Nepal will be blacklisted if financial crime control law is not enacted

KATHMANDU: The risk of Nepal being blacklisted has increased due to the inability to formulate laws on time to control financial crimes. Nepal is going to be on the ‘grey list’ (negative list) due to the inability to create laws in accordance with the standards related to the Asia Pacific Group (APG) and the Financial Action Task Force (FATF), an international body that monitors money laundering.

To avoid the negative list, Nepal had to amend about one and a half dozen laws related to prevention of financial crimes. For that, the government had also submitted a ‘Bill to amend some Acts’ in the House of Representatives.

The bill, which was passed by the House of Representatives, could not be passed by the National Assembly. Then the government proceeded as an ordinance but it was not issued by the president. The President’s Office said that it is not possible to say when the Ordinance will be issued as it is being studied.

The FATF team has come to Kathmandu to evaluate the work being done by Nepal in the prevention of money laundering. The team will remain in Nepal until December 1. “Until the team returns, it is certain that Nepal will be on the gray list unless the law is enacted,” said an official of Nepal Rastra Bank, who is aware of the matter. Since the law cannot be made according to the commitment made by Nepal earlier, they will not trust us and put us in the good list.”

Sources claim that the bill could not be passed due to the great pressure of businessmen who have been laundering black money by investing in real estate, shares, casinos and cooperatives. “In Nepal, the bill could not be passed by the National Assembly due to the influence of various interest groups, including casino operators,” the source claims.

If we are not able to make the law that we have promised ourselves before that we will make the necessary laws for the prevention of financial crimes, the international world’s view of Nepal may be bad.

Nepal’s imports and exports will be greatly affected if it falls into the ‘grey list’. Mainly trustworthy banks will not deal with financial institutions in Nepal. Trading will increase the cost in terms of risk.

Likewise, loans and grants from the international community will also be affected. It will also be difficult to attract foreign direct investment (FDI). As a whole, international organizations and communities will have a different view of Nepal.

“Even in 2010/11, it was confirmed that Nepal would be blacklisted by the FATF, but Nepal escaped from it by making legal arrangements,” former Law Minister Koirala said. He complained that the bill could not be passed by the National Assembly due to the influence of interest groups despite his hard work.

“The government had no fault left to pass the bill,” he added, “but due to the manipulation of interest groups, the bill died after reaching the National Assembly.” The nation will have to bear the consequences of this.

He said that when he left the government, he met President Bidya Devi Bhandari and asked her to pass the revised system through an ordinance and make it legal.

“If we cannot escape the assessment, Nepal will not have financial credibility at the international level, the international world sees Nepal as a tax haven country where black money can be whitened and taxes can be evaded,” he said.

There may be a situation where the Nepali Bank cannot open a letter of credit (LC), even electronic cards including ATMs in Nepal do not work abroad. As a whole, the very existence of Nepal will decline.

Former Finance Minister Yuvraj Khatiwada said that the state could not give priority to the formulation of laws related to prevention of financial crimes. “We should have risen above the government and given priority to the interests of the country,” he said.

He said that even in the previous assessment, Nepal had convinced the international bodies that they would create the necessary laws. “According to the commitment, some work has been done, but they are not enough,” he added, “in the event that for some reason we are unable to enact those laws, the state should be able to convince the international world that we will enact laws and implement them effectively.”

Stating that he had received it, he added, ‘At this time, the people of the government should be able to explain the importance of the said ordinance to the President.’

In the bill made to amend some laws, the Asset Cleansing Act 2064, the Vessel Registration Act 2027, the Property Act 2034, the Tourism Act 2034, the Building Act 2055, the Damasah Act 2063, the Securities Act 2063, the Human Trafficking and Trafficking Act 2064, the Mutual Legal Assistance Act 2070, Amendment of various provisions of Organized Crime Prevention Act 2070, Election Commission Act 2073, House of Representatives Member Election Act 2074, Provincial Assembly Member Election Act 2074, Electronic Regulation Commission Act 2074, Criminal Code Act 2074, Cooperative Act 2074 and Foreign Investment and Technology Transfer Act 2075 was done

In the bill, especially, terrorism will be criminalized, financial accounting should be done every year for real estate transactions and casinos, details should be disclosed when buying shares with other people’s investment, permission must be taken for real estate transactions, legal assistance of one country to another country in the investigation of money laundering at the international level. There are other subjects to be taken.

According to the 2016 index of Basel Committee, an international body that regulates financial institutions, Nepal is the country with the highest risk of money laundering in South Asia after Pakistan.

FATF has been putting Pakistan on the “grey list” for not enacting laws to prevent money laundering. Even after being in the ‘grey list’, if the index does not improve, the country will be placed on the next level, i.e. the black list, as further action.

So far, only North Korea and Iran are on the blacklist. If there is no improvement in the index, Pakistan, Syria, Burma, Jordan and other 23 countries which are currently on the gray list will soon be included in this list.

In 2010, Nepal avoided being on the gray list by making some institutional reforms. In the gray list, the World Bank, International Monetary Fund, Asian Development Bank and others will stop loans and financial assistance, foreign subsidies and aid will be stopped. Even after that, if there is no improvement, the country will be blacklisted and become a victim of global embargo.

According to a government report, activities related to financial crimes, including money laundering, have increased by more than 81 percent in Nepal. The annual report of ‘Financial Intelligence Unit-FIU Nepal’ in Nepal Rastra Bank showed that the complaints of suspicious transactions increased by 81.34 percent.

According to the report, 1 thousand 533 suspicious transactions (Suspicious Transaction Reporting – STR and Suspicious Activity Reporting – SAR) were received in the financial year 077/78, which has increased to 2780 in the last financial year.

Of the complaints received by the FIU, it is said that 85.61 per cent are from commercial banks, 6.73 per cent from remittance companies, 4.28 per cent from development banks and 1.58 per cent from microfinance financial institutions. It is mentioned in the report that there has been an increase in complaints of suspicious transactions from insurance companies, cooperatives, securities trading companies and others. Kantipur