Kathmandu-Nepal is stepping up efforts to secure its removal from the Financial Action Task Force (FATF) grey list after spending the past one and a half years under increased monitoring.

A delegation from the Asia/Pacific Group on Money Laundering (APG), which provides technical assistance and evaluates countries' progress, recently visited Nepal to assess the country's commitment and implementation of anti-money laundering and counter-terrorist financing (AML/CFT) reforms.

The delegation visited Nepal to review the political landscape following the September 8-9 and  March 5 election and to assess the government's commitment to implementing the FATF's action plan.

During the visit, the team met Finance Minister Dr. Swarnim Wagle, Nepal Rastra Bank Governor, senior government officials, and representatives of the private sector to evaluate progress and gather feedback on ongoing reforms.

APG Deputy Executive Secretary David Shannon, who led the delegation, expressed confidence in Nepal's political leadership.

'Nepal’s leaders have clearly expressed their political commitment to fast-track the necessary AML/CFT reforms to meet the FATF ICRG action plan. Across the leadership, the new government was firm in its commitment to ensure strong leadership of agencies and programs and to develop and support key personnel to deliver on Nepal’s critical AML/CFT reforms.' Shannon said in an APG statement.

Despite this positive assessment, Nepal still faces significant challenges. While political commitment has strengthened, the country's overall progress has not improved substantially since it was placed on the FATF grey list. APG officials, however, believe Nepal can exit the list if promised reforms are implemented swiftly and effectively.

Why Nepal Was Grey-Listed

Nepal was placed back on the FATF grey list after failing to make sufficient improvements during its mutual evaluation conducted by the APG, the FATF's regional body for Asia-Pacific countries. The evaluation, delayed by the COVID-19 pandemic, began in 2022.

The report, submitted in 2023, assessed Nepal's efforts to combat money laundering and terrorist financing over the previous 12 years. Although Nepal was initially granted an additional one-year grace period to strengthen its framework, insufficient progress eventually led to its inclusion on the grey list.

Weak Regulatory Framework Remains a Major Concern

Over the past 14 years, Nepal has struggled to establish effective regulatory mechanisms despite major political and constitutional changes. Weak oversight of cooperatives, land transactions, securities markets, and financial institutions has raised concerns among international evaluators.

Regulatory bodies, including Nepal Rastra Bank and the Securities Board of Nepal, have been criticized for inadequate supervision. Similarly, the Department of Money Laundering Investigation has been urged to focus more on high-risk and large-scale financial crimes. Delays in amending the Anti-Money Laundering Act—taking nearly four years—also contributed to Nepal's poor performance.

Progress in Technical Compliance

The FATF has issued 40 technical recommendations that Nepal must comply with. According to officials at the Ministry of Finance, Nepal has made significant progress on around 30 of these recommendations, while substantial implementation has been achieved in 21 key areas.

However, FATF evaluations place equal importance on effectiveness, measured through 11 'Immediate Outcomes' (IOs), which assess whether reforms are producing tangible results rather than simply meeting legal requirements.

Measures against financing of weapons of mass destruction

Nepal currently holds a moderate rating in areas such as risk assessment, policy coordination, international cooperation, suspicious transaction reporting, and investigation efforts.
However, the country continues to receive low effectiveness ratings in financial sector supervision, regulation of banks, insurance companies, securities markets, cooperatives, casinos, preventive measures, transparency of beneficial ownership, and oversight of legal entities.

Government Optimistic About Next Review

Finance Minister Dr. Swarnim Wagle has expressed confidence that Nepal will improve its effectiveness ratings in the upcoming review.

Speaking in the House of Representatives, Wagle said at least four key indicators are expected to achieve a rating of 'substantial' through stronger implementation and sustained enforcement.

'These ratings are based not only on laws and institutional structures but also on actual results and continuity. We are committed to demonstrating both effective implementation and long-term sustainability,' Wagle said.

He believes that recent progress in investigations, prosecutions, and enforcement actions will strengthen Nepal's case during the next assessment. However, experts note that improving investigations alone will not be sufficient. Nepal must also strengthen financial sector supervision, corporate regulation, risk mitigation, and continuous monitoring to satisfy FATF requirements.

The Road Ahead

Following the passage of the national budget, Finance Minister Wagle reiterated that securing Nepal's removal from the FATF grey list is one of the government's top priorities. He emphasized that achieving this goal is essential for improving governance, strengthening financial integrity, and enhancing investor confidence.

Government officials remain cautiously optimistic. International experience shows that while some countries remain on the grey list for several years, others have successfully exited within a year by implementing reforms rapidly and consistently.

For Nepal, the pace and effectiveness of ongoing reforms will determine how quickly it can restore international confidence and secure its removal from the FATF grey list.