A senior government official has acknowledged that inadequate regulation of the gold, silver, and precious metals trade has contributed to Nepal's inclusion on the Financial Action Task Force (FATF) grey list. Revenue Secretary Dinesh Kumar Ghimire, speaking at a meeting of the parliamentary finance committee on Monday, stated that insufficient oversight in high-cash sectors, such as precious metals and jewelry, played a significant role in the country's recent greylisting.

Responsibility for monitoring the precious goods trade lies with the Inland Revenue Department (IRD), but the department has traditionally prioritized revenue collection over risk mitigation. Despite the government's recognition of this sector as highly vulnerable to money laundering, Nepal’s Financial Intelligence Unit (FIU) received no suspicious transaction reports from it in 2024.

“The lack of effective regulation in high-cash sectors like gold and silver trading is one of the reasons we ended up on the grey list,” Ghimire told lawmakers. He stressed the government's intention to tighten oversight in these sectors as part of a broader strategy to exit the FATF’s monitoring list.

The FATF is an intergovernmental body that sets global standards for combating money laundering and terrorist financing. Nepal was first placed on the grey list in 2008 but was removed in 2014 following legal and institutional reforms. However, the country was relisted in February 2024 due to lack of enforcement, investigation, and prosecution.

The government has committed, through the budget for FY 2025/26, to enhancing transparency in precious metals trading and strengthening overall compliance to restore international economic credibility. Among other measures, all gold and silver transactions will now require formal billing and will be closely monitored, Ghimire said.

The FATF has provided Nepal with specific recommendations to improve risk-based supervision of high-risk entities, including commercial banks, cooperatives, casinos, precious metal and gemstone dealers, and real estate businesses.

Speaking at the same meeting, IRD Deputy Director General Tirtha Raj Silwal noted the opaque nature of Nepal’s gold trade, with only about 6 percent of transactions occurring through formal banking channels. “The rest takes place outside official scrutiny. People are still carrying cash in bags to buy and store gold. This must stop,” he said.

The issue has gained urgency following a budget announcement introducing new taxes on gold and jewelry. The Federation of Nepal Gold and Silver Dealers Association (FENEGOSIDA) has urged the government to roll back these measures, warning that they could lead to a surge in gold smuggling, job losses, and a decline in domestic business due to cheaper alternatives in neighboring Indian markets.

Federation President Arjun Rasaili argued that combined taxes on gold now amount to as much as 30 percent, placing an undue burden on both businesses and consumers. He warned that without policy adjustments, Nepal risks losing significant tax revenue and employment in the sector.

Opposition lawmakers also criticized the government’s approach. Biraj Bhakta Shrestha of the Rastriya Swatantra Party (RSP) stated that indiscriminate taxation has hurt everyday consumers and called for better integration of informal traders into the tax system. Gyan Bahadur Shahi of the Rastriya Prajatantra Party (RPP) challenged the assertion that increasing taxes would help Nepal exit the grey list, calling such reasoning misleading and counterproductive.

Following the discussions, Finance Committee Chairperson Santosh Chalise urged the government to adopt policies that both support domestic businesses and enhance regulatory compliance. He emphasized the need for a balanced policy that protects local entrepreneurs while ensuring alignment with international anti-money laundering standards.