KATHMANDU -- The silver car drove over 100km through the hairpin turns along the landslide-prone mountain road from Nepal's northern border with Tibet to Kathmandu, arriving in the capital just before midnight on Sept. 3. Hidden in the trunk was a precious cargo -- 88 bars of gold, each wrapped in black tape, and worth $4.2 million in total.
A police squad from the Kathmandu Metropolitan Crime Division waited for several hours before making its pre-dawn raid on the car and its 24-year-old driver. The car was then driven about 5km south to the police station, where four policemen, aided by mechanics, spent hours taking it apart and uncovering the 88kg of shining yellow metal.
Though this was the biggest haul of illegal gold in Nepal since 1998, it was by no means an unusual seizure.
Four days earlier, police had arrested seven men -- three in Kathmandu and four in the southern town of Janakpur near the Indian border -- and seized 14kg of illegal gold. The smugglers had used the same overland route, the only functional road link between landlocked Nepal and China.
Sandwiched between India and China, the world's two largest consumers of gold, Nepal has emerged as a major route for smuggling the metal. Most of the illegal gold comes from China.
Much of the illegal gold is later channeled overland to India. While annual demand for gold in India is 800 to 900 tons, some 140 to 160 tons of gold were smuggled into the country last year, up from 120 tons in 2015, according to the World Gold Council, a London-based industry group. One factor fueling gold smuggling has been the steep rise in India's import duty to 10% from 2% in 2012.
The Hindu festivals of Dussehra and Diwali in September and October see a surge in gold purchases in India, where the observant give gold jewelry to relatives. Sales grow further during the auspicious wedding season of November to December. For the vast majority of Indians, gold also serves as a hedge against inflation. According to one estimate, they hold over 20,000 tons of the yellow metal.
Though most Nepalese also follow Hinduism, many cannot afford to hoard gold. But the 1,800km porous border between the two countries serves as a haven for smugglers.
Until early 2015, smugglers used the Tatopani checkpoint northeast of Kathmandu, but since the major earthquake that year damaged the border crossing, trafficking has switched to Rasuwagadhi, northwest of the capital. The trade route was recently declared an international border, allowing foreign tourists to travel between the two countries.
In the last six months, police have seized 173kg of gold from smugglers, with the largest amount entering via Rasuwagadhi.
Under pressure to curb the smuggling, the government has formed an investigative committee led by the director of the Department of Customs. Police have also tightened security at 13 checkpoints along the 120km highway from Rasuwagadhi to Kathmandu.
When asked about the surge in gold seizures around the Rasuwagadhi border, Kul Raj Jnawali, a Customs spokesman, showed off photos from a recent trip to the crossing. They showed a large multistory building on the Chinese side of the border.
"Our Customs operates under a tent," he said. "There's no X-ray machine. There's no building." In contrast, Chinese customs have all the necessary equipment to detect smuggled gold, including X-ray machines for vehicles. "We requested the relevant ministry to construct an office building three years ago, but we don't know when the work will begin," he said.
Jnawali said the government has upgraded infrastructure at the country's only international airport, in Kathmandu, where early this year police seized 33kg of illegal gold which arrived from Dubai. "We have installed a magnetic device for checking luggage and a full body scanner. Our surveillance at the airport is much better now," he said
The spike in gold smuggling as well as seizures of illegal foreign currency -- a Chinese woman was arrested while checking into the airport for a flight to Bhutan on Sept. 29 with $46,488 in cash -- point towards a flourishing shadow economy, said Dipendra Bahadur Chhetri, a former governor of Nepal's central bank. "This negatively impacts our economy," he said. "No matter how good a monetary or fiscal policy we introduce, it doesn't work because smugglers always find a way to circumvent it."
Nepal's political instability -- 10 governments have ruled the country in the last 10 years -- and deep-rooted corruption have contributed to an unprecedented level of financial crime. "We now know that appointments of police chiefs or heads of Customs are made on the basis of loyalty and not based on merit. Once the illegal gold enters Nepal, smugglers bribe authorities. The recent cases are only the tip of the iceberg," Chhetri said.
Seizures of illegal gold increased from 90kg in 2013 to 111kg in 2014, but declined to 61.82kg following the closure of the border post with China. Under a government quota, Nepalese banks can import and sell up to 20kg of gold a day to traders. But industry insiders say the daily local demand is 30kg.
Nepali migrant workers are allowed to import 50 grams of gold jewelry. Most buy gold jewelry in the Gulf countries and sell it in the Nepalese market, meeting some of the local demand, according to experts.
Two weeks after the latest raid, police arrested five gold traders in Kathmandu. But a Chinese businessman who was reportedly the owner of the gold remains at large. Former senior police officers such as Rajendra Singh Bhandari say that in most cases couriers are arrested, but the kingpins of the illegal trade are rarely caught. "Gold smuggling is on the rise because we lack a conducive environment to reach... the owner of the illegal gold and prosecute him or her," he wrote last month in a local newspaper.