Financial Crime World

Title: Nepal Avoids Grey Listing: An Overview of the Amendments to Combat Money Laundering and Terrorism Financing

On February 7, 20–, Nepal’s House of Representatives endorsed a Bill to Amend Laws Related to Prevention of Money Laundering and Promotion of Business Environment. This significant step forward in Nepal’s commitment to strengthen its regulatory framework against financial crimes came after the Asia/Pacific Group on Money Laundering (APG) identified weaknesses in Nepal’s existing measures to prevent money laundering (ML) and terrorism financing (TF).

Significant Amendments

Numerous provisions of various acts have been amended alongside the endorsement of this Bill, including:

  • Import and Export (Control) Act, 1950
  • Ship Registration Act, 2027 (1971)
  • Land Revenue Act, (1978)
  • Tourism Act, (1978)
  • The Building Act, (1998)
  • Nepal Rastra Bank Act, (2002)
  • Insolvency Act, (2006)
  • Securities Act, (2007)
  • Human Trafficking and Transportation (Control) Act, (2007)
  • Asset (Money) Laundering Prevention Act, 2008
  • Offence related to Assets and Goods (Freezing and Confiscation) Act- 2003
  • Mutual Legal Assistance Act, (2014)
  • Organised Crime Prevention Act (2014)
  • Electricity Regulation Commission Act, (2017)
  • National Penal (Code) Act, (2017)
  • National Criminal Procedure (Code) Act, (2017)
  • Cooperatives Act (2017)
  • Foreign Investment and Technology Transfer Act, (2019)
  • Insurance Act (2022)

Addressing Shortcomings

Before these amendments, the APG’s Mutual Evaluation Report, published in September 2023, revealed moderately deficient legal frameworks covering TF and major shortcomings regarding proliferation financing. Financial institutions showed varying levels of understanding of their terrorism financing obligations, and Nepal faced the risk of grey listing due to these shortcomings.

The APG evaluation report recommended ten actions for Nepal to remove itself from the monitoring list, including:

  1. Endorse the Bill
  2. Expedite the implementation process
  3. Enhance the capacity of impacted competent authorities
  4. Update terrorism financing risk assessment
  5. Assess money laundering/terrorism financing risks related to legal persons and arrangements
  6. Strengthen financial intelligence unit’s capabilities
  7. Streamline mutual legal assistance response coordination mechanisms
  8. Establish a Financial Intelligence Unit
  9. Amend the Central Monetary Authority Act to include provision for AML/CFT supervision
  10. Implement regulatory frameworks for Designated Non-Financial Businesses and Professions

Consequences of Grey Listing

Grey listing can result in restrictions on cross-border transactions, negatively impacting the economy and limiting foreign investment. By addressing the concerns raised by the APG through parliamentary approval of the Bill, Nepal has managed to avoid these consequences.

Minister for Law, Justice, and Parliamentary Affairs, Dhana Raj Gurung, expressed relief after the parliament’s endorsement of the Bill, stating that the country had successfully avoided grey listing. Despite having the Asset (Money) Laundering Prevention Act enacted and a separate department under the Ministry of Finance, Nepal remained on the monitoring list of the APG due to its inability to comply with international standards.