KATHMANDU, July 13: Nepal Rastra Bank (NRB) has adopted a policy to enhance the monitoring, investigation, and prosecution of suspicious transactions in order to rescue Nepal from the Financial Action Task Force (FATF)’s grey list concerning money laundering matters.
According to the monetary policy for the upcoming fiscal year (FY) 2025/26 unveiled by Governor Dr Bishwo Nath Poudel, Nepal aims to swiftly exit the grey list by strengthening investigation, prosecution, and enforcement in line with the FATF's action plan.
The policy states: “To complete the tasks outlined in the action plan provided to Nepal for removal from FATF’s enhanced monitoring list (grey list), effective coordination will be carried out among relevant agencies. To fully implement the national strategy and action plan related to the central bank, surveillance, investigation, and enforcement will be further strengthened.”
FATF’s Grey List: A Wake-Up Call for Nepal
It further mentions that the priority tasks and improvement suggestions mentioned in the third mutual evaluation report published by the Asia Pacific Group (APG) regarding Nepal’s regulatory bodies will be implemented with priority.
Additionally, financial intelligence disseminated from the Financial Information Unit under the central bank to relevant agencies will be automated to enhance the effectiveness of investigation efforts.
Nepal was placed on the grey list due to the failure to enact and enforce laws related to money laundering control and prevent illegal financial activities.
Although Nepal has made some improvements, it was placed on the grey list by FATF’s Asia Pacific Group (APG) because the efforts were deemed insufficient. Nepal was seen as weak in controlling financial crimes such as corruption, tax evasion, hundi (informal remittance system), cryptocurrency trading, and illegal arms and human trafficking.
According to the study and assessment done by Nepal on money laundering, corruption, tax fraud, financial crimes, and hundi were found to be high. APG had pointed out more than three dozen shortcomings and had recommended improvements.
Being on the grey list affects a country’s banking sector in terms of international transactions, increases remittance costs, boosts illegal trade across borders, causes a drop in customs revenue, and raises hundi operations, ultimately impacting the overall economy.
FATF had identified 40 areas requiring improvement. Although Nepal made legal reforms, it failed to fully comply with international standards for controlling financial crimes. According to the Anti-Money Laundering Prevention Act, legal action must be taken against those who acquire or conceal the source of assets earned through tax evasion, terrorism-related or other illegal activities.
FATF develops international standards to prevent money laundering and illegal financial activities. It had been warning Nepal of a potential grey list designation due to the lack of such laws. While the government did attempt to amend some acts in an integrated manner, full success had not yet been achieved.
