Nepal

Sanctions

No

FATF AML Deficient List

No

Higher Risk

Non - Compliance with FATF 40 + 9 Recommendations
Not on EU White list equivalent jurisdictions
Corruption Index (Transparency International & W.G.I.)
World Governance Indicators (Average Score)
Failed States Index (Political Issues)(Average Score)

Medium Risk

Weakness in Government Legislation to combat Money Laundering

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ANTI-MONEY LAUNDERING

 

FATF Status

Nepal is no longer on the FATF List of Countries that have been identified as having strategic AML deficiencies

 

Latest FATF Statement  -  27 June 2014

 

The FATF welcomes Nepal’s significant progress in improving its AML/CFT regime and notes that Nepal has established the legal and regulatory framework to meet its commitments in its action plan regarding the strategic deficiencies that the FATF had identified in February 2010. Nepal is therefore no longer subject to FATF’s monitoring process under its on-going global AML/CFT compliance process. Nepal will work with APG as it continues to address the full range of AML/CFT issues identified in its mutual evaluation report.

 

Compliance with FATF Recommendations

The last Mutual Evaluation Report relating to the implementation of anti-money laundering and counter-terrorist financing standards in Nepal was undertaken by the Financial Action Task Force (FATF) in 2011. According to that Evaluation, Nepal was deemed Compliant for 1 and Largely Compliant for 3 of the FATF 40 + 9 Recommendations. It was Partially Compliant or Non-Compliant for all 6 of the Core Recommendations.

 

2013 Asia Pacific Group on Money Laundering Yearly Typologies Report:

Trends:

The following are the identified, or suspected, trends and types of Money Laundering in Nepal:

 

False identification

Misuse of ATM card for the purpose of receiving Indian currency

False source of income

Under or over invoicing

Real estate including a lesser amount mentioned in the land deed than the market price

Tax/revenue evasion

Trade based ML

Extortion

Illegal telephone service Voice over Internet Protocol (VoIP)

Fund siphoning

Currency exchange and smuggling

Use of hundi

Structuring, use of complex structure of companies

Use of family members/relatives or friends, corruption

 

Emerging trends

Currency exchange from Nepal to India without licence

TBML

Banking frauds

Corruption

Extortion

Real estate

Tax evasion

 

Declining trends

Revenue

Extortion

Indian currency exchange.

 

US Department of State Money Laundering assessment (INCSR)

Nepal was deemed a ‘Monitored’ Jurisdiction by the US Department of State 2016 International Narcotics Control Strategy Report (INCSR). Key Findings from the report are as follows: -

 

Nepal is not a regional financial center. Government corruption, a large and open border with weak border enforcement, limited financial sector regulations, and a large informal economy continue to make the country vulnerable to money laundering and terrorist financing. Nepal is not a significant producer of narcotic drugs; however, hashish, heroin, and domestically produced cannabis and opium are trafficked to and through Nepal. Relatively porous borders also are used to facilitate the trafficking of persons. Other major sources of illegally earned income include tax evasion, corruption, counterfeit currency, smuggling, and invoice manipulation.

 

While government and banking industry officials report that most remittances flow through formal banking channels, a portion is believed to flow through informal channels. Additionally, the government has limited ability to determine whether the source of money ostensibly sent as remittances from abroad is licit or illicit. Officials have identified the use of under- and over- invoicing as a major money laundering challenge. Other problems are bulk counterfeit currency and gold smuggling into India. An open border with India and inadequate security screening make it difficult to detect currency and gold flowing in and out of the country.

 

 

SANCTIONS

There are no international sanctions currently in force against this country.

 

BRIBERY & CORRUPTION

 

Rating                                                                           (100-Good / 0-Bad)

Transparency International Corruption Index                           31

World Governance Indicator – Control of Corruption             24

Pervasive corruption is a major challenge for foreign companies in Nepal. Kickbacks and facilitation payments are widespread in public procurement and when registering a business. In Nepal, corruption reduces competitiveness and significantly increases the costs of starting a business. Further, the courts are plagued by corruption. The Prevention of Corruption Act is the country's principal anti-corruption law; it criminalizes corruption, bribery, money laundering, abuse of office and facilitation payments in the public and private sectors. However, implementation and enforcement is inadequate, leaving the levels of corruption in the country unchallenged. For further information - GAN Integrity Business Anti-Corruption Portal

ECONOMY

Nepal is among the poorest and least developed countries in the world, with about one-quarter of its population living below the poverty line. Nepal is heavily dependent on remittances, which amount to as much as 29% of GDP.

 

Agriculture is the mainstay of the economy, providing a livelihood for almost 70% of the population and accounting for about one-third of GDP. Industrial activity mainly involves the processing of agricultural products, including pulses, jute, sugarcane, tobacco, and grain.

 

Nepal has considerable scope for exploiting its potential in hydropower, with an estimated 42,000 MW of commercially feasible capacity. Nepal and India signed trade and investment agreements in 2014 that increase Nepal’s hydropower potential, but political uncertainty and a difficult business climate have hampered foreign investment.

 

Nepal was hit by massive earthquakes in early 2015, which damaged or destroyed infrastructure and homes and set back economic development. Political gridlock in the past several years and recent public protests, predominantly in the southern Tarai region, have hindered post-earthquake recovery and prevented much-needed economic reform. Additional challenges to Nepal's growth include its landlocked geographic location, persistent power shortages, and underdeveloped transportation infrastructure.

 

Agriculture - products:

pulses, rice, corn, wheat, sugarcane, jute, root crops; milk, water buffalo meat

 

Industries:

tourism, carpets, textiles; small rice, jute, sugar, and oilseed mills; cigarettes, cement and brick production

 

Exports - commodities:

clothing, pulses, carpets, textiles, juice, jute goods

 

Exports - partners:

India 61.3%, US 9.4% (2015)

 

Imports - commodities:

petroleum products, machinery and equipment, gold, electrical goods, medicine

 

Imports - partners:

India 61.5%, China 15.4% (2015)

Investment Climate  -  US State Department

With an annual Gross Domestic Product (GDP) of about USD 21 billion, and total trade of USD 8.6 billion, Nepal is a small contributor to the global economy. However, its location between India and China – two of the world’s fastest growing economies – may make Nepal attractive to some foreign investors. Nepal’s natural resources have significant commercial potential.

 

Hydroelectric power – of which Nepal has an estimated 40,000 MW of commercially viable potential – could be a major source of income and help meet South Asia’s growing energy needs.

Other sectors offering potential investment opportunities include agriculture, tourism, and infrastructure.

 

Nepal offers opportunities for investors willing to accept inherent risks and the unpredictability of doing business in the country. While Nepal has established some investment-friendly laws and regulations, significant investment barriers remain.

 

Corruption, laws limiting the operation of foreign banks, limitations on the repatriation of profits, limited currency exchange facilities, and the government’s monopoly over certain sectors of the economy, such as electricity transmission and petroleum distribution, undermine foreign investment in Nepal.

 

Millions of Nepalis look for employment overseas, creating a drain on an already poorly trained workforce.

The proliferation of politicized trade unions, typically affiliated with one or more political parties, and unpredictable general strikes also limit investment.

 

Immigration laws and visa policies for foreign investors can be cumbersome and obstructive, which are exacerbated by an inefficient government bureaucracy and a relatively high turnover rate of officials.

 

Political uncertainty is another challenge for foreign investors in Nepal. The country has made considerable strides since the end of a ten-year Maoist insurgency in 2006. Nepal has held free and fair Constituent Assembly elections in 2008 and 2013, completed the integration of former combatants into the Nepalese Army, and promulgated a constitution in 2015. However, widespread dissatisfaction with some constitutional provisions led to prolonged protests across much of Nepal’s southern Terai belt, as well as a prolonged blockage of Nepal’s border with India.

 

Nepal’s geography also presents challenges. The country’s mountainous terrain and poor infrastructure increase the cost of transportation of raw materials as well as finished goods. The nearest seaport is in Kolkata, India, about 900 kilometers from Kathmandu.

 

Country Links

Financial Information Unit (FIU-Nepal)
Central Bank of Nepal (Nepal Rastra Bank)
Securities Board Nepal
Other Useful Links
FATF
US State Department
Transparency International
World Bank
CIA World Factbook

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