Financial Crime World

Nepal’s Financial Crime Reporting Requirements: A Closer Look at the STR Guideline by FIU-Nepal

In accordance with Nepal’s Asset (Money) Laundering Prevention Act (ALPA) of 2008, the Financial Information Unit in Nepal (FIU-Nepal) has issued a new Suspicious Transactions Reporting (STR) guideline. This guideline came into effect at the start of 2020 and aims to help reporting entities identify, document, and report suspicious financial transactions and activities.

Acronyms Used

  • ALPA: Asset (Money) Laundering Prevention Act, 2008
  • AmL/CFT: Anti-Money Laundering and Combating the Financing of Terrorism
  • Apg: Asia/Pacific Group on Money Laundering
  • BFIs: Bank and Financial Institutions
  • DNFBPs: Designated Non-Financial Businesses and Professions
  • FATF: Financial Action Task Force
  • FIU-Nepal: Financial Information Unit, Nepal
  • KYC: Know Your Customer
  • LEAs: Law Enforcement Agencies
  • ML/TF: Money Laundering and Terrorist Financing
  • REs: Reporting Entities
  • STRs: Suspicious Transaction Reports
  • TTRs: Threshold Transaction Reports

Overview

The STR guideline is issued to clarify the reporting entities’ responsibilities regarding suspicious transactions as outlined by the ALPA and its rules. This guideline is crucial for generating understanding and streamlining the detection and filing of Suspicious Transaction Reports (STRs). The ultimate goal is to prevent money laundering, terrorist financing, and financing of weapons of mass destruction.

Objectives

The objectives of this STR guideline are:

  1. Helping reporting entities to identify suspicious transactions and activities
  2. Enhancing the quality of Suspicious Transaction Reports
  3. Aiding reporting entities in complying with reporting obligations

By detecting and reporting suspicious transactions promptly, reporting entities may prevent potential criminal activities and protect Nepal’s financial system.

Reporting Entities and Regulators

Reporting entities, as defined by the ALPA, include financial institutions and designated non-financial businesses and professions. Some of these entities and their regulators are summarized below:

Reporting Entities Name of Regulators
… …

Reporting entities are advised to familiarize themselves with their respective AML/CFT regulations issued by their respective regulators to gain a better understanding of the reporting requirements.

As per section 7S(1) of the ALPA, a reporting entity must submit a suspicious transaction report to the FIU-Nepal within three business days if they detect any suspicious circumstances related to a customer, transaction, or property.

Transactions and Suspicious Activities

The guideline defines both completed transactions and attempted transactions. Completed transactions are those that have been executed, while attempted transactions are those that a client intends to conduct but doesn’t follow through with.

Examples of attempted transactions include:

  • A financial institution refusing a deposit because a client refuses to provide identification
  • A client attempting to purchase a house but declining to finalize the offer once asked for identification

Reporting Suspicious Transactions

Any reporting entity can report suspicious transactions to the FIU-Nepal. Suspicious transactions include financial transactions with reasonable grounds to suspect that the funds involved are related to criminal activity. Reporting entities must provide their reports to FIU-Nepal through their compliance officer and submit them in the prescribed STR format by their regulators.

What to Report

Suspicious transaction reports must contain specific information. At a minimum, these reports should include the following:

  • Summary of suspicious activities
  • Analysis or examination
  • Possible linkage
  • Suspected beneficiary (if any)
  • Mandatory details
  • Correct identifications
  • Other relevant details

The STR submitted to FIU-Nepal should include supporting documents, such as updated KYC-related documents, account statements, and media news reports.

Reporting Procedures

STRs can be reported to FIU-Nepal electronically through the goAML system (for BFIs) or as signed paper reports (for other REs). FIU-Nepal plans to gradually make reporting through goAML mandatory for all REs.

Indicators of Suspicious Transactions

Some common indicators of suspicious transactions are:

  • Transactions that do not conform to normal business activities or customer behavior
  • Transactions with no apparent economic justification
  • Transactions where funds originate from unknown or suspicious sources
  • Transactions involving unusual cash transactions or cash withdrawals
  • Transactions where the transaction amount or frequency is significantly different from the customer’s historical behavior
  • Transactions where the customer refuses to provide identifiable information
  • Transactions involving high-risk jurisdictions or sanctioned countries
  • Transactions involving multiple deposits from non-account holders or unrelated parties
  • Transactions with no apparent relationship to the recipient
  • Transactions with frequent inward or outward remittances to the same person from a high-risk region
  • Transactions with large loans or repayments that do not align with the borrower’s financial ability or business

These indicators are not exhaustive, and reporting entities should remain vigilant for any suspicious activities that deviate from standard business practices.