Kathmandu- Nepal is on the Financial Action Task Force (FATF) Grey List again. This means the country is now under increased global scrutiny for its financial system. But what does this actually mean, and why should you care? Let’s break it down.
What is the FATF Grey List?The Financial Action Task Force (FATF) is an international watchdog that tracks money laundering and terrorist financing. Countries that don’t meet FATF’s standards are placed on the Grey List, meaning they need to fix their financial security systems—fast. If they don’t, they risk falling onto the Black List, which comes with severe financial restrictions.
Why is Nepal on the Grey List?Nepal has been under review since 2023. While the country made some improvements, FATF believes Nepal’s enforcement of anti-money laundering and counter-terrorism financing (AML/CFT) laws isn’t strong enough.
This isn’t Nepal’s first time on the list—it was previously placed under monitoring in 2010 but managed to exit by 2014. Now, a decade later, the country is back under scrutiny.
What Went Wrong?
FATF identified several weaknesses in Nepal’s financial system:
- Weak regulations in key sectors: Banks, cooperatives, casinos, and real estate businesses haven’t been properly supervised, making them vulnerable to illegal transactions.
- Unregulated money transfer services: Hundi operators (informal money transfer services) remain widespread, leading to untraceable financial flows.
- Ineffective enforcement: The Department of Money Laundering Investigation (DMLI) has a poor track record of prosecuting financial crimes, and even when cases are pursued, convictions are rare.
- Slow legal reforms: A major amendment to Nepal’s Anti-Money Laundering Act was delayed for years and only passed in 2024, leaving gaps in enforcement.
What Does This Mean for Nepal?
Being on the Grey List can have serious consequences:
- Higher costs for financial transactions: Sending or receiving money from abroad (including remittances) could become more expensive due to additional scrutiny by international banks.
- Lower foreign investment: Global businesses and investors might see Nepal as a financial risk and hesitate to invest.
- Economic slowdown: If Nepal doesn’t fix these issues, its reputation in the global financial system will suffer, affecting trade and overall economic growth.
What Needs to Be Done?
To get off the Grey List, Nepal must:
- Strengthen financial regulations in banks, cooperatives, casinos, and real estate.
- Crack down on illegal money transfer services like hundi operators.
- Improve coordination between regulatory and law enforcement agencies.
- Increase money laundering prosecutions and asset confiscations.
Fully implement FATF’s action plan by January 2027.
Is There a Way Out?
Yes. Nepal has a roadmap to exit the Grey List, but it will take political will and real enforcement of laws.
The government has promised urgent reforms, with Deputy Prime Minister and Finance Minister Bishnu Prasad Paudel saying:
'This situation arose due to past failures to meet deadlines. However, Nepal's action plan has now been approved in the Paris meeting. By effectively implementing it, we will exit the grey list ahead of schedule.'
Likewise, Nepal Rastra Bank Governor Maha Prasad Adhikari also commented on the situation:
'That’s the outcome today. Along with other countries listed by FATF under increased monitoring, Nepal is now on the Grey List,' Adhikari told Biznessnews.
'It is evident that our compliance level and effectiveness need improvement. While this listing will have economic costs, the progress we have made over the years has built a strong foundation. We should see this as an opportunity to enhance our overall governance.'
