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MONEY LAUNDERING PREVENTION IN NEPAL

B360
B360 March 8, 2024, 11:46 am
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The House of Representatives on February 7 endorsed the Bill to Amend Laws Related to Prevention of Money Laundering and Promotion of Business Environment after a year of it being registered in the parliament.

Various provisions of different laws have been amended along with the endorsement of this Bill which includes Import and Export (Control) Act, 1950; Ship Registration Act, 2027 (1971); Land Revenue Act, (1978); Tourism Act, (1978); The Building Act, (1998); Nepal Rastra Bank Act, (2002); Insolvency Act, (2006); Securities Act, (2007); Human Trafficking and Transportation (Control) Act, (2007); Asset (Money) Laundering Prevention Act, 2008 and  Offence related to Assets and Goods (Freezing and Confiscation) Act- 2003. Likewise, other acts amended by the Bill comprises of Mutual Legal Assistance Act, (2014); Organised Crime Prevention Act (2014); Electricity Regulation Commission Act, (2017); National Penal (Code) Act, (2017); National Criminal Procedure (Code) Act, (2017); Cooperatives Act (2017); Foreign Investment and Technology Transfer Act, (2019) and Insurance Act (2022).

Prior to the amendment of this act, the Asia/Pacific Group on Money Laundering (APG) – Financial Action Task Force (FATF) style regional intergovernmental body – had identified some weaknesses in measures adopted by Nepal on asset (money) laundering prevention.

The Mutual Evaluation Report with APG published in September 2023 has underlined limitations in laws concerned with preventing money laundering. “Nepal’s legal framework to implement Targeted Financial Sanctions (TFS) has moderate shortcomings with regard to terrorism financing and major shortcomings with regard to proliferation financing (PF). Financial Institutions displayed a varying understanding of their TFS obligations with commercial banks, large development banks, large non-bank remitters, and other larger FIs conducting automated screening. Other FIs and all Designated Non-Financial Businesses and Professions (DNFBPs) are not conducting adequate TFS screening. No funds have been frozen pursuant to United Nations Security Council Resolutions.”

Nepal was under APG monitoring due to the country’s chances of getting exposed to terrorism financing and proliferation financing, and managed to narrowly escape from grey listing with the commitment to pass the aforesaid Bill from the parliament to address the shortcomings highlighted by the APG. The annual meeting of APG on Money Laundering was held in Canada from July 9-14, 2023 which had provided Nepal a year’s period to fulfil its commitment till October 2024. The measures Nepal is going to adopt through endorsement of the Bill from the parliament has quashed the risks of ‘grey listing’.

Being placed on the grey list has tangible consequences for a country’s economy and financial system, including restriction on cross-border transactions or opening L/Cs for cross-border trade, which will lead to difficulties for a state obtaining credit as well as limit inward foreign investment, according to experts.

After endorsement of the Bill from the parliament, Minister for Law, Justice and Parliamentary Affairs, Dhana Raj Gurung, said the country has avoided the risk of falling in the grey list by endorsing the Bill from the parliament. Though Nepal has enacted the Asset (Money) Laundering Prevention Act, 2008 and set up a separate department then under the Ministry of Finance, it was in the monitoring list of APG since 2009 to 2014 due to its weaknesses in abiding with compliances.

Shortcomings identified in APG review

The APG review recommended 10 different actions for the country to be removed from the monitoring list including passing of the aforesaid Bill.

After passing the Bill, it is recommended that Nepal should expedite implementation and significantly enhance the capacity of impacted competent authorities to undertake their new and/or modified AML/CFT functions along with enhancing public and private sector’s understanding of Nepal’s AML/CFT risks by updating its terrorism financing risk assessment.

Further, assessing the money laundering/terrorism financing risks associated with legal persons and arrangements, and conducting more focused money laundering risk assessments on corruption, tax evasion, human trafficking, narcotics offences, environmental crime and border-related crimes are also necessary.

“Law enforcement agencies, investigative authorities and the Office of the Attorney General (OAG) should prioritise the investigation and prosecution of money laundering associated with all high-risk predicate crimes at a level consistent with Nepal’s overall money laundering risk,” says the AML/CFT Measures in Nepal: Mutual Evaluation Report.

In addition, the report suggested that Nepal Rastra Bank’s new AML/CFT Supervision Division should be appropriately resourced to deliver supervision across all NRB supervised FI sectors. Supervision should be risk-based and prioritised for commercial banks and other higher risk financial institutions supervised by NRB.

It has also an eye on casinos and the largely unregulated cooperatives sector. “Nepal should significantly enhance risk-based AML/CFT supervision of cooperatives, casinos, dealers in precious metals and stones, and real estate agents as well as implement Targeted Financial Sanctions (TFS) for terrorism financing without delay and ensure TFS implementation by FIs and Designated Non-financial Businesses and Professions.”

Similarly, it has recommended that Financial Intelligence Unit’s goAML division should be given additional human and financial resources to expedite full adoption and operation of goAML and suggested to enhance implementation of all preventative measures by conducting a range of activities (including sanctioning where appropriate) to ensure all financial institutions and DNFBPs enhance their application of risk-based customer due diligence and enhanced or specific measures, apply mitigating measures commensurate with their risks, enhance Financial Intelligence Unit and regulatory reporting, and apply internal controls.

Additionally, the APG recommended that the Department for Management of Proceeds of Crime (DMPC) should receive significantly greater human and institutional resources to undertake its function and receive cooperation and coordination from all competent authorities to enhance the country’s ability to effectively deprive criminals from their ill-gotten gains.

The APG report further says Nepal should streamline its mutual legal assistance (MLA) response coordination mechanisms, and establish policies, procedures and standard operating procedures (SOPs) that support law enforcement agencies and investigative authorities to prioritise the use of MLA and other forms of international cooperation in money laundering/terrorism financing and high-risk predicate crime cases.

Inconsistency

Erstwhile Prime Minister KP Sharma Oli-led government in 2018 had pulled the Department of Money Laundering Investigation under the Office of the Prime Minister and Council of Ministers (OPMCM) from the Ministry of Finance. This sort of inconsistency in setting up the institution caused a dilemma in the function of different mechanisms identified by the strategy. Though the institution is under the National Strategy and Action Plan on Preventing Asset (Money) Laundering, a national review council has been formed led by the Finance Minister and comprising of the Attorney General, Chief Secretary, Governor of Nepal Rastra Bank, Secretary of the Ministry of Finance as members, and Coordinator of the National Coordination Committee as member secretary.

Similarly, there is another mechanism called Regulator Coordination Mechanism, which comprises of the regulator of the financial sector led by the Governor of Nepal Rastra Bank. Though the Ministry of Finance is responsible for dealing with financial sector regulators, it is quite unjustifiable that the Department of Money Laundering Investigation is kept under the OPMCM. The department is responsible for probing money laundering cases. So far less than 100 cases have been filed at the court following the probe.

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MAY 2024

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