The Financial Action Task Force (FATF), the intergovernmental body overseeing global anti-money laundering (AML) and countering the financing of terrorism (CFT) compliance, has placed Nepal on its grey list for the second time. The decision was made during the FATF Plenary and Working Group Meetings in Paris, France, which concluded on Friday, February 21.
According to Reuters, FATF has added Nepal and Laos to the grey list while removing the Philippines.
With the latest updates, the grey list now includes 25 countries. Nepal was previously greylisted from 2008 to 2014 but was removed after implementing legal and institutional reforms.
Read: Government Amends Laws to Avoid FATF 'Grey List' for Money Laundering
The grey list, officially termed ‘ Jurisdictions under Increased Monitoring ’, includes countries working with FATF to address deficiencies in their AML/CFT frameworks. When FATF places a jurisdiction under increased monitoring, it means the country has committed to resolving strategic deficiencies within agreed timeframes and is subject to closer scrutiny.
The FATF also maintains a black list, officially known as 'High-Risk Jurisdictions Subject to a Call for Action'. This list includes countries with serious strategic deficiencies in combating money laundering, terrorist financing, and proliferation financing. Currently, North Korea, Iran, and Myanmar are on the black list.
In a brief statement late Friday, Finance Minister Bishnu Paudel said Nepal would exit the grey list ahead of schedule through effective action.
According to FATF, Nepal has been placed on the grey list for a period of two years.
“This situation arose because we failed to complete the required tasks within the given timeframe,” the statement quoted Paudel as saying. “Nepal’s action plan has been approved by the Paris meeting.”
Updating its grey list , the anti-money laundering and terrorist financing watchdog said that Nepal has made a high-level political commitment to work with the FATF and APG to strengthen the effectiveness of its AML/CFT regime.
“Since the adoption of its MER [Mutual Evaluation Report] in August 2023, Nepal has made progress on some of the MER’s recommended actions including streamlining MLA [Mutual Legal Assistance] requests and increasing the capabilities of the FIU [Financial Intelligence Unit],” FATF said. “Nepal will continue to work with the FATF to implement its FATF action plan by: (1) improving its understanding of key ML/TF [Money Laundering/Terrorist Financing] risks; (2) improving risk-based supervision of commercial banks, higher risk cooperatives, casinos, DPMS [Dealers in Precious Metals and Stones] and real estate sector; (3) demonstrating identification and sanctioning of materially significant illegal MVTS [Money or value transfer services]/hundi providers, without hindering financial inclusion; (4) increasing capacity and coordination of competent authorities to conduct ML investigations; (5) demonstrating an increase in ML investigations and prosecutions; (6) demonstrating measures to identify, trace, restrain, seize and, where applicable, confiscate proceeds and instrumentalities of crime in line with the risk profile; (7) addressing technical compliance deficiencies in its targeted financial sanctions regime for TF and PF[ proliferation financing].”
Read: Politicians, Bureaucrats Discuss Measures to Avoid Nepal From Falling in AML Grey List
For months, Nepal’s Prime Minister, Finance Minister, Nepal Rastra Bank Governor, and other officials had hinted at the greylisting risks due to weak enforcement of AML/CFT laws, despite some legal improvements.
A 2023 mutual evaluation by the Asia/Pacific Group on Money Laundering (APG) identified significant compliance gaps in Nepal’s AML/CFT regime. Despite subsequent legal reforms, a 2024 follow-up report found enforcement remains inadequate.
On January 27, Finance Minister Paudel first admitted to Nepal’s enforcement shortcomings . Speaking at an event organized by the Department of Money Laundering Investigation (DMLI) on the National Day for the Prevention of Money Laundering, he stated: “While we have made strides in legislation, regulations, structural reforms, investigations, and prosecutions, our implementation remains insufficient to present Nepal strongly on the global stage.”
Prime Minister KP Sharma Oli earlier made claims that Nepal’s greylisting risk stemmed from delays in legal reforms under the previous administration.
Experts warn that greylisting could make international financial transactions more difficult for Nepal.
A report by the think tank Tabadlab estimates that Pakistan suffered a financial loss of approximately $38 billion due to reduced consumption, exports, and foreign direct investment during its FATF greylisting from 2008 to 2019.
Nepal, too, could face challenges in securing loans and financial aid from institutions such as the IMF, World Bank, and Asian Development Bank.
In an interview with New Business Age last month, Nepal Rastra Bank Governor Maha Prasad Adhikari acknowledged Nepal’s weaknesses in meeting FATF’s effectiveness standards.
“Nepal's technical compliance with FATF’s 40 Recommendations is satisfactory, but its effectiveness, as measured by the FATF’s Immediate Outcomes (IOs), still requires improvement,” he said.
Despite the setback, Adhikari had expressed optimism, stating that Nepal has laid the groundwork for future improvements and eventual removal from the grey list.
This news has been updated.
