Financial Crime World

Nepal’s Financial Information Unit Issues Guidelines for Reporting Suspicious Transactions

The Financial Information Unit (FIU) of Nepal Rastra Bank has released new guidelines for reporting entities to clarify their obligations to report suspicious transactions under the Anti-Money Laundering and Combating the Financing of Terrorism (AML/CFT) Act, 2008. These guidelines aim to assist reporting entities in identifying suspicious transactions and activities, improve the quality of Suspicious Transaction Reports (STRs), and help ensure compliance with the STR reporting obligations.

Background

The AML/CFT Act, 2008, enacted in Nepal, establishes the regulatory framework for preventing money laundering, terrorist financing, and the proliferation of weapons of mass destruction. The act defines a “Reporting Entity” (RE) as financial institutions and designated non-financial businesses and professions (DNFBPs). In this context, the FIU-Nepal has issued guidelines to provide a clear understanding of the Suspicious Transaction Reporting (STR) process.

Reporting Entities and Regulators

The following are the reporting entities and their respective regulators in Nepal:

  • Financial Institutions: Nepal Rastra Bank (NRB) regulates banks, money remitters, money changers, security companies, insurance companies, cooperatives, approved retirement funds, and non-bank financial institutions.
  • DNFBPs: The Department of Land Management and Archive regulates real estate businesses and agents; the Company Registrar’s Office regulates trust and company service providers; the Ministry of Culture, Tourism and Civil Aviation regulates casinos and internet casino businesses; the Inland Revenue Department regulates dealers in precious stones and metals; the Institute of Chartered Accountants of Nepal regulates auditors and accountants; the Notary Public Council regulates notary publics; and the Nepal Bar Council regulates law practitioners.

A reporting entity must make an STR report to the FIU-Nepal within three working days if they suspect or have reasonable grounds to suspect that a transaction or property is related to money laundering, terrorist financing, other offenses, or terrorism, as per Section 7S(1) of the AML/CFT Act.

Indicators of Suspicious Transactions

The FIU-Nepal guidelines list various indicators, both general and sector-specific, to detect suspicious transactions. Some common indicators include:

General Indicators

  • Small cash transactions with high frequency
  • Large cash deposits
  • Structured transactions
  • Transactions below the reporting threshold intentionally to avoid reporting requirements

Sector-specific Indicators

  • Economically irrational transactions for real estate businesses and agents
  • Unusual transaction amount and frequency or significant deviations from expected activities for trust and company service providers
  • Behaviors of clients raising suspicion, such as unusual curiosity about internal systems, reluctance to provide information, or evasive actions to avoid reporting for auditors and accountants
  • Transactions involving third parties, multiple deposits made by non-account holders, or unrelated parties sending funds to the same beneficiary for casinos and internet casino businesses
  • Corporate and business transactions with limited business activity or unusual wire transfer activity, or a significant volume of cash deposits from a business that is not typically cash-intensive for precious stones and metals dealers

The guidelines encourage reporting entities to be aware of criminals’ adaptation of behavior to exploit weaknesses within different industries. The FIU-Nepal stresses the importance of recognizing indicators and conducting additional inquiries when necessary.

Reporting Procedures and Electronic Reporting

Reporting entities should submit their STRs to the FIU-Nepal within three working days of detection, either through the goAML system for banks and financial institutions or through signed paper reports for other reporting entities. The FIU-Nepal emphasizes the importance of providing accurate information and a clear narrative to assist with its analysis.

Conclusion

The FIU-Nepal’s issuance of guidelines for Suspicious Transactions Reporting is a significant step towards strengthening Nepal’s anti-money laundering and counter-terrorist financing measures. Reporting entities must remain vigilant and aware of potential suspicious activities, report any findings to the FIU-Nepal following the provided guidelines, and actively cooperate with law enforcement agencies to maintain the integrity of Nepal’s financial system.