FATF Grey-listing: Nepal Emerges as South Asian Haven for Money Laundering | Current Affairs | Vision IAS

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FATF Grey-listing: Nepal Emerges as South Asian Haven for Money Laundering

2 min read

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.

  • Tags :
  • Financial Action Task Force (FATF)
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