Nepal at risk of FATF gray listing

Nepal faces the risk of being added to the Financial Action Task Force (FATF) ‘gray list’—an informal designation for countries with strategic deficiencies in combating money laundering and terrorist financing. The warning comes as the FATF Plenary and Working Group meetings, scheduled for Feb 17-21 in Paris, France, are set to review Nepal’s progress in addressing these issues.  

Nepal Rastra Bank (NRB) Governor Maha Prasad Adhikari acknowledged the risk, stating that Nepal is currently in the listing phase after completing its mutual evaluation period. “Even if we are listed, we have laid a strong foundation to exit the grey list,” Adhikari said, during Anti-money Laundering Day celebrations in Kathmandu. 

Officials say the FATF, an intergovernmental body that sets global standards for anti-money laundering (AML) and counter-terrorist financing (CFT), has expressed concerns over Nepal’s slow progress in key areas. Although Nepal has made legislative reforms, international observers have criticized the delays in investigations, prosecutions and enforcement of AML/CFT measures.  

Nepal’s mutual evaluation process, which began in June 2022, identified several gaps in the country’s AML/CFT framework. A team from the Asia/Pacific Group on Money Laundering (APG), comprising experts from Australia, Bangladesh, Fiji, Malaysia, New Zealand, the Philippines, and Sri Lanka, had made 11 immediate recommendations for improvement. However, government officials admit that progress in implementing these reforms has been unsatisfactory.  

The government had prepared to amend over a dozen laws through an ordinance in Oct 2022. The proposed amendments targeted key legislation, including the Money Laundering Prevention Act, Cooperative Act, Tourism Act, Nepal Penal Code, and Foreign Investment and Technology Transfer Act. However, the President declined to issue the ordinance.  

It was only in February 2023 that Parliament passed the anti-money laundering bill, amending several laws to align with international standards. Despite these efforts, experts say challenges remain in addressing issues such as proxy ownership of assets, underreporting of property values and large cash transactions.  

Law Secretary at the Office of the Prime Minister and Council of Ministers, Phanindra Gautam, Prime Minister’s Office said that while Nepal has completed the third round of mutual evaluation, the results have not been entirely satisfactory. “The current context does not reflect effective implementation,” he said.  

Chief Secretary Ek Narayan Aryal acknowledged that Nepal has adequate laws, structures, and human resources to combat money laundering but stressed the lack of reporting, enforcement, and active implementation. “This has led to repeated questioning by international institutions,” he said.  

Deputy Prime Minister and Finance Minister Bishnu Paudel admitted that Nepal has not done enough to address money laundering risks. “Efforts have been made to avoid being pushed into a high-risk or monitored category, but we have not been as effective as required,” he said. Paudel emphasized the need for strict adherence to international commitments and the implementation of domestic programs.  

If Nepal is gray-listed, it could face significant economic repercussions, including reduced foreign investment, higher transaction costs, and reputational damage.