Financial Crime World

Nepal’s Financial Institutions Face Stiff Penalties for Non-Compliance with Anti-Money Laundering Rules

Reserve Bank of Nepal Issues Stern Warning to Financial Institutions

Kathmandu, Nepal - The Reserve Bank of Nepal (RBN) has issued a stern warning to financial institutions in the country to comply with anti-money laundering (AML) and combating the financing of terrorism (CFT) regulations. Failure to do so can result in hefty fines, business restrictions, and even license cancellation.

New Guidelines for Financial Institutions

According to the RBN’s latest guidelines, financial institutions are required to:

  • Identify and report suspicious transactions within 15 days of detection
  • Prevent “tipping off” customers about their accounts being monitored or suspected of criminal activity
  • Keep a close eye on transactions and report any suspicious activity to the relevant authorities
  • Classify customers as high, medium, or low risk based on factors such as country of origin, business activities, and transaction patterns

Risk Classification for Customers

The RBN has introduced a risk classification system for customers, categorizing them as:

  • High-Risk:
    • Individuals from countries with poor AML/CFT regulations
    • Those associated with terrorism or organized crime
    • Those engaged in suspicious business activities
  • Medium-Risk: Individuals whose identity and source of income are clearly disclosed but have some suspicious transaction patterns
  • Low-Risk: Government employees, pensioners, and individuals from lower economic strata with small balances and low transaction volumes

Enhanced Due Diligence for High-Risk Customers

High-risk customers must be subjected to enhanced due diligence and monitoring. Non-face-to-face transactions, such as online banking and wire transfers, have also been identified as high-risk activities that require additional scrutiny.

Identifying Beneficial Owners

The RBN has emphasized the importance of identifying beneficial owners, which are natural persons who ultimately own or control a customer or entity. This is crucial in preventing money laundering and terrorist financing activities.

Record Keeping Requirements

Financial institutions must keep records of all transactions, customer data, and beneficial owner information for at least five years, unless otherwise prescribed by law.

Consequences of Non-Compliance

Failure to comply with these regulations can result in:

  • Fines ranging from NPR 1 million to NPR 50 million (approximately USD 8,500 to USD 417,000) for financial institutions
  • Fines up to NPR 10 million (approximately USD 83,000) for individuals
  • Business restrictions or license cancellation

Call to Action

The RBN has urged all financial institutions to take AML/CFT regulations seriously and ensure compliance to prevent money laundering and terrorist financing activities in Nepal.