Stakeholders are concerned that Nepal could be blacklisted or placed on a greylist (a jurisdiction under increased monitoring) by the Financial Action Task Force (FATF), a global initiative to combat money laundering because of its failure to resolve several inadequacies in its laws against money laundering and terrorism financing.
Even though it is certain that Nepal will be on the FATF greylist, it has an additional deadline of one year for reforms, which was defended at the annual plenary meeting of the APG (Asia/Pacific Group on Money Laundering) held in Vancouver, Canada during the week of 10 July. APG, a FATF Style Regional Body, also called FSRB, had submitted a report last January with the suggestion to put Nepal on the greylist. Meanwhile, adopting the mutual evaluation reports during its annual plenary meeting, Nepal got a chance to defend the same report when it was discussed. FATF provides an observation period before any country is directly monitored. It is expected that specific work will be done during that period, and now Nepal has got that time. It is now essential to gain political and practical commitment from stakeholders through adequate debates and discourses in a public domain on how to improve the issue of money laundering, which is crucial at this time.
While Nepal is not a formal member of the FATF, it maintains a relationship with the organization through the APG. As a member of APG since 2002 and a participant in FATF since 2009, Nepal has demonstrated its commitment to fully comply with international standards through the adoption and amendment of pertinent laws, as well as the establishment and designation of institutions like the Financial Intelligence Unit within the central bank as an autonomous and independent unit in line with national money laundering laws. According to the Prevention of Money Laundering Act, 2008 (its amendment bill is currently under consideration in the Parliament), Nepal has a system of internal proscription. It may (and has been) claimed that Nepal's regulations against money laundering and terrorism financing are stricter than those recommended by the FATF, which appears to be rigorous.
Nepal narrowly escapes FATF ‘greylisting’
The legal structures of Nepal are well-enacted and existent, but enforcement of these laws has lagged behind and has instead been reactive and haphazard, as is the case in many facets of Nepalese society. This is a reflection of the state's constrained ability to deal with a huge, mainly underprivileged population that lives at a meager subsistence level and a shadowy economy that is largely undocumented. Due to the favorable environment for the growth of illegal economic activity, Nepal has created a front through which it may be targeted by international financial institutions seeking to advance their own agendas.
The FATF has a peculiar identity in terms of its structure, rhetoric, functions, and strategy; therefore, its agenda needs further critical appraisal. While it operates in the financial sector, it is better classified as a political organization since a sizable political underpinning, like G7 countries, pervades both its operations and its organizational structure. The FATF now has a number of structural issues, and these issues are significant enough to draw both general public attention and the specific notice of major Nepalese stakeholders. These factors also help to set the stage for this task force's formation and its ad hoc attempt to police international financial regulation. The fact that the FATF is not widely accepted is an important issue. As a result, it should be underlined that the recommendations for "high-risk and increased monitoring jurisdictions" are in no way binding and should be noted as such for Nepal's case too.
Nevertheless, these should not be seen as arguments against the FATF's purported agenda of financial regulation in general. But the fact that these problems underlie how it operates should raise both short- and long-term concerns. It is also significant that its own legitimacy has not yet been completely established, that its predetermined standards change suddenly and arbitrarily, and that its approach towards Nepal mirrors the never-ending "do more" rhetorical strategy.
Nonetheless, the FATF's greylisting might affect Nepalese people's daily lives. It can significantly hurt Nepal's economy in several ways. Nepal's IMF "member in good standing" status may be affected by the greylisting, making loan terms more onerous (if Nepal required them in the future). Remittances will be difficult and costlier. Foreign direct investment will be discouraged. Doing business will be arduous. Nepalese enterprises will be limited in foreign trade. Due to the greylisting, correspondent banking and Nepalese financial institutions would be scrutinized, investigated, and inhibited. Philanthropic groups will struggle to register, raise donations, and distribute them properly. Those sending money abroad and using financial instruments like credit cards may be prohibited. As domestic inflation rises, the cost of imports will increase. As a whole, it's clear that Nepal faces long-term economic implications if greylisted by the FATF, notwithstanding its dubious legitimacy, partisanship, and subjectivity.
The notion of combating money laundering and terrorist financing—or, on a larger scale, of shutting the shadow economy—is admirable, and Nepal must, in any instance, pursue it at its initiative. While several governments have attempted to partially address this issue, there have been severe resource limitations. The lackadaisical attitude toward undocumented and shadowy economic life among the populace cannot endure in the twenty-first century. As Nepal has been unable to solve this issue on its own, the world is now doing so on its behalf (for their own interest). At the very least, that is the message that is being communicated to Nepal by the international community through the FATF. What this fails to take into account is the systemic violence that is being perpetrated against Nepal by means of the FATF. Nepal must now maneuver skillfully to placate the world community so it may stay a member of it by finding its solutions.
Nepal should pursue greater financial regulation and monitoring as part of a set of reforms to boost long-term economic growth. Nepal has long had a sizable shadow economy, and erasing it is of paramount national interest to legitimize economic activity, collect revenues, and better understand what is happening in the country. The informal Nepalese economy's lax tolerance for the shadow economy is responsible for the country's current problems. Nepal should not wait for the FATF to complain about money laundering and terrorism financing before taking action. Rather, a concerted effort should be made to implement its existing national laws. Economic exclusion is a national concern, yet resources are inadequate. By putting national legislation into effect right now, Nepal must demonstrate its commitment to the cause. This would show the international community that Nepal wants to stay and respects the need to close the shadow economy and curb illicit finance.
The FATF stakeholders must be put under more pressure through a concerted effort to apply pressure, as well as through diplomatic channels, the media, and high office. Of utmost importance, however, is a concerted public relations and pressure campaign by the regulatory authorities in Nepal to demonstrate the work they are doing to address these concerns. As Nepal's interaction with the FATF is really a negotiation, a strong negotiating team is necessary to properly make the country's case. Because of this, the teams working on this regard must consist of highly skilled and trained professionals, and to grow its capacity, specific training should be provided to them so they are ready for the task ahead.
