Amid growing concerns over the government’s failure to take action against those guilty of money laundering, the Financial Action Task Force (FATF) has once again added Nepal to its grey list.
According to a press statement released by the FATF, the second FATF Plenary under the Presidency of Elisa de Anda Madrazo of Mexico, held on Friday, decided to keep Nepal along with 24 other countries under its grey list. The intergovernmental body, which combats money laundering and terrorist financing, made the decision during its meeting in Paris, France, after reviewing the portfolios of more than 200 countries. While Nepal and Laos have been added to the list, the FATF has delisted the Philippines.
The FATF stated on its official website that jurisdictions under increased monitoring are actively working with the organization to address strategic deficiencies in their financial systems. The Philippines is no longer subject to increased monitoring, but Nepal and Lao PDR are now included in the list due to their failure to implement necessary financial safeguards.
Concerns Raised by FATF
The FATF identified Nepal’s negligence in addressing risks associated with illegally earned money as the primary reason for its inclusion in the grey list. The organization expressed concerns over inadequate government surveillance on high-risk transactions, particularly in cooperatives, casinos, mining, and the mineral resources sector. It also pointed out the need for stronger anti-money laundering institutions and better coordination among various government agencies responsible for financial oversight.
The FATF urged Nepal to increase legal action against individuals involved in money laundering, take stricter measures against those convicted of financial crimes, and enhance surveillance over activities related to terrorism and illegal arms trading. However, Nepal failed to comply with these recommendations, leading to its placement on the grey list.
Government’s Response and Economic Implications
An official from the Ministry of Finance, speaking on condition of anonymity, stated that the government’s lack of political will to take action against financial criminals has resulted in Nepal’s grey listing. The official noted that the FATF had provided Nepal with an opportunity to improve its financial monitoring systems, but the government failed to act.
Former executive director of Nepal Rastra Bank, Nara Bahadur Thapa, attributed the situation to the government’s reluctance to implement legal provisions. He pointed out that although Nepal has established various institutions to combat money laundering, enforcement remains weak.
The grey listing could have serious economic consequences for Nepal. The country’s exports may suffer, while foreign direct investment and international financial assistance could decline. Cross-border banking transactions may also face additional scrutiny, increasing costs for individuals and businesses engaged in international trade.
This is the second time Nepal has been placed on the FATF grey list. The country was previously under increased monitoring for six years, from 2008 to 2014, before implementing corrective measures that led to its removal.
Nepal’s Commitment to Reforms
In response to the grey listing, Nepal has pledged a series of reforms to strengthen its anti-money laundering and counter-terrorism financing efforts. The government has promised to improve risk-based regulations in commercial banks, high-risk cooperatives, casinos, precious metals and gemstone businesses, and the real estate sector. It has also committed to identifying and taking action against illegal payment service providers and hundi operators while ensuring that financial inclusion is not negatively affected.
Furthermore, Nepal aims to strengthen the capacity and coordination of agencies responsible for investigating financial crimes. The country plans to increase the number of money laundering investigations and prosecutions while implementing measures to trace, freeze, seize, and confiscate illicit financial assets. The government has also vowed to address gaps in financial sanctions related to terrorist financing and the proliferation of weapons of mass destruction.
Attorney General Ramesh Badal stated that the government has already prepared work plans and is committed to their effective implementation. Authorities hope that by enforcing these reforms, Nepal will be able to exit the grey list as soon as possible.
