Financial Crime World

Nepal Faces Intensified Scrutiny as Money Laundering Probe Intensifies

Nepal, one of the poorest countries in the world, is facing intensified international scrutiny as a money laundering investigation led by the International Monetary Fund (IMF) and the Financial Action Task Force (FATF) gains momentum.

Identified Vulnerabilities

  • Financial Sector Assessment Program (FSAP): Nepal’s assessment report, issued on April 30, 2018, identified several gaps and weaknesses in the country’s Anti-Money Laundering and Combating Financing of Terrorism (AML/CFT) framework.
  • Weaknesses: These include inadequate risk management, insufficient use of technology, and weak regulatory oversight.

Preemptive Measures

  • Nepal Rastra Bank (NRB): Despite these challenges, Nepalese authorities are taking the issue seriously. NRB, Nepal’s central bank, issued a circular to all financial institutions, directing them to strengthen their AML/CFT systems and upgrade their Know Your Customer (KYC) requirements.
  • Kamal Khanal: Spokesperson for NRB, Kamal Khanal, stated, “We understand the gravity of the situation and are committed to addressing these weaknesses and bringing our systems in line with international best practices.”

High-Risk Factors

  • India: Nepal’s proximity to India, a notorious money laundering hub, and its porous borders make it at a high risk for financial crimes. Nepal was identified by the FATF in 2015 as having strategic deficiencies in its AML/CFT framework.
  • India as a Source: India is the major source of illicit cash flows to Nepal due to its vast informal economy.
  • China: Chinese investors reportedly use Nepal to move illicit funds out of China, increasing the risk of money laundering and terrorist financing due to Nepal’s proximity to China and the growing Chinese investments in its infrastructure projects.

Demands from IMF and FATF

  • Significant Progress: The IMF and FATF have demanded Nepal to make significant progress in addressing these vulnerabilities.

Next Steps

  • Compliance Plans: NRB has urged financial institutions to submit their compliance plans for upgrading their systems by August 30, 2018.
  • Monitoring Implementation: NRB will closely monitor the implementation of these plans and provide necessary assistance to financial institutions in upgrading their systems.

Staying Vigilant

Even as Nepal works to strengthen its AML/CFT framework, it will need to remain vigilant and committed to rooting out illicit flows from India and China, its significant sources of money laundering.

Wake-Up Call

The IMF’s scrutiny is a wake-up call for Nepal to take decisive actions to strengthen its financial systems and reduce its vulnerability to money laundering and terrorist financing to attract legitimate investments and foster economic growth.