Bigyan Adhikari
Kathmandu, Jan 27: The Financial Action Task Force (FATF) has placed Nepal on its “grey list,” heightening national concern and international scrutiny. The decision reflects global efforts—initiated in the aftermath of major terrorist attacks such as the Twin Towers incident in the United States—to strengthen measures against money laundering and the financing of terrorism.
Developing and underdeveloped countries like Nepal, where challenges such as corruption, human trafficking, black marketing, the dominance of middlemen, and political instability persist, are often advised to adopt strict preventive and regulatory frameworks. Nepal’s placement on the grey list is largely attributed to weak implementation of these recommendations. With meaningful reforms, Nepal can be removed from the list; however, continued inaction could prolong its stay or even lead to placement on the FATF “black list” (public statement). Therefore, comprehensive and immediate reforms are essential.
To exit the grey list, Nepal must first ensure a unified national understanding of money laundering risks and terrorist financing threats. Citizens should not hold assets—whether cash or in kind—without verifiable sources. Government agencies and organized institutions must strictly discourage cash-based transactions and promote banking-channel operations.
All professional services, including medical, engineering, legal, accounting, brokerage, and real estate businesses, must be registered and conduct transactions in line with prevailing laws. Human trafficking, corruption, brokerage, and the unchecked influence of middlemen must be curtailed. Financial transparency and reliance on formal banking systems must become standard practice.
Mandatory asset disclosure and digital billing
Politicians, as public role models, should disclose their assets. The same requirement should apply to senior civil servants and employees working in sensitive offices, as well as to designated officials in the private sector and non-governmental organizations. Businesses must adopt mandatory computerized billing systems, and cash transactions above the legal threshold—currently set at NPR 500,000—should be strictly prohibited.
Sectors such as commercial banks and financial institutions, vulnerable cooperatives, casinos, precious metals and gemstones trade, alcohol and tobacco businesses, and real estate transactions are considered high risk. Regulatory authorities overseeing these areas must be empowered with stronger supervisory and enforcement capabilities.
Nepal Rastra Bank should continue strict regulation and monitoring of banks and financial institutions. The Department of Cooperatives requires organizational reform and legal amendments to effectively regulate cooperatives. Similarly, the Ministry of Tourism should urgently establish an electronic monitoring system for casino operations.
Border areas require special vigilance to prevent illegal activities conducted under the guise of tourism promotion, including smuggling, human trafficking, drug trade, prostitution, and threats to public security. Special monitoring must also be enforced in the trade of gold, silver, diamonds, alcohol, and real estate.
Role of the Financial Intelligence Unit (FIU)
Nepal Rastra Bank’s Financial Intelligence Unit (FIU), established in 2008, monitors suspicious financial transactions. Recent data show a concerning 30 percent increase in such transactions in fiscal year 2081/82, with 9,565 cases flagged. Although not all suspicious transactions are linked to criminal activity, the trend underscores the need for heightened vigilance.
The expansion of FIU monitoring and reporting mechanisms has been positively acknowledged by the international community and is viewed as a key pathway toward Nepal’s eventual removal from the grey list.
Information from the FIU is shared with relevant agencies, including the Commission for the Investigation of Abuse of Authority (CIAA), Nepal Police, Revenue Investigation Department, Cooperative Department, and the Department of Money Laundering Investigation, aiding in the control of corruption, crime, revenue evasion, and financial offenses. Regulatory bodies such as the Insurance Authority and Social Welfare Council also utilize this data to curb potential illegal activities. Notably, individuals involved in hundi (informal money transfer), virtual currency misuse, document forgery, and smuggling have increasingly been brought under legal scrutiny.
Grey List as a wake-up call
Nepal has been on the FATF grey list since February 2023, raising questions about the country’s international credibility. The listing has indirectly affected Nepal’s foreign trade and made visa procedures more stringent for Nepali citizens in several countries.
This situation should be understood as a global warning that Nepal’s financial system requires greater transparency and stronger enforcement. Implementing recommended reforms will strengthen internal revenue, improve economic discipline, ensure fair distribution of profits, and create broader economic opportunities for citizens.
Nepal did not land on the grey list due to a lack of laws, but because existing laws have not been effectively enforced. In a rule-of-law state, strict compliance with legal provisions is non-negotiable.
While Nepal’s macroeconomic indicators remain generally positive—banking transactions are increasing, insurance and share trading are expanding, imports and exports are steady, and inflation is under control—the persistence of illegal activities undermines these gains.
To move off the FATF grey list, both the state and citizens must actively and collectively work to eliminate corruption, smuggling, under-invoicing, illegal financial flows, and other unlawful practices. Only through sustained reform and public vigilance can Nepal restore its international standing and build a transparent, resilient, and inclusive economy. #nepal #economy
