Kathmandu- Nepal faces a high risk of being placed on the Financial Action Task Force (FATF) grey list. Despite notable improvements, high-rank government officials publicly warn that Nepal’s progress may not be sufficient to avoid greylisting.

The FATF plenary scheduled in Paris, France, from February 17-21, will review Nepal's status. Nepal has been under 'observation' for the past year, and a final decision will now be made.

Over the past year, Nepal has made significant strides in technical compliance, meeting 28 out of 40 FATF recommendations, including 21 mandatory ones. However, it lags in Effectiveness Ratings, which assess the implementation of these measures.

To avoid greylisting, Nepal needs at least seven moderate and three substantial ratings across 11 indicators, but currently, only four are moderate, and seven are low, with none rated substantial.

Officials who attended a recent FATF face-to-face meeting in Manila expressed concern over this slow progress.

Suman Dahal, director general of the Department of Money Laundering Investigation, acknowledges that compliance levels remain below expectations but insists that ongoing improvements could still influence the FATF decision.

If Nepal is placed on the grey list, it will come under increased FATF monitoring, which could lead to stricter conditions from international lenders. While greylisting does not prevent borrowing, it may prompt tougher terms from multilateral donors. Additionally, if Nepal fails to show improvement, the International Monetary Fund (IMF) could intervene in financial policymaking, raising concerns over financial autonomy.

FATF has recently reformed its greylisting process for low-income countries, allowing up to two years for reforms before official greylisting. If Nepal demonstrates strong commitment and gains approval in the FATF plenary, it might receive an additional year to improve its standing.

Nepal was previously on the grey list but was removed in 2014 after addressing legal and institutional concerns. This time, the focus is on effective implementation, which remains a key challenge.