Insider Threats Drive Surge in Source Code Theft Across Nepal's Software Sector
Former employees are increasingly stealing proprietary code to launch competing products, challenging the growth of Nepal's knowledge economy.
Nepal's burgeoning software industry is facing a critical surge in intellectual property theft, primarily driven by internal threats. This trend threatens to destabilize the local tech ecosystem as former employees leverage stolen proprietary code to launch rival products or sell secrets to competitors.
According to the Cyber Bureau of Nepal Police, 10 formal complaints of source code theft were filed during the 2025-26 fiscal year. Authorities note that most of these thefts are committed by insiders or former staff members rather than external hackers, as tight access controls have made outside breaches less common.
A prominent example involves Diyalo Technologies, whose 'WaterMark' ERP platform was allegedly replicated by former employees. These individuals established a new company, Wash TechNepal, and launched a competing product called 'WashBilling.' PR Khanal, CEO of Diyalo Technologies, noted that the software appeared almost identical in functionality and appearance, claiming that even spelling mistakes embedded in the original source code were reproduced exactly.
The IP Enforcement Gap
This rise in theft occurs as Nepal's software sector expands, particularly within the fintech and accounting niches. However, the industry is hampered by a systemic lack of intellectual property awareness and inconsistent enforcement. While Section 44 of the Electronic Transactions Act of 2008 explicitly criminalizes source code theft—carrying a maximum penalty of three years' imprisonment or a fine of up to Rs200,000—legal hurdles remain. Some judges in Nepal have reportedly equated the theft of source code to ordinary market competition, comparing it to the sale of similar consumer brands, such as noodles.
Economic Implications
The inability to secure proprietary assets creates a precarious environment for innovation. Gaurav Raj Pandey, president of NAS-IT, warned that if intellectual property cannot be protected, it undermines the entire knowledge economy. This gap between technical complexity and judicial understanding discourages large-scale investment and hinders the ability of local firms to secure meaningful compensation after a breach.
Future Outlook
Industry observers are now monitoring how the rise of generative AI may exacerbate the problem, as these tools can allow low-skill actors to modify stolen code quickly to evade detection. Additionally, the dependency of government agencies on third-party vendors—often procuring software without owning the source code—remains a structural vulnerability that may require legislative reform to resolve.