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Anti-money laundering is an international network of laws, rules and procedures aimed at making money appear legitimate. For centuries, governments and law enforcement agencies have tried to fight crime by chasing money. 

The Financial Action Task Force (FATF), an international organization formed to combat money laundering, has given Nepal a year to avoid the ‘gray list’ in money laundering cases. 

Immediate assessment 

Nepal’s mutual evaluation group, the APG, is reviewing Nepal’s progress in January. 

Based on its report and Nepal’s response, the FATF will decide whether to keep Nepal on its ‘gray list’. As the deadline approaches, the government should not feel like it hastily amended the law. 

The FATF also identifies countries that lack adequate financial infrastructure to prevent corruption and other financial crimes. In the case of Nepal, it has recently become public that the government has proposed to amend the Cooperatives Act, 2074 and the Nepal Rastra Bank Act, 2058, less than a year after amendments. The recent Cabinet meeting passed an ordinance to amend some Nepal Acts related to cooperatives, indicating that the Cooperatives Act and the Nepal Rastra Bank Act may be amended. 

FATF blacklist 

The FATF blacklist is a list of countries that the financial watchdog has declared ‘non-cooperative’ in its efforts to address money laundering and terrorist financing concerns. The list helps identify financial weaknesses that hinder anti-money laundering compliance within an organization. 

Failure to meet the required action points in a timely manner places a country on the FATF blacklist as a ‘country under enhanced monitoring’. The blacklist is an official document based on findings related to financial crime and its prevention. Taking into account regulatory criteria, the FATF can remove a country from its blacklist based on the financial infrastructure of a particular sector. 

Due to the state of illegal activities related to terrorism and nuclear weapons, only a few countries are currently on the FATF blacklist. Looking back, the House of Representatives of Nepal unanimously passed the Money Laundering Bill paving the way for amendments to laws such as the Export-Import (Control) Act-2013, the Ship Registration Act-2027, the Revenue Act-2034, the Tourism Act-2035, the Building Construction Act-2013. Other relevant laws include the Securities Act-2063, Nepal Rastra Bank Act-2058, Human Trafficking and Transportation (Control) Act-2064, Criminal Assets and Equipment (Forfeiture, Control and Confiscation) Act-2070, Prevention of Money Laundering Act-2064, Prevention of Organized Crime Act-2070, 2079, Cooperatives Act-2074, Foreign Investment and Technology Transfer Act-2075 and the Electricity Regulatory Commission Act-2074. Looking back, the plenary session of the FATF held last June pledged to address the weaknesses pointed out by the APG by amending various laws. 

After the House of Representatives approved the Money Laundering Bill, Nepal took a major step to reduce the risk of being graylisted by the Financial Action Task Force (FATF). 

Institutional governance

In this context, the regional organization on money laundering—Asia Pacific Group (APG)—assessed that institutional governance in cooperatives was weak last year and the risk of money laundering was high. 

The government tried to amend the act to control the transactions of cooperatives. Last year, the government proposed to set a limit of personal savings in cooperatives at Rs 2.5m, but it was removed when it was passed by the parliament. Similarly, there is a provision for the regulation, monitoring and supervision of organizations with transactions up to Rs 250m by the local level, up to Rs 500m by the province, and more than Rs 500m by the federal department. 

The Nepal Rastra Bank Act was also amended to include the Nepal Rastra Bank in the financial governance and risk-based supervision of cooperatives with a share capital or annual turnover of more than Rs 500m, at the request of the department. 

Despite the increase in the number of cooperatives that are in trouble due to failure to return the savings of their members, the government has not been able to do anything for security. 

Advisory panel 

The advisory task force formed under a member of the National Planning Commission to solve the problems seen in cooperatives last year also suggested that the monitoring of large-scale cooperatives through Nepal Rastra Bank should be carried out immediately and a regulatory authority should be formed in the long term. The ‘Parliamentary Inquiry Committee on Misuse of Savings by Cooperatives’ formed under the Parliament had also suggested setting limits on savings and loan transactions by cooperatives and forming a regulatory authority. 

It should be recalled that the APG, in its mutual evaluation report, pointed out the need for Nepal to pass an amendment that would give the authority to investigate money laundering to the relevant criminal investigation agency. 

Once adopted, Nepal should accelerate implementation and significantly enhance the capacity of effective competent authorities to carry out new/modified functions.

Nepal and the gray list 

Nepal was on the Gray List from 2008 to 2014. A series of improvements in the anti-money laundering regime, including the Anti-Money Laundering Act, 2008, and other laws, finally removed Nepal from the list in 2014. 

Although FATF does not enforce regulations or impose penalties, its recommendations and guidelines play an important role in helping financial institutions combat money laundering and terrorist financing. 

FATF Gray List Jurisdictions under enhanced monitoring—also known as the FATF Gray List—include countries with “strategic weaknesses” in combating financial crime. Countries on the list represent a high risk of money laundering and terrorist financing; they are required to formally commit to improving the regulatory infrastructure to prevent financial crime. 

These efforts include creating an action plan to address the need for anti-money laundering measures across the country, developing a central regulatory unit that works with other financial institutions and businesses to combat illicit flows of money, and effectively implementing the “anti-money laundering” standards. 

In addition to efforts to effectively implement the “anti-money laundering” standards, graylisted countries are increasingly monitored by the FATF itself or other regional bodies designated by the FATF. 

These bodies report on the country’s progress in meeting anti-money laundering compliance. Although graylisted countries represent a lower risk than the jurisdictions on the blacklist, the World Bank and other financial institutions may impose certain restrictions. 

Like the blacklist of countries graylisted by the FATF, the FATF Gray List is updated regularly to take into account the state of financial crime in a particular country. 

In 2020, the FATF Gray List included around 18 countries. Laundering laws on the legalization of inherited wealth should be softened, and self-declaration of inherited wealth should be made more explicit. The lawmakers also raised the question of whether the accountability is to FATF or to the Nepali people. 

It is said that Nepal has failed in implementation—the system for investigation, prosecution, asset seizure and prevention of money laundering is not efficient. 

A country like ours cannot remain isolated from the international economy. Similarly, foreign donors can impose more stringent conditions on aid and grants after the country is blacklisted. 

If the ordinance is brought before the next FATF plenary meeting, it will be considered a major step forward. Enacting a law will be even better.  

Otherwise, Nepal will remain a country that has failed to fulfill its commitments. Nepal must continue to implement its action plan to address these shortcomings, namely: adequately criminalizing money laundering and terrorist financing; establishing and implementing adequate procedures to identify and freeze terrorist assets; implementing adequate procedures to confiscate money related to money laundering; implementing and enforcing appropriate mutual legal assistance laws; ensuring a fully operational and effectively functioning Financial Intelligence Unit. It seems that adequate suspicious transaction reporting obligations should be established to prevent money laundering. 

Overall, the responsibility of the concerned bodies to take the necessary initiatives to protect Nepal from the gray list lies with the concerned bodies. 

If strong policies and government lobbying are required for this, initiatives should be taken at the regional and bilateral levels for liberalization in Nepal. 

Corruption, tax evasion and human trafficking are the biggest ML threats in Nepal. 

They have the greatest potential to generate income and produce negative economic and social impacts. According to the opinion of some people, there should be no provision in the current provision to allow some unaccounted assets to be made white by paying taxes on illegally acquired assets. This is also related to VDIS and ancestral property. 

Recently, the government has decided to form a seven-member task force to make the work against money laundering and terrorist financing more effective. According to the decision taken by the meeting of the Money Laundering Control Committee, the coordinator of the National Coordination Committee will be the coordinator of the task force. The task force is also expected to coordinate among agencies involved in money laundering and terrorist financing control.

It is natural to wonder how accurate credit rating agencies like Fitch and Moody’s are in assessing countries. Nepal’s situation has been shown to be good in the first-ever sovereign rating in Nepal.

Rating agency

Fitch Ratings, one of the world’s three major rating companies, has given Nepal a ‘Double B Minus’ rating, which is said to be the best among South Asian countries except India. Fitch has given this rating based on Nepal’s excellent foreign exchange reserves and strong economic growth projections. The government can influence the operation and financial environment of corporate entities existing in the country.

The basic economics and trade dynamics that develop within a country are influenced by other unique features such as infrastructure, roads, ports and telecommunications, etc. 

Parameters and factors

So, to analyze the various controls that the government can use that can affect the business performance of each company within the government's jurisdiction, it is considered: regulatory framework, tariffs, fiscal policy, monetary policy, foreign exchange controls, physical and human infrastructure, financial markets, macro factors (consumer spending, inflation, interest rates, foreign exchange risks).

While giving ratings, they usually look at the socio-economic situation and other factors such as political stability, inflation rate, power index, spending on welfare schemes, current account and fiscal account deficit, balance of payments position and GDP growth, etc.

While rating banks and financial institutions, they look at the internal strength of the institution, various financial parameters, and growth rate. 2/3 years of performance, current market scenario and the prevailing economic situation in the country of the said financial institution(s).

Process

The ‘rating’ is carefully checked by experts and issued after discussion by the committee. The only limitation is that these analyses are based on published figures, sometimes combined with anonymous data provided by the issuer. 

If the data provider feeds analysts with incorrect data,  there is little they can do.

In retrospect, the Enron case in the United States and the Parmalat case in Italy are good examples of ratings based on fraudulent data. 

Of course, there are external auditors (paid by the issuers) who verify the accounts and many supervisors who have little, if any, upfront role. That being the case, one can trust the rating agencies, although the published ratings and related research are only one of the data to be taken into account. The others are published accounts, related audits, and economic forecasts.

Accuracy

Generally, ratings are accurate unless fraudulent data is provided. 

Some people and their critics say that even international rating agencies are not saints. Sometimes it has been shown that there were reasons other than professional ones on the day of the assessment (grade down or upgradation) and they tend to base their decisions on perceptions and political views and without any concrete reasons and hard facts. But such cases are rare.

​On average, Nepal’s current rating is two places below India, but is the best among other South Asian countries. It should be considered historic to get such a position in the first-ever rating.

Sovereign credit

A team from Fitch Credit Ratings came to Nepal a few months back  to assess Nepal’s sovereign credit rating. This grade was obtained on the basis of an analysis of Nepal’s short-term stability in the economy.

​A sovereign rating provides information about the risks that may arise when investing in a country’s bonds, including political risks. ​At the request of a country, the credit rating agency independently evaluates the economic and political environment of that country and provides it with a rating. Also, foreign investors look at the ‘country rating’ of that country to assess how safe it is to invest in a country.

​Although the rating received by Nepal now generally recognizes Nepal’s ability to repay its debt, it has shown signs of economic risk. ​A country needs a credit rating to raise debt by issuing bonds in the international market.

Foreign investment

Countries also give ratings to attract foreign investment. The world’s largest S&P, Fitch and Moody’s use ratings ranging from the best ‘AAA’ (triple A) to the worst C grade.

​The way they assign ratings varies slightly. For example, Moody’s gives a C rating to the worst, that is, a bankrupt country or entity, while S&P gives an SD rating and Fitch gives an RD-D rating.

​Among them, ratings from BBB minus and above are considered good for investment, while ratings below that up to B minus are considered speculative ratings. ​Ratings below that are considered high-risk or likely to go bankrupt. Fitch gave this rating after studying Nepal’s weak revenue situation, political instability, and the need for reform in the economic structure.

Fitch has positively assessed some of Nepal’s economic indicators. Low debt burden is considered a good thing.

What is Fitch Ratings?

​Fitch Ratings is a company that rates the integrity of debt instruments such as bonds based on the financial stability of the issuing company or government entity. The role of Fitch Ratings is to determine the likelihood that the issuing entity will default and fail to repay its debt.

Fitch Ratings, Moody’s and Standard & Poor’s are the three major agencies that rate bonds. Using similar grading systems, the companies scale bonds from high-quality ‘investment grade’ to low-quality ‘speculative’ or junk bonds.

Bonds are rated before they are issued, and that process plays a large role in the return that must be paid to investors. The higher the risk, the higher the return that must be paid. Events later in the life of the bond can also cause the agencies to change the bond’s rating.

Fitch also provides sovereign credit ratings that describe each nation’s ability to meet its debt obligations. Sovereign credit ratings help investors gain insight into the level of risk associated with investing in a particular country. ​

Countries invite Fitch and other credit rating agencies to assign representative ratings to assess their economic and political environment and financial conditions.

A good credit rating is essential, especially for developing nations, as it gives them access to international bond markets.

In 2018, Fitch gave the United States its highest long-term sovereign credit rating, AAA. At the bottom was Brazil with BB-.

​Nepal’s government debt is 44 percent of gross domestic product (GDP). 

Fitch pointed out that the high level of debt at low interest rates, and a large portion of Nepal’s external debt at concessional rates, has protected the country from fiscal pressures. The report also noted that foreign exchange reserves are good.

Overreliance on remittances is also cited as a long-term problem. It also pointed out that Nepal needs to improve in some areas to improve its rating. Fitch also suggested that political stability should be accompanied by long-term economic policy. Fitch noted that Nepal’s economic stability has improved.

Many European politicians have long held the view that they are biased against European countries, or biased in favor of large corporations that pay them, or biased in some other twisted fashion.

​In Sept 2011, after S&P downgraded Italy, Silvio Berlusconi is remembered for threatening the rating agencies, accusing them of ‘political motivation’. This may have something to do with the fact that all the big three firms are American, although Fitch says it has a ‘dual’ headquarters structure—New York and London (and has argued in the past that its ultimate owners are French).

Accusations that they were to blame for the 2008 global financial crisis were also widespread.

In the Asian context, credit rating agencies have also been blamed for the 1997-8 financial crisis.

The subjectivity involved in the exercise of judgment by rating analysts when factoring in rating decisions regarding the qualitative, ambiguous, institutional quality, political economy, ‘willingness to pay’ and governance have been shown empirically to be important. For some critics, the door to bias may, in this way, be clearly framed.

Overall, Nepal’s first-ever ‘credit rating’ is a source of pride, self-respect and a good start for the country. It is about addressing its shortcomings and weaknesses, rather than highlighting its negative aspects and failures in other countries. In the coming days, the country can expect progressive development through its successful use.

The available sources highlight a multitude of challenges confronting older adults in Nepal, many of which are deeply rooted in social and economic structures.

Many older adults in Nepal face financial struggles, stemming from limited opportunities to save or invest for retirement, especially in rural areas. While Nepal has implemented social security programs like the ‘old age allowance’, these often reach only a fraction of those in need. For example, only 20 percent of eligible individuals receive old-age allowances, and less than seven percent of eligible recipients receive government service pensions. This lack of financial security is further compounded by the fact that Nepal’s social security system is primarily focused on younger demographics, with maternal and child health taking precedence.

Although the government provides free healthcare to older adults in government facilities, access remains limited due to factors like ethnicity, income and literacy.  There is a lack of a comprehensive geriatric healthcare policy, and existing healthcare initiatives often prioritize younger populations. Additionally, despite a significant proportion of older adults experiencing health problems, many do not utilize healthcare services, highlighting gaps in awareness and accessibility.

Traditional societal roles for older adults are changing as Nepal undergoes modernization and experiences the influence of Western culture.  This shift can lead to feelings of displacement and social isolation for older adults. Ageism also plays a role in marginalizing older individuals, impacting their access to opportunities and perpetuating negative stereotypes.

Nepal’s rapidly changing demographics, with a growing older population and a significant youth population migrating abroad for work, further exacerbate these challenges. This demographic shift creates a ‘demographic window’ of opportunity, with a larger working-age population, but it also raises concerns about the long-term sustainability of social security programs as the older population increases and the younger workforce shrinks. 

The sources suggest this demographic shift could lead Nepal to become an ‘aging’ society by 2028 and an ‘old’ society by 2050. Economic factors directly shape the financial security of older adults, while also impacting their access to healthcare and social support. 

Social factors, such as changing cultural norms, ageism, and migration patterns, influence the social standing and well-being of older individuals. These social and economic factors are interconnected and contribute to a complex web of challenges facing older adults in Nepal.

The sources suggest that addressing these challenges requires a multi-faceted approach that includes strengthening social safety nets and retirement security programs for older adults, developing a comprehensive geriatric healthcare policy that addresses the specific needs of the aging population, promoting awareness of ageism and challenging negative stereotypes and investing in community-based support systems for older adults.

These efforts require collaboration between government agencies, non-governmental organizations and communities to create a more supportive and inclusive environment for older adults in Nepal.

A growing older population

According to the 2011 census data in the sources, 8.1 percent of Nepal’s population (2,154,003 individuals) were aged 60 years or older. More recent data from the 2021 census indicates that this proportion has risen further, with the total number of older adults reaching approximately 2.5m.

The sources project a continued increase in the proportion of older adults in Nepal’s population: by 2028, it is estimated that seven percent of the population will be 65 years or older, marking Nepal’s transition to an ‘aging’ society. Projections indicate that by 2031, the proportion of older adults will reach 11 percent. By 2050, Nepal is expected to become an ‘old’ society, with 14 percent of the population aged 65 or older.

Several factors contribute to this projected demographic shift. 

Nepal’s fertility rate has decreased from 2.5 percent in 2001 to 1.35 percent in 2011. This decline is attributed in part to the emigration of young people seeking work abroad, further reducing the birth rate.

While a specific average life expectancy for Nepal is not mentioned in the sources, one source states that the mandatory retirement age of 60 is lower than the average life expectancy of 72 years. This suggests that people are living longer after retirement.

The proportion of older adults is increasing more rapidly in mountainous regions compared to urban areas due to factors like internal displacement, migration, social conflicts and modernization.

The sources emphasize that this demographic transition presents both opportunities and challenges for Nepal. The increasing proportion of older adults will require a reevaluation and strengthening of social safety nets, healthcare systems and policies to ensure the well-being and inclusion of this growing demographic.

Socioeconomic impacts

The sources portray Nepal grappling with the multifaceted challenges of a burgeoning older population. This demographic shift presents a web of interconnected social and economic pressures that demand attention and creative solutions.

A rapidly aging population places significant stress on Nepal’s social security system, particularly the ‘old age allowance’. While the allowance aims to provide financial support to older adults, it faces limitations. Currently, it only reaches 20 percent of eligible individuals. Furthermore, with the number of older adults projected to increase significantly in the coming decades, the sustainability of funding such programs is in question. The Finance Ministry has even cautioned about the long-term viability of providing these allowances.

As the younger generation migrates abroad for work opportunities, Nepal faces a potential decline in its workforce. While remittances from these workers contribute to the economy, the lack of skilled labor within the country could hinder economic growth.

This ‘demographic window’ of a larger working-age population presents a time-sensitive opportunity for Nepal to capitalize on this workforce and invest in development. However, the sources suggest there is a risk of squandering this opportunity due to slow economic progress and political instability.

The sources highlight that a majority of people in rural areas have limited opportunities to save or invest for retirement. This reliance on children for financial support in old age further underscores the economic vulnerability of older adults, especially as traditional family structures evolve.

Nepal’s modernization and increasing exposure to Western culture contribute to changing social dynamics that can negatively impact older adults. The traditional roles of older adults as knowledge keepers and caregivers are being challenged, potentially leading to feelings of displacement and a loss of purpose.

Ageism and discrimination 

The sources explicitly mention ageism as a pervasive issue in Nepal. This prejudice against older adults can manifest in various forms, including negative stereotypes, exclusion from employment opportunities and limited access to services. Institutional ageism, like the mandatory retirement age of 60 despite an average life expectancy of 72, further exacerbates economic and social vulnerability.

As younger generations migrate and family structures change, the sources indicate a growing concern about social isolation among older adults. This isolation can have detrimental effects on their mental and physical well-being, contributing to depression and feelings of disconnection from society.

Addressing challenges

Experts suggest a need to bolster social security programs like the old-age allowance to ensure broader coverage and adequacy of support. Encouraging intergenerational programs and activities can help bridge the gap between generations, foster understanding and combat ageism. This can involve engaging older adults in community initiatives, leveraging their experience and knowledge to benefit younger generations.

Promoting opportunities for continued learning, skill development and social engagement can help older adults maintain a sense of purpose and contribute to society.

The sources call for greater awareness and education to challenge ageist attitudes and promote respect for older adults. The challenges of an aging population in Nepal are multifaceted and intertwined. Addressing these issues requires a holistic approach that combines economic empowerment, social inclusion and a shift in societal perceptions of aging.

The challenges confronting older adults in Nepal require a comprehensive and collaborative approach involving government agencies, NGOs and communities. It necessitates a fundamental shift in societal perceptions of aging, emphasizing the value and contributions of older adults while ensuring their social and economic inclusion.