment to the CIAA Act sought to finally narrow the definition of “policy decisions,” explicitly stating that decisions intended to benefit specific individuals or private organizations, or those contrary to publicly announced policies and public procurement laws, cannot be shielded from investigation.¹⁰ However, this provision met fierce resistance from top political leaders, raising deep suspicions regarding the government’s commitment to transparency.¹¹

The Supreme Court of Nepal has wrestled with the limits of prosecutorial discretion and executive immunity. In landmark cases such as Narendra Bahadur Chand v. CIAA (2002), the Supreme Court ruled on the parameters of professional immunity, establishing that while certain officials, like the Attorney General or District Attorneys, enjoy wide discretion in prosecution, decisions made with manifest mala fide intent remain subject to CIAA investigation.¹² Public interest litigations have directly challenged the constitutionality of Section 4(b) of the CIAA Act. Petitioners argue that exempting Cabinet decisions is entirely arbitrary, contrary to the fundamental concept of an ombudsman, and directly promotes corruption by providing high-level officials with an impenetrable shield of immunity.⁹

Further controversy arose in 2024 during the parliamentary discussion of the proposed amendment to the Prevention of Corruption Act (2002). The bill, introduced in 2020, stipulated that “A case must be prosecuted within five years from the date of knowing that such an act has been committed” and extended this protection to retired officials.¹³ It was widely criticized by legal experts, civil society, and opposition parties (including the RSP and sections of the NC) as a deliberate, calculated attempt to grant permanent retroactive amnesty to politicians involved in massive historical scams. Following massive public outcry and resistance within the State Affairs and Good Governance Committee, the statute of limitations provision was removed from the proposed bill.¹⁴

3.2 Disparities in Perception of Corruption and Anti-Corruption Enforcement

The Corruption Perceptions Index (CPI), published annually by Transparency International, is the primary, most universally recognized metric for evaluating public sector corruption globally. The CPI aggregates governance-related data from numerous independent international organizations, including the World Bank, the World Economic Forum, the Bertelsmann Foundation, and the World Justice Project, to score countries on a scale from 0 (highly corrupt) to 100 (very clean).¹⁵

Data show Nepal’s performance in controlling corruption has shown absolutely no meaningful improvement.¹⁵ A CPI score consistently hovering around 34 indicates a profound, multi-generational failure of the state machinery to implement effective anti-corruption measures, placing Nepal firmly in the lower tier of the global index and categorizing it among nations with highly corrupt public sectors (any score below 50).

The Transparency International report further highlights the immense disconnect between the government and the populace, revealing that an overwhelming 84 percent of Nepalis perceive government corruption as a massive national problem, with 12 percent of public service users explicitly admitting to having paid a bribe within the previous twelve months just to access basic rights.¹⁵ The Rule of Law Index, compiled by the World Justice Project, mirrors these severe concerns.

While legislative struggles and CPI indicate troubles in anti-corruption measures, an examination of the Special Court’s historical data reveals a stark and troubling disparity. These underscore a profound tendency to prosecute low-level administrative fraud while high-level systemic embezzlement remains virtually untouched.

Although the data is old, the trend has not changed much. It demonstrates a clear, undeniable pattern: the overwhelming majority of successful convictions relate to relatively minor, easily provable offenses, such as the forgery of fake government certificates. Conversely, complex cases involving unexplained wealth (illicit enrichment), massive public procurement fraud, and high-level bribery exhibit significantly lower conviction rates and constitute a disproportionately small fraction of the total judicial docket.

This statistical reality reflects a broader institutional culture where the CIAA frequently focuses its limited resources on “sting operations” targeting lower-level civil servants, while complex, high-value scandals orchestrated by the political elite remain paralyzed by legal loopholes, intense political interference, and an overarching culture of de facto impunity.¹⁶ Over 60 percent of corrupt activities fall entirely outside the practical scope of the law, and the criminal justice system is heavily affected by delays that further undermine deterrence.¹⁶

3.3 Institutional Capture through Political Appointments

As we discussed in the article: 7 Constitutional Loopholes and Provisions that Give Superpower to Political Parties in Nepal, political parties have an exceptional influence over political appointments. Such a deeply entrenched “Bhagbanda” system has established a political culture of aggressive quota sharing and factional negotiation among the major political parties. Rather than appointing individuals based on merit, integrity, and professional competence, political parties divide key constitutional and judicial appointments among themselves to ensure mutual protection and to maintain total influence over the state apparatus.

Consequently, the CIAA is frequently staffed by former bureaucrats who maintain deep, ongoing loyalties to the specific political leaders or parties that successfully facilitated their appointments.¹⁷ This fundamentally compromises the CIAA’s ability to act as an independent ombudsman. The general public often predicts which party’s quota an appointment fulfills, completely undermining the institution’s credibility.¹⁷

This mechanism of political capture extends deeply and destructively into the judiciary. Although the Constitution of Nepal envisions an independent judiciary, free from the legislative and executive branches, the Judicial Council, which recommends the appointment of judges, is heavily influenced, if not entirely dominated, by political interests.¹⁸ The politicization of judicial appointments has severely eroded the competency, impartiality, and integrity of the courts. Judges appointed through the Bhagbanda system are widely perceived as beholden to political parties, leading to court verdicts that appear heavily influenced by political pressure rather than legal merit.

Legal experts point to the events of 2013 as a major turning point, when then-Chief Justice Khil Raj Regmi was appointed as the chairman of the Council of Ministers (effectively the Prime Minister) to oversee elections.¹⁸ This extraordinary merging of the executive and judicial branches laid the foundation for the profound political exploitation of the judiciary. The Nepal Bar Association has repeatedly highlighted that corruption is deeply rooted within the judicial system, particularly in courts of first instance, where bribes and unethical conduct by legal professionals further subvert justice.⁷

The systemic corruption within the judiciary was officially acknowledged by a Supreme Court-commissioned task force led by former Chief Justice Hari Krishna Karki. To combat rampant irregularities, undue influence, and corruption within the judicial process, the panel recommended reforms such as the adoption of an automated lottery system for assigning cases to justices, replacing the traditional system where the Chief Justice had the discretionary power to assign benches—a practice ripe for manipulation and executive interference.¹⁹ While the Supreme Court recently constituted a task force to implement these recommendations under Chief Justice Prakash Man Singh Raut, the delayed implementation of these reforms underscores the immense resistance from entrenched interests seeking to preserve a pliable, politically responsive judiciary.

4. High-Profile Case Studies of Systemic Corruption

4.1 The Fake Bhutanese Refugee Scam

The Fake Bhutanese Refugee Scam stands as one of the most notorious, internationally embarrassing examples of systemic state capture, fraud, and human trafficking orchestrated by the Nepalese political elite. In this highly complex fraud scheme, a political-bureaucratic syndicate colluded to extort millions of rupees from over 875 Nepali citizens. The victims paid massive sums ranging from Rs 1 million to Rs 5 million under the false promise of being supplied with fabricated credentials identifying them as Bhutanese refugees eligible for highly sought-after third-country resettlement, primarily to the United States.²⁰

This scam stems from the real problem of Bhutanese refugees in Nepal. Between 1990 and 1993, many Nepali-speaking Bhutanese were expelled from Bhutan, taking refuge in camps in eastern Nepal. Between 2007 and the conclusion of the resettlement program, the United Nations High Commissioner for Refugees (UNHCR) successfully resettled over 113,000 genuine Bhutanese refugees from these camps to Western countries, with the US alone taking over 90,000. The racketeers exploited the residual administrative infrastructure and international goodwill of this massive humanitarian effort for pure private financial gain.²⁰

The scandal resulted in the arrests of exceptionally high-ranking officials, including former Deputy Prime Minister Top Bahadur Rayamajhi, former Home Minister Bal Krishna Khand, former Home Secretary Tek Narayan Pandey, and Indrajeet Rai (security advisor to the former home minister).²⁰ The District Attorney Office in Kathmandu filed criminal cases against 30 individuals, indicting them on severe charges of treason, organized crime, fraud, and forgery, specifically seeking aggravated penalties for the public officials involved due to their abuse of office. The involvement of such high-level figures outraged the society and drew deep international concern, with rampant speculations that the US Federal Bureau of Investigation (FBI) was monitoring the probe due to the implications for US immigration security.

Despite the unprecedented nature of these arrests, the specter of impunity remained prominent. On July 14, 2026, the Kathmandu District Court gave its final verdict in the case.²⁰ The punishments to the convicts, however, look meagre in comparison to the crimes related to document forgery, organized crime, and crime against the state. For instance, Top Bahadur Rayamajhi has been sentenced to 4 years in prison and a fine of Rs. 40,000, and Balkrishna Khand will serve 1 year in prison and pay a fine of Rs. 15,000.

4.2 The Lalita Niwas Land Grab

The Lalita Niwas scam perfectly exemplifies the exploitation of the “policy decision” loophole to orchestrate the mass privatization of prime state assets. The case revolves around the unauthorized and systematic transfer of highly valuable government-owned land in Baluwatar, Kathmandu—situated adjacent to the official residence of the Prime Minister, the Nepal Rastra Bank, and several VVIP addresses—to private individuals and corporate entities.²¹ Key figures implicated included Min Bahadur Gurung, the proprietor of Bhatbhateni Supermarket, and former election commissioner Sudhir Shah.²¹

The land transfer was facilitated through a highly organized scheme utilizing fraudulent documents, phony government stamps, and, crucially, executive approvals obtained directly through the Council of Ministers.²¹ Initially, the CIAA utilized the provision of Section 4(b) of the CIAA Act to exempt former Prime Ministers Madhav Kumar Nepal and Baburam Bhattarai from prosecution, arguing that their executive directives to transfer the land constituted collective “policy decisions” strictly beyond the commission’s jurisdiction. Instead, the anti-graft body filed corruption charges against subordinate ministers who implemented the directives, such as Bijay Kumar Gachchhadar (Minister for Physical Infrastructure) and Chandra Dev Joshi (Minister for Land Reform).²²

However, the Supreme Court mandated that the top decision-makers who facilitated the transfer process via the Cabinet must also be subjected to criminal investigation, challenging the absolute immunity historically granted to Prime Ministerial decrees. Consequently, the Central Investigation Bureau (CIB) recorded formal statements from both former Prime Ministers, setting a new precedent for accountability.²¹ Despite this, the ultimate resolution of the Lalita Niwas cases remains a critical litmus test for the Nepali state’s capacity to dismantle high-level impunity. Ongoing legal maneuvers continue to determine whether the land will be fully returned to the government and whether all involved actors, including judges and relatives of prominent politicians like Arju Rana Deuba, will face supplementary charge sheets.²³

4.3 A Legacy of Unpunished Financial Irregularities

The Fake Bhutanese Refugee and Lalita Niwas scandals are not isolated anomalies but represent the apex of a sustained historical trend of unpunished resource extraction across virtually all sectors of the Nepali economy.

In the recent case of the Chinese-funded Pokhara International Airport, the CIAA filed charges in the Special Court against 21 individuals, including two Chinese officials, for the gross misappropriation of consulting funds. The officials directly bypassed the Engineering, Procurement, and Construction (EPC) contract terms, transferring an allocated $2.8 million to an unapproved joint venture (ERMC/Anot/Slate JV), resulting in hundreds of millions of rupees lost in a single transaction.²⁴

In earlier foundational cases, such as the Lauda Air scandal, the leasing of aircraft without formal bidding caused immense losses to the national flag carrier (Rs. 380 million), yet high-level leaders like Girija Prasad Koirala entirely evaded accountability.¹⁶ Similarly, the procurement of Widebody aircraft involved massive irregularities that led to the conviction of lower-tier officials like former Finance Secretary Shishir Kumar Dhungana, who was sentenced to prison and heavily fined (Rs 120 million), while the overarching political architects who approved the funding remained relatively untouched.²⁵

These compounding scandals unequivocally demonstrate that public funds in Nepal are systematically siphoned into private hands through complex, politically protected mechanisms, stifling national development and perpetuating deep economic fragility.¹⁶

5. Socio-Economic Impacts

The economic cost of systemic corruption in Nepal extends far beyond the immediate, quantifiable financial losses detailed in high-profile scandals. At a macroeconomic level, widespread corruption, coupled with political instability, acts as a severe deterrent to both domestic capital formation and foreign direct investment.²⁷ This fundamentally limits the state’s productive capacity, ensuring it remains trapped in a low-growth equilibrium. The illicit diversion of resources away from productive uses critically reduces the efficacy of public policies designed to alleviate poverty and construct essential national infrastructure.²⁸

Empirical research on Nepal’s economic trajectory emphasizes that the quality of governance is directly correlated with economic output.²⁷ Mathematical assessments confirm that approximately 92 percent of GDP growth volatility in Nepal can be explained by fluctuations in infrastructure investment, political stability, monetary freedom, and the effectiveness of anti-corruption measures.²⁷ When the state is completely captured by rent-seeking elites, funds that should be allocated for critical development projects are absorbed by the informal economy, perpetuating a cycle of underdevelopment and socio-economic inequality.¹⁶ The Gini coefficient for Nepal, historically recorded around 30, reflects this deep structural maldistribution of wealth exacerbated by corrupt governance.⁷

On a microeconomic level, the lived experience of ordinary Nepali citizens interacting with the state apparatus is fundamentally defined by the necessity of navigating corruption. Due to a highly complicated bureaucracy characterized by redundant documentation, intentionally opaque procedures, and a total lack of transparency, a vast informal economy of bribery has become normalized at the grassroots level.² Businesses and citizens rely heavily on these informal payments simply to function, fully aware that such behavior actively damages the institutional fabric. This dynamic leads to intense, simmering public discontent regarding the government’s ability to deliver services efficiently, eroding the social contract between the state and the citizen.²

The burden of the systemic corruption falls disproportionately upon the poorest, most vulnerable, and most marginalized segments of society. Corruption relating to the illegal exploitation of land, forestry, and water resources often leads directly to environmental degradation and the dispossession of indigenous territories. Because these communities lack the financial means to participate in the pervasive bribery culture to secure their rights and are historically vastly underrepresented in the civil service and political leadership, they are systematically excluded from the benefits of state resources.²⁹ Illicit financial flows driven by corruption erode the domestic tax base and dramatically worsen inequality, increasing Nepal’s dependence on official development assistance while actively stalling vital poverty reduction initiatives.

The culmination of this massive economic despair, compounded by unabated impunity, has manifested in significant socio-political unrest and violence. When structural corruption leaves the state unable to generate employment or manage inflation, the youth demographic—comprising over 60 percent of the population, with youth unemployment exceeding a staggering 20 percent—experiences profound disenfranchisement.³⁰ This volatile economic reality ignited the massive Gen Z-led protests that swept Kathmandu and other regions in September 2025 and continued into early 2026.

Transparency International Nepal explicitly validated this connection, stating that the immense public frustration and the Gen Z protests were directly driven by corruption, the abuse of power by political leadership, and the systematic exclusion of young people from employment, economic opportunities, and accessible public services.⁵⁷ This pattern aligns with broader regional instability seen in Bangladesh and Sri Lanka, proving that economic grievances born of corruption invariably translate into catastrophic political instability.

6. Conclusion

The intricate, symbiotic relationship between impunity and corruption in Nepal represents a severe, self-sustaining crisis of governance that threatens the foundational stability of the democratic state. As this analysis has demonstrated, corruption in the nation is not merely a collection of isolated transactional bribes; it is a deeply entrenched systemic condition facilitated by the continuous, deliberate subversion of the rule of law by the political elite. The historical legacy of autocratic regimes established a powerful precedent of elite exemption that has seamlessly adapted to the structures of the modern federal democratic republic.

Resilience is maintained through carefully engineered legal vulnerabilities and institutional capture. The “policy decision” loophole within the CIAA Act allows the executive branch to legally shield massive financial irregularities, such as the Lalita Niwas land grab and multi-billion rupee procurement frauds, under the guise of collective Cabinet immunity.

Simultaneously, the Bhagbanda system ensures that the very institutions explicitly designed to enforce accountability, the CIAA, the judiciary, and others, are thoroughly captured through partisan appointments. When the investigative and judicial apparatuses are populated by individuals beholden to political patrons, the resulting de facto impunity ensures that only low-level bureaucratic infractions are prosecuted. Meanwhile, monumental state-capture schemes, like the Fake Bhutanese Refugee scam, are perpetually plagued by delays, selective prosecution, and blatant executive interference.

The macroeconomic and social costs of this impunity are catastrophic. It diverts vital infrastructure funding, stifles foreign direct investment, and exacerbates inequality, disproportionately harming marginalized Indigenous and Dalit communities whose resources are relentlessly exploited. The absolute normalization of bribery in essential public service delivery alienates the citizenry and fundamentally undermines the legitimacy of the state. As empirical metrics from Transparency International consistently indicate, the state’s total failure to improve its corruption indices directly validates the immense economic despair that drives explosive public unrest, including the violent Gen Z protests that rocked the nation in late 2025 and early 2026.

Dismantling this deeply rooted culture requires interventions that target the structural enablers of impunity. To alter the current trajectory, the political consensus that protects high-level offenders must be dismantled by ensuring the absolute independence of the judiciary and anti-corruption commissions, completely free from the quota-sharing mechanisms of political parties. Legal loopholes, particularly the broad exemptions for Cabinet policy decisions, must be aggressively restricted through clear, limiting legislation. Any attempts by the legislature to introduce statutes of limitation for grand corruption must be permanently abandoned.

Without the full, impartial enforcement of the law, equal accountability for the topmost political leadership, and the robust protection of civil society oversight, the nexus of impunity and corruption will continue to cripple Nepal’s trajectory toward sustainable economic development and democratic integrity.

Works cited

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