Nepal's Financial Action Task Force (FATF) Grey Listing
Nepal's inclusion in the FATF grey list highlights its emergence as a haven for money laundering in South Asia. Several factors contribute to this status:
- Absence of economic stability and long-term vision.
- Weak interrogative systems and poorly trained bureaucracy.
- High levels of informal transactions due to open borders with India.
Nepal's Financial Act has a provision that exempts the government from seeking information on the source of income from investors in infrastructure projects, further complicating the scenario.
Informal Economy and Remittances
- The economy suffers from shadow transactions through systems like ‘hundi’ and ‘dhukuti’.
- Popular remittance channels include South Korea, facilitated by the Employment Permit System (EPS), with about 40,000 Nepalese workers employed there.
Anti-Money Laundering Efforts
Despite improvements after the 2008 grey listing, such as the 2014 amendment to the Money (Assets) Laundering Prevention Act, deficiencies remain:
- Lack of digitized data and detailed bank customer information.
The grey-listing signals deficiencies to investors, potentially leading to a decline in local investment, exports, and foreign direct investment.
Impact of Grey Listing
- The US administration canceled $39 million in aid due to misuse, impacting projects in federalism and biodiversity conservation.
Financial Criminality and Cybercrime
- The FATF Asia Pacific Group (APG) highlights issues like fraud, extortion, and theft.
- Extortion activities by political party youth wings and organized groups are common.
- Cybercrimes have increased due to the surge in social media use and inadequate cybersecurity infrastructure.
A notable case in October 2024 involved two police officers extorting Rs 50 lakh from a cryptocurrency trader.
