Banks Must Report Multiple Transactions within 15 Days to Combat Money Laundering and Terrorist Financing
New Regulation Aims to Prevent Financial System Abuse
Kathmandu, Nepal - In a bid to curb money laundering and terrorist financing, financial institutions in Nepal have been instructed to report any suspicious transactions that exceed NPR 1 million in value within 15 days. This regulation is part of the Anti-Money Laundering (AML) and Combating the Financing of Terrorism (CFT) Act, which aims to prevent the misuse of financial systems for illegal activities.
What Constitutes Tipping Off?
Tipping off is a serious offense under the AML/CFT Act, referring to informing a customer that their account is being monitored or that there is an element of suspicion surrounding their transaction. Banks are strictly prohibited from tipping off customers, as it can compromise the integrity of the investigation.
Consequences of Non-Compliance
Financial institutions that fail to comply with the AML/CFT regulations face severe penalties, including:
- Fines ranging from NPR 1 million to NPR 50 million
- Full or partial restrictions on the institution’s business
- Suspension or cancellation of its registration or license
- Imposition of other appropriate sanctions
Risk Classification of Customers
Banks are required to categorize their customers into three risk categories: high-risk, medium-risk, and low-risk. This is done to ensure that the financial institution has a proper understanding of the customer’s profile and can monitor their transactions accordingly.
High-Risk Customers
High-risk customers include those who have been identified as having a higher risk score by the Risk-Based Approach (RBA) module, account holders from high-risk countries, and individuals or organizations involved in illegal activities such as terrorism, money laundering, and corruption.
Low-Risk Customers
Low-risk customers are those whose identity and source of income are clearly disclosed, and their transactions do not raise any suspicion. This category includes salaried employees, pensioners, government departments, and individuals with small balances and low turnover.
Non-Face-to-Face Transactions
Non-face-to-face transactions include:
- Business relationships concluded over the internet or by other means
- Services and transactions over the internet
- Use of ATM machines, telephone banking, transmission of instructions or applications via facsimile or similar means
- Making payments and receiving cash withdrawals as part of electronic point of sale transactions using prepaid or re-loadable or account-linked value cards
Beneficial Owner
The beneficial owner is the natural person who ultimately owns or controls a customer and/or the person on whose behalf a transaction is being conducted. This includes those persons who exercise ultimate effective control over a legal person, entity, or arrangement.
Record Keeping
Financial institutions are required to keep records of every transaction, customer and beneficial owner data, and data obtained for the purpose of identification, risk analysis, monitoring, and other related information along with the date, time, and nature of the transactions. These records must be kept for a minimum of 5 years until other policy or act is prescribed for more time.
Compliance is Key
The authorities have stressed the importance of compliance with these regulations to prevent money laundering and terrorist financing in Nepal. Banks are advised to strictly adhere to the guidelines to avoid any penalties or sanctions.