Nepal avoids grey list as FATF grants one-year improvement period with close supervision

KATHMANDU: Nepal has once again managed to avoid being placed on the Financial Action Task Force’s (FATF) negative list, also known as the grey list. The FATF is an international organization that monitors money laundering activities. Following Nepal’s commitment to address crucial areas within a specified timeframe, the country has been granted one year for improvement under close supervision.

Receiving an opportunity for improvement before being placed on the grey list is a standard procedure. “If you work during this period, you can avoid it, but if not, it is a sign of tougher times,” stated a source familiar with the matter.

During the 23rd Annual General Meeting of the Asia Pacific Group (APG) under the FATF, which took place in Canada in July 9-14, Nepal’s situation was discussed. To represent Nepal and defend its position, a team of approximately 30 individuals, led by Rastra Bank Governor Maha Prasad Adhikari, traveled to Canada in the third week of June. The team is scheduled to return home on Wednesday.

A program participant mentioned, “Almost all countries are given one year to improve before being placed on the grey list, and now Nepal has also been granted the same opportunity.” He further added that Nepal is not completely free from the risk of the grey list but is under FATF’s supervision. “The countdown will begin in October,” he explained, emphasizing the need for significant work. Failure to take appropriate action will inevitably result in Nepal being placed on the grey list.

The source highlighted that if Nepal can utilize the specified time effectively, it will be a beneficial opportunity; otherwise, it will be challenging to avoid the risk of being on the negative list. The first condition for reform is the policy system, followed by policy implementation agencies and research.

International bodies are particularly concerned about the activities in Nepal’s cooperative, real estate, and insurance sectors. “Some member states previously suggested lowering our rating. However, we vigorously defended our position, which is the main achievement this year,” he acknowledged. “Although the risk has not been completely averted, we now have to provide continuous reports every three months and work effectively.”

Nepal faced the risk of being on the negative list due to a lack of minimum reforms in combating asset laundering and financial crimes. The APG, under the FATF, recommended including Nepal on the negative list in a report released last February.

Last February, the government demonstrated its diligence by attempting to pass a bill to amend certain laws, but it was not successful. Even in the financial year 066/67, Nepal faced the risk of being on the negative list, and the previous government managed to mitigate this risk through strong diplomatic initiatives, lawmaking, and commitments to implementation.

According to the APG’s report, Nepal should be included on the negative list due to its failure to fulfill international commitments regarding the prevention of money laundering.

The report highlighted six different reasons that made Nepal susceptible to the negative list, including two reasons related to the establishment of legal and law enforcement institutions and four reasons related to policy implementation, supervision, and investigation. Although Nepal has made progress in addressing the former two reasons, it remains weak in matters related to policy implementation, supervision, and research.