KATHMANDU: With the dissolution of the Constituent Assembly, bills on anti-money laundering (AML) could be passed through ordinance — and only this can prevent Nepal from being blacklisted by the Financial Action Task Force (FTAF). Even if the bills get passed amidst the volatile political situation, Nepal’s journey to become a nation upholding the spirit of international money laundering measures is fraught with challenges.
Time and again, Nepal faces the threats of blacklisting by FTAF, the global anti-money laundering watchdog. In February this year, the country narrowly escaped being blacklisted after special intervention by the Prime Minister. To avoid the same fate in the future, Nepal needs to enact three bills — Bill on Controlling Organised Crime, Extradition Bill and Mutual Legal Assistance Bill — before the FTAF
plenary congregates in Rome next month. Since the country is currently sans a parliament, passing the bills through ordinance may not be less problematic, thinks Dharma Raj Sapkota, head at Financial Information Unit (FIU). “The Prime Minister is already convinced about this and now all he needs to do is to convince the President,” he says.
Nepal has made several attempts to upgrade itself as a nation complying by AML/Combating the Financing of Terrorism (CFT)
measures from enacting Asset (Money) Laundering Prevention Act (ALPA), rules and institutional setups such as FIU, Department of Money Laundering Investigation (DMI) and National Coordination Committee. However, FTAF still deems Nepal a poor performing nation.
Mutual Evaluation Report (MER) – 2011 by Asia/Pacific Group on Money Laundering, the FATF style regional body, points to money
laundering and terrorist financing risks and threats via porous Indo-Nepal border. Besides, it mentions largely of inadequate
legal provisions and poor institutional performance.
“In its plenary meeting, FATF could raise the issue of legal deficiencies,” says Baikuntha Aryal, joint secretary at the Ministry of
Finance. Nepal is required to enact and implement laws as per international conventions on AML. While many issues on AML/CFT need to be incorporated into law, the amended ALPA too does not reflect internal standardsin many instances. “As per international standards, those violating AML/CFT laws are subject to imprisonment from one to 10 years, whereas in ours the maximum imprisonment
period is five years,” says Sapkota. On the other hand, informing about encouraging positive changes, Sapkota cites of a provision where Nepal Rastra Bank (NRB) can impose a penalty on banks not following AML/CFT measures. Besides imposing fines, NRB can even revoke the bank’s licence.
Nepal needs to work on many fronts to pass FTAF’s close scrutiny. Sapkota complains that financial institutions are inefficient in terms of reporting to the FIU, since information provided lacks details and clarity.
This is because of untrained staffs, suggests Kanhaiya Lal Rajwant of NABIL bank, who heads the department of Operational Risk and AML. “Some clients consider enquiries regarding income source as personal, and staffs may not be efficient enough to draw the required information,” says Rajwant, who is also the coordinator of the Anti-Money Laundering Committee under Nepal Bankers’ Association (NBA).
The country seriously requires an efficient monitoring mechanism in regards to AML measures. NRB, the country’s central bank, has its hands full with banks alone, and is unable to monitor financial transactions by finance companies and co-operatives. No monitoring mechanism exists for entities like casinos, land revenue offices and custom offices including NGO/INGOs, that could also be
indulging in money laundering. Similarly, transaction of merchants dealing with valuable metals is also not scrutinised.
Sapkota says, “Strong technology base and skilled workforce are prerequisites for effective implementation of anti-money laundering measures.” Echoing Sapkota, Bishwa Prakash Subedi, director at the Department of Money Laundering Investigation (DMI), laments how a single department staffed with around 20 members is supposed to investigate AML/CFT cases across the country. DMI as of now has received some 500 cases from FIU, 45 from police and 60 from other bodies. Of the total eight cases it filed at the Special court, four have been settled so far. A bother for business Anti-money laundering efforts often draw controversy in the political arena and business circles as well. Some hold that AML/CFT has nothing to do with Nepal, a country with a small economy. They view such measures as imposed by developed nations. However, rising incidents of drug smuggling and criminal offences involving weapons can not be
ignored. The business community is aware of the adverse impact that can be caused if Nepal is blacklisted, because that means restriction of access to the world market. This will not only impact trade but also cause a setback to investment and foreign aid sectors.
A majority of industrialists opine that AML/CFT measures have been a hindrance rather than addition to the economy. The likes of Bishnu Prasad Neupane, chairman and managing director of Saurabh Group, argue that AML/CFT measures should be limited to offences on terrorism and trafficking alone, without letting it meddle in issues like tax and VAT. “Human trafficking, drug trafficking and offences related to arms should be tried under AML Act, while people evading tax or VAT should not be tried under the Act,” Neupane says, adding, “Another
malpractice is that concerned authorities, upon suspicion of money laundering, immediately suspend the bank account of a person without informing him/her. This must be stopped, as it has dire consequences on a business.”
Subedi denies the above allegation, stating that a uspect is immediately informed of the action on his/her bank account. He also clarifies that DMI does not handle scenarios where an offence like tax evasion or a major crime like drug smuggling is in progress. “We only investigate a case where money is manifested without a source,” he says.
“Since AML/CFT regulations, laws and their enforcement mechanism are not transparent, the business community is plagued by insecurity regarding it,” shares Surendra Bir Malakar, immediate past president of Nepal Chambers of Commerce.
Presenting income source in a cash-based economy is not easy, and similar is the situation with ancestral property, according to Shrestha. “The government should develop infrastructure base, granting opportunity to business-people and public alike to
declare their property once. This would bring out the capital lying stagnant and help the economy,” he says.
A country like Nepal that relies on foreign aid and hopes of economic prosper-ity through foreign investment needs to keep its image untainted, making every effort to abide by AML/CFT practices. However, AML is not getting the attention it deserves, mostly due
to the neglect from politicians and bureaucrats, who fear that a strong AML mechanism could land them in hot water.