Nepal has taken a major step towards minimising the threat of being greylisted by the Financial Action Task Force (FATF) after the country’s lower house on Wednesday endorsed a bill on money laundering.
The FATF is an international anti-money laundering body which decides whether to blacklist or greylist a country, or give waiver depending on the country’s compliance with FATF’s anti-money laundering standards.
The terms ‘Blacklist’ and ‘Greylist’ do not exist in the official FATF lexicon, but are colloquial phrases used to describe the two lists of countries the body maintains.
‘Blacklist’ is a term used for the FATF’s list of “High-Risk Jurisdictions subject to a Call for Action.” Currently, North Korea, Iran, and Myanmar are on the blacklist.
The ‘greylist’ is used to denote a group of countries/jurisdictions with “strategic deficiencies” in their regime to counter money laundering and terror financing. Once listed as ‘jurisdiction under increased monitoring’ by the FATF, they must develop an action plan within a specific period.
A country on the greylist is not subject to sanctions. However, the greylist signals to the international banking system that there could be enhanced transactional risks from doing business with the country concerned.
Officials said Nepal was facing the threat of being greylisted as it failed to improve in a number of areas pointed out by the Asia-Pacific Group on Money Laundering (APG,) a regional anti-money laundering body, of which Nepal is also a member.
As per mutual evaluation of Nepal by the APG last year, Nepal fully complied with only five of the 40 recommendations made by the FATF. It largely complied with as many as 16 recommendations, partially with 16 while not complying with three.
“One of the areas that the mutual evaluation of Nepal highlighted is the deficiencies in our legislations,” said Gunakar Bhatta, spokesman of the Nepal Rastra Bank (NRB). “The endorsement of the amendment bill that has sought to address these deficiencies is important progress.”
After its endorsement by the House of Representatives on Wednesday, the bill has to go to the National Assembly, the upper house of the parliament. Following the endorsement from the upper house, presidential authentication will be required for it to become a law.
The bill aims to amend the Money Laundering Prevention Act-2020, Cooperative Act-2017, Tourism Act-1978 , Nepal Penal Code Act-2017, Foreign Investment and Technology Transfer Act-2019, and Insurance Act-2022, among others.
In its mutual evaluation report, the APG had pointed at the need for Nepal to pass the amendments to give money laundering investigation authority to the pertinent crime investigation agency.
“When passed, Nepal should expedite implementation and significantly enhance the capacity of impacted competent authorities to undertake their new/modified functions,” it said.
“With the passage of the bill by the lower house, Nepal is on its way to complete number 1 task required to avoid being greylisted by the FATF,” another NRB official said, on condition of anonymity. “The amendment bill has addressed more than 80 percent of legislative deficiencies the APG pointed out.”
The officials, however, said that legislation alone would not be enough to save the country from falling into the infamous list. “Along with legislation, enforcement of laws should also be strong and visible,” the official said.
“Nepal has to show a marked improvement in both legislations and law enforcement by October this year to avoid being greylisted by the FATF’s plenary, which is scheduled for February 2025,” said the NRB official.
Nepal was on the greylist of the FATF from 2008-2014. After a series of progress made on the anti-money laundering regime that includes amendment to the Anti-Money Laundering Act 2008, and the enactment of other laws, the FATF finally removed Nepal from the list in 2014.
The bill passed by the lower house on Wednesday allows even the agencies where the complaint was registered to conduct investigations into money laundering. “This means, if the Commission for Investigation of Abuse of Authority finds that a person or an agency accused of corruption is also involved in money laundering, it can also launch a money-laundering investigation,” the NRB official said.
The amendment bill has also sought to address the deficiencies related to terrorist financing and proliferation of weapons of mass destruction. APG mutual evaluation report says Nepal has non-compliant standards related to targeted financial sanctions for proliferation financing for weapons of mass destruction.
“Nepal should establish a legal framework to implement Targeted Financial Sanctions for Proliferation Financing without delay through setting up procedures, measures, compliance and sanction mechanisms that give effect to targeted financial sanctions obligations,” the APG said.
The bill has sought to criminalise both terrorist acts and proliferation of weapons of mass destruction. With the APG report stating that Nepal has been non-compliant to standards related to money laundering through non-profit organisations, they are also required to report suspicious financing to the Financial Intelligence Unit at the NRB as per the bill.
“After the bill becomes a law, the next step is to improve the enforcement, particularly prosecution of powerful people involved in crimes,” said the NRB official. “In recent months, the government has prosecuted those involved in frauds in cooperatives, fake Bhutanese refugees scam, and gold smuggling, which are good signs, but those individuals should also be investigated for money laundering.”
Prithvi Man Shrestha was a political reporter for The Kathmandu Post, covering the governance-related issues including corruption and irregularities in the government machinery. Before joining The Kathmandu Post in 2009, he worked at nepalnews.com and Rising Nepal primarily covering the issues of political and economic affairs for three years.
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