FATF likely to 'greylist' Nepal for money laundering, terror financing

Kathmandu, Jan 3: Nepal is at real risk of being put on the greylist by the Financial Action Task Force ( FATF ) as there are deficiencies in both its legislation and enforcement of laws related to money laundering and terror financing.

 

 

 

 

Nepal is struggling to address a number of deficiencies to comply with the standards of the Paris-based regulatory body (FATF) related to anti-money laundering and terrorist financing and has identified at least 15 weak laws. The greylisting could be damaging to Nepal's struggling economy which is heavily reliant on foreign aid, remittances and imports. A country on the greylist could potentially face problems such as a lack of trade opportunities, a downgrade of ratings, and a subsequent shrinking of the economy. A delegation of the Asia Pacific Group on Money Laundering (APG), a FATF-style regional anti-money laundering body recently visited Nepal for two weeks to assess the country's response to money laundering and terror financing.

 

 

 

 

 

Officials said that the APG would only include the progress made till December 16 in its mutual evaluation report, which puts Nepal in a vulnerable position again, and liable to being greylisted if not blacklisted. 'Blacklist' is a term used for the FATF's list of "High-Risk Jurisdictions subject to a Call for Action." Currently, North Korea, Iran, and Myanmar are on the blacklist. The 'greylist' is used to denote a group of countries/jurisdictions with "strategic deficiencies" in their regime to counter money laundering and terror financing. Once listed as 'jurisdiction under increased monitoring' by the FATF, they must develop an action plan within a specific period. A country on the greylist is not subject to sanctions. However, the greylist signals to the international banking system that there could be enhanced transactional risks from doing business with the said country.

 

However, Pakistan is an example of how greylisting hits an economy. Tabadlab Private Limited, a think tank, and advisory services firm in a report in 2021 said that the greylisting of Pakistan by the FATF spanning from 2008 to 2019, may have resulted in cumulative Gross Domestic Product (GDP) losses worth USD 38 billion, with the response driven by a reduction in consumption expenditures, exports, and foreign direct investment. Nepal was on the greylist of the FATF from 2008-2014. After a series of progress made on the anti-money laundering regime that includes an amendment to the Anti-Money Laundering Act 2008, and the enactment of other laws, the FATF finally removed Nepal from the list in 2014. "There is a real risk of being put on the greylist because we have deficiencies in both legislations and enforcement of the laws related to money laundering and terrorist financing," said a senior official of Nepal Rastra Bank on the condition of anonymity.