Banks Must Ensure Ongoing Monitoring and Due Diligence to Prevent Money Laundering and Terrorist Financing

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Kathmandu, Nepal - In a bid to prevent money laundering and terrorist financing, the Nepal Rastra Bank (NRB) has issued new guidelines requiring banks to exercise ongoing monitoring and due diligence in their transactions.

Ongoing Monitoring and Due Diligence

According to the guidelines, banks must ensure that account transactions are used for legitimate purposes and not for money laundering or terrorist financing. The monitoring process should be risk-based, with special attention paid to:

• Complex transactions
• Unusually large transactions
• Unusual patterns with no lawful purpose

Record Keeping

The guidelines also require banks to maintain accurate and secure records of all information, details, documents, reports, and conclusions for a minimum period of 10 years after the termination of business relations with customers or from the date of transaction. These records must be readily available for submission to competent authorities on demand.

Combating Financing of Terrorism (CFT)

The guidelines emphasize the importance of combating financing of terrorism (CFT). Banks are required to:

• Freeze funds or assets of individuals, groups, or organizations listed as terrorists by the Security Council Committee established pursuant to United Nations’ Security Council Resolutions

Correspondent Banking Relationships and Other Entities

The guidelines cover correspondent banking relationships, wire transfers, and relationships with vendors, service providers, and other parties. Banks must ensure that KYC/AML/CFT measures are implemented in letter and spirit when establishing relationships with these entities.

Employee Training and Capacity Enhancement

Furthermore, the guidelines stress the importance of employee training and capacity enhancement programs for board members and top management. The bank is required to arrange knowledge sharing programs on AML/CFT at least once a year for its employees.

Confidentiality and Tipping Off

The NRB has emphasized that banks must maintain confidentiality and not share information about unusual or suspicious transactions with customers or unauthorized parties. Tipping off, which is the act of sharing confidential information with customers or others outside the bank, is prohibited by law.

Implementation and Compliance

The guidelines are aimed at ensuring that banks in Nepal comply with international standards on anti-money laundering and combating financing of terrorism (AML/CFT). The NRB has given banks a deadline to implement these guidelines and will conduct regular monitoring and inspections to ensure compliance.