There appears to be a shortage of personnel to carry out auditing, ultimately affecting efforts to prevent money laundering in financial institutions and companies as per the provisions of the Money Laundering Prevention Act and Regulations. This shortage has arisen due to stringent criteria for the qualifications and appointment of auditors outlined in the Act and Regulations.

The Money Laundering Prevention Act, amended last year mandates independent annual inspections to ensure compliance with provisions related to money laundering prevention. The Act specifies that inspectors must possess at least a master’s degree in money laundering or terrorist financing prevention, financial or economic management, public accounting or financial administration, economics, or law. Alternatively, they must hold a Chartered Accountancy qualification. Additionally, they are required to have at least five years of experience in money laundering and terrorist financing prevention and must complete a minimum 15-day training on the subject.

As per the Act, f inancial institutions such as banks, insurance companies, casinos, securities trading firms, real estate businesses, and cooperatives focusing on savings and loans must undergo annual inspections by listed inspectors.Non-compliant institutions may face warnings from regulatory bodies or fines of up to Rs 50 million.

As per the regulations issued in late October, organisations with annual transactions exceeding Rs 5 billion must hire a firm with at least three inspectors for inspections. Those with transactions between Rs 1 billion and Rs 5 billion must engage a firm with two inspectors, while firms with transactions between Rs 100 million and Rs 1 billion need at least one inspector. Institutions with transactions below Rs 100 million may also hire listed inspectors, or regulatory authorities may mandate inspections based on risk assessments.

Implementation Challenges

Trainer Shyam Krishna Dahal highlights that the provisions primarily focus on banks and financial institutions, making implementation difficult for smaller entities such as cooperatives. "The annual inspection requirement is practical for banks and financial institutions but challenging for smaller organisations due to the lack of personnel," Dahal noted. He added that cooperatives, which already struggle with existing provisions, may find it especially difficult to comply with the annual inspection requirement.

Regulatory Obligations

Section 35(g) of the Money Laundering Prevention Act requires banks, financial institutions, insurance companies, casinos, securities trading firms, real estate businesses, and cooperatives to conduct annual inspections through listed inspectors and submit reports to the regulatory body. Failure to comply may result in warnings or fines of up to Rs 50 million.

The Financial Information Unit (FIU) will list inspectors who meet the qualifications stipulated in the Act and Regulations. Institutions must select inspectors from this list to conduct their annual inspections. The Act also mandates the submission of inspection reports to regulatory authorities within six months of the fiscal year-end.

Although the FIU has yet to initiate the listing process for inspectors, preparations are underway to complete it by the next fiscal year, ensuring the commencement of annual inspections.