Skipping int’l blacklisting

Shanker Man Singh

The scale of money laundering in Nepal is unknown. But given the porous border with India and widespread corruption, extortion and smuggling, Nepal is understandably a fertile ground for money laundering.

Keeping Nepal’s obligations to international commitments in mind, President Ram Baran Yadav has certified the ordinance to make Nepal comply with the Financial Action Task Force’s recommendations. He certified the the Bill against Organised Crime, 2069, after holding consultations with the stakeholders and the concerned government officials. It is hoped this new development is expected to keep Nepal from being blacklisted by the FATF, a global organisation that aims to combat terrorism financing by means of money laundering. Had the ordinance not been passed before the FATF plenary met in Paris from 20 to 24 to assess each member state’s progress, Nepal would have been blacklisted from all international financial transactions, a dire consequence for an economy dependent upon remittance and tourism.

The ordinance which is quite significant as it allows Nepal to continue its foreign transactions and international trade as before. Nepal has averted an accident. The FATF or Financial Action Task Force, which is headquartered in Paris, had warned Nepal of a possible blacklisting that has already been done against Iran and the DPRK for non-compliance. A blacklisting would mean Nepali financial institutions would lose their credibility in the international arena, and foreign banks may not honour letters of credit issued by them. It would also diminish Nepal’s prospects of getting foreign aid and investment.

As such, money laundering is said to be the third largest industry in the world. It has been defined as converting money gained from illegal activity, such as drug smuggling, into money that appears legitimate and which cannot be traced to the illegal activity. Money laundering is not a new activity. What is new, at least, in the Bahamas, the UK and the US, is the criminalisation of money laundering. The process of money laundering itself is now a crime different from the crime that produced the money.

The scale of money laundering in Nepal is unknown. Some are of the opinion that given the informal nature of the economy, predomination of cash transactions, open border with India, unstable political situation and rampant existence of predicate offenses like corruption, bribery, smuggling, human and drug trafficking, use of counterfeit currency, and of late, extortion, looting and arms trading all have combined to make Nepal a fertile ground for money laundering.

Nepal had asked for leniency from the Financial Action Task Force (FATF) when the country’s senior officials met the regional group of the global anti-money laundering body in the Indian Capital New Delhi few months back.

Nepal faced with a gloomy prospect of being blacklisted by FATF for its failure to endorse three crucial bills on anti-money laundering despite repeated warnings.

The International Cooperation Review Group (ICRG), an analysis wing of the FATF, submits its report to the FATF for discussion before deciding whether to blacklist a certain country. During the recently concluded Hong Kong meeting, Nepali delegation informed the RRG about the progress made in the areas of restructuring of the Department of Money Laundering Investigation, ensuring autonomy of the Financial Information unit and its automation. Nepali side also apprised about the issuance of a directive by the Insurance Board and Securities Board of Nepal on money laundering and terrorist financing.

In February 2010, Nepal made a high-level political commitment to work with the FATF and APG to address its strategic AML/CFT deficiencies. Since June 2012, Nepal has taken steps to improve its AML/CFT system, including by ensuring that information held by the FIU is securely protected. However, the FATF has determined that certain strategic AML/CFT deficiencies remain. Nepal should continue to work on implementing its action plan to address these deficiencies, including by: adequately criminalising money laundering and terrorist financing; establishing and implementing adequate procedures to identify and freeze terrorist assets; implementing adequate procedures for the confiscation of funds related to money laundering; enacting and implementing appropriate mutual legal assistance legislation; ensuring a fully operational and effectively functioning Financial Intelligence Unit; and establishing adequate suspicious transaction reporting obligations for ML and FT. The FATF has encouraged. Nepal to address its remaining deficiencies and continue the process of implementing its action plan.

According to the US State Department Money Laundering Report - 2012: “Nepal is not a regional financial center. Government corruption, poorly regulated trade, weak financial sector regulation, and a large informal economy make the country vulnerable to money laundering and terrorist financing. The major sources of laundered proceeds stem from tax evasion, corruption, counterfeit currency, smuggling, and invoice manipulation. Nepal has a large, unregulated, informal remittance system, which is also vulnerable to money laundering and terrorist finance.

Efforts should be underway in Nepal and regional and bilateral level for effective and efficient implementation of the FATF compliance.

(The writer is General Manager of Nepal Stock Exchange (NEPSE). He can be reached at: shankermansingh@gmail.com)

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