Poor parents routinely duped into sending children to homes where owners use them to extract money from foreign visitors

Like an increasing number of tourists visiting Nepal's mountain peaks, colourful markets and lush national parks, Marina Argeisa wanted to experience the latest must-do activity on the tourist trail: a volunteering stint at an orphanage.

What the 26-year-old Spaniard did not know was that her good intentions were unwittingly feeding an industry that dupes poor parents into sending their children to bogus orphanages in order to extract money from well-meaning foreigners.

It is a business model built on a double deception: the exploitation of poor families in rural Nepal and the manipulation of wealthy foreigners. In the worst cases, tourists may be unwittingly complicit in child trafficking.

Nepal's tourist sector comprises nearly 3% of its gross domestic product, and in 2012 more than 600,000 foreigners visited the tiny country.

Volunteering, or voluntourism as it is sometimes known, is a rapidly expanding industry. There are dozens of agencies offering the chance to spend weeks, or months, working at some of the country's 800 orphanages.

More than 80% of these institutions are located in the most popular tourist hotspots: the ancient Kathmandu Valley; the trekking capital of Pokhara; and Chitwan, home to the largest national park. Child rights campaigners claim the country is also home to numerous unregistered orphanages.

Yet many of the occupants of these sites have at least one living parent. The latest investigation by Unicef, the UN's children agency, found that 85% of children in the orphanages they visited had at least one living parent.

The trade in children begins in Nepal's remote and impoverished countryside, where parents are tricked into sending their children to orphanages, often lured by the promise of an education.

Lojung Sherpa sent three of her children to the Happy Home orphanage in the capital after she was told that foreigners would educate them and raise money for one of her daughters, who has a serious medical condition. But when Sherpa spoke to her daughter some time later, she was told that all donations towards her treatment had been taken by the orphanage's owner.

Sherpa travelled to Kathmandu to remove her children from the home but was repeatedly turned away. After an investigation, which resulted in the arrest of the orphanage owner on charges of child abduction and fraud, police officers discovered that Sherpa's children were missing. The youngsters were later found at various locations across the city, where they had been hidden, and eventually reunited with their mother.

Philip Holmes, chief executive of Freedom Matters, the charity that instigated the inquiry into Happy Home, said that in the worst cases this practice constituted child trafficking.

"Once a child enters an orphanage, he or she seems to become the property of the orphanage owner ... [In effect], they become prisoners of the orphanage," he said. "[They] use the children as an income source, through the sponsorship of children who are presented as being orphans when they are not … and through the exploitation of overseas volunteers."

When Dorota Nvotova, a young Slovakian, began volunteering at Happy Home in 2008, she was so moved by the children's plight that she found a sponsor for every one of them. She raised about €150,000 (£122,000) for the home, but it was only later that she discovered the real reason its owner was so eager to attract foreign volunteers.

"It's definitely about him making money. For him, it's a business," she said. "Whenever volunteers came he always tried to impress them and then they started fundraising for him."

Argeisa admits that she too felt compelled to help the children of Nepal. During her search for a volunteering opportunity, it was the stories of the orphans profiled on the website of VolNepal, a Kathmandu-based agency, that attracted her attention.

She quickly signed up and paid $480 (£285) to spend four weeks looking after the children, but had no idea their profiles had been fabricated. "I couldn't imagine there were people doing bad things to children and using the vulnerability of children to make money," she said.

After strange behaviour at the orphanage aroused her suspicions about the home's proprietor, Argeisa discovered that two sisters publicised as being orphans had living parents who had paid vast sums of money to a broker to send their children to the home to be educated.

And they were being educated, but at a cost far beyond anything her parents could imagine. The girls were being used to generate donations from tourists, with the orphanage claiming that their mother and father had abandoned them and no other relatives could be found.

"These little girls are very important for the owner of the home to get money. This is the only reason that they want these children," Argeisa said. "They are [being] used."

After one of the sisters confessed that she was being sexually abused by the owner, Argeisa reported the allegations to a local children's organisation, Action for Child Rights (ACR). The owner of the orphanage was subsequently arrested for attempted rape.

"This was very, very hard … I couldn't stop my feelings against that man," Argeisa said. "I think his mission was making money … and abusing children ... He wouldn't have set up the home if there were no westerners coming and giving money and doing volunteering.

"The foreigners do not realise what is happening because they [orphanage owners] are specialists in stopping people from seeing the dark side. There are many people living for six months in an orphanage and they don't realise this, because these children are scared … These houses are jails for these children."

A child is driven away after being rescued by police from the Happy Home orphanage in Kathmandu. Photograph: Peter Pattisson

This is not an exceptional case, says Jürgen Conings, general director of ACR, who has spent 10 years in Nepal investigating the nexus between foreigners, adoption agencies and orphanages. "I'm 100% sure that the majority of these homes are built for reasons other than childcare," he said. "Foreign volunteers give a home credibility … and they pay to volunteer, so it's a strong business model."

A report by Tourism Research and Marketing estimates that volunteer tourism attracts 1.6 million people a year, and that the market is worth up to £1.3bn.

While there are no reliable figures about the scale of voluntourism in Nepal, Martin Punaks, country director of Next Generation Nepal, which reunites orphanage-trafficked children with their families, believes it is a growing industry. "There is the potential for huge profits to be made for those who intentionally and unnecessarily displace children from their families, so they can be used as lucrative poverty commodities to raise funds from well-intentioned but ill-informed tourists," he said.

The government recognises the problem but is struggling cope with the scale of it. "These children are a showpiece [for fundraising], but no one knows how much the owner gets and how much goes to the children," said Tarak Dhital, executive director of the Central Child Welfare Board (CCWB). "We have introduced minimum standards for children's homes and we need to strengthen our monitoring systems, but haven't been able to till now … we lack financial and human resources."

The CCWB is responsible for regulating orphanages in Nepal, but there are serious questions about its capacity to do so. According to its latest report, 90% of children's homes failed to meet the government's minimum operating standards.

However, Conings cautioned against the blanket condemnation of Nepalese orphanages. "A lot of good things are done; a lot of NGOs and social workers are doing an amazing job," he said. "We would never say it's not good [to volunteer], but we want to bring this to the public's attention. There is a positive and negative, so be aware and make good decisions."

But Nvotova questions the premise of volunteering at an orphanage. "[Foreigners] feel cool by doing this," she said. "But I think it's more selfish than useful. Very often [volunteers] don't want to see the truth. They just want to feel needed and useful."

• Some names have been changed