Financial Crime World

Nepal Takes Risk-Based Approach to Combat Financial Crime

KATHMANDU, NEPAL - The Nepal Rastra Bank (Central Bank of Nepal), Securities Board of Nepal, and Financial Information Unit (FIU-Nepal) have taken a significant step towards combating financial crime by adopting a risk-based approach to anti-money laundering (AML) and counter-terrorism financing (CFT).

Designing an Effective AML/CFT Regime

The AML/CFT regime in Nepal is designed to prevent the misuse of the country’s financial system for illegal activities such as money laundering, terrorist financing, and other financial crimes. To achieve this goal, designated service providers are required to develop and implement a comprehensive compliance program that includes:

  • Customer Due Diligence (CDD): Determining and confirming the identity of ultimate beneficial owners
  • Risk Profiling: Identifying and assessing risks associated with customers and transactions
  • Ongoing Monitoring: Continuously monitoring customer activities and transactions

Additionally, entities must ensure proper management oversight, supervision, processes, controls, segregation of duties, and training to prevent financial crime. Regular updates to their frameworks are also required.

Nepal’s Progress in AML/CFT

Nepal has made significant progress in laying the groundwork for its AML/CFT system by:

  • Devising sound legal and institutional structures: Establishing a robust framework for combating financial crime
  • Organizing capacity-building activities: Providing training and support to stakeholders and the general public
  • Raising awareness among stakeholders and the general public: Educating individuals about the importance of AML/CFT

Risk-Based Approach

All AML/CFT programs in Nepal must be risk-based, with a clear connection between defined risks and the processes, practices, and controls that address those risks. This approach enables entities to focus their efforts on areas where the risk of financial crime is highest.

Reporting Obligations

As part of its AML/CFT regime, Nepal requires designated service providers to notify FIU-Nepal regarding any suspicious activities. Reporting obligations include:

  • Threshold Transaction Report (TTR): Filed within 15 days for deposits, withdrawals, and currency exchanges
  • Suspicious Transaction Report (STR): Filed within three days of determining that a report needs to be filed

Entities must also maintain records of all transactions, customer details, and activity logs for at least five years. The timely filing of these reports is critical in helping Nepal’s financial intelligence unit identify and disrupt illegal activities.

Conclusion

By adopting a risk-based approach to AML/CFT, Nepal has taken a significant step towards protecting its financial system from abuse and ensuring the integrity of its financial transactions.