Nepal prepares five-year strategy to improve AML compliance

The government is preparing a five-year strategy to make comprehensive improvements in its anti-money laundering (AML) compliance.

Last week, a meeting of the Money Laundering Steering Committee, chaired by Minister for Finance Barsha Man Pun, approved a draft of the strategy. The strategy will be implemented once it is endorsed by the Cabinet.

The steering committee includes the Minister for Law, Justice and Parliamentary Affairs, the Chief Secretary, the Governor of Nepal Rastra Bank, and the Secretary (Law) of the Office of the Prime Minister and Council of Ministers as the members. The Revenue Secretary serves as the Member Secretary of the committee.

The ‘National Strategy and Action Plan on the Prevention of Financial Investments in Money Laundering and Terrorist Activities’ follows several legal reforms made by the government over the past year to improve anti-money laundering compliance.

A member of the steering committee stated that the plan is to implement the strategy from the first month of the new fiscal year, which begins in mid-July. The strategy includes action plans to control corruption, revenue evasion, transactions through the Hundi system, and cryptocurrency transactions. It also addresses criminal activities such as organized crime, internal terrorism, theft, dacoity, counterfeit currency transactions, black-marketeering, and fraudulent activities.

Nepal was on the gray list of the Financial Action Task Force (FATF) from 2009 to 2014 due to its failure to implement the task force’s recommendations. Although Nepal has made considerable progress by drafting necessary laws and regulations, the country remains on a watch list of countries under scrutiny.

Following the mutual evaluation conducted by the of the Asia Pacific Group on Money Laundering (APG)  in Oct 2022, Nepal has undertaken significant technical reforms, including legal, policy, and structural changes, aimed at improving the effectiveness of its anti-money laundering efforts. Nepal is a member state of the APG—the associate member of FATF for the Asia Pacific region.

In response to recommendations from both the FATF and the APG, Nepal endorsed the Bill to Amend Some Acts Related to Preventing Money Laundering and Promoting Business in February. This bill includes revisions to 20 laws to address legislative shortcomings in controlling money laundering and terrorist financing.

The APG delegation is scheduled to visit Nepal again in October for the next phase of their assessment.

Both the FATF and the APG have advised Nepal to more effectively implement its existing legal framework and to make necessary adjustments to enhance its anti-money laundering measures.

The FATF has warned that if Nepal does not improve its current situation, the country risks being placed on the ‘gray list’ for money laundering concerns.

Being on the ‘gray list’ would significantly damage Nepal’s international credit reputation. It would likely lead to a reduction in foreign aid, loans, and investments, and make international banking transactions more challenging.

Additionally, there is a risk that remittance flows could decrease, the informal ‘hundi’ money transfer system could proliferate, and the overall economy could face a severe crisis, the Ministry stated.