The Asia/Pacific Group on Money Laundering (APG), in its mutual evaluation report of Nepal, has shown a number of deficiencies in complying with anti-money laundering and combating financing of terrorists (AML/CFT), especially in legal, infrastructure and implementation.
The report mentioned that Nepal risks significant vulnerabilities including terrorist activity and terrorist financing due to a porous Nepal-India border. “The country has not yet implemented effective controls for cross-border movement of cash and bearer negotiable instruments,” states the report.
The report states that the current political situation in Nepal together with the open border with India presents significant challenges for Nepal in managing border crime and terrorist activities.
Given the advanced technology being used for money laundering and terrorist financing, the report says that there is no obligation on financial institutions to have polices in place to prevent misuse of technology for the act of money laundering and terrorist financing.
Regarding non-profit organizations (NPO), it says there has been no effective outreach to non-profit organizations from the government in relation to the risk and vulnerabilities of the sector to terrorist financing abuse. “The NPO sector is subject to limited or no monitoring and supervision,” the report said.
Another problem the report outlined is lack of sufficient administrative basis for the Financial Information Unit (FIU) for its operation.
The report, which is based on the APG’s field visit in September 2010, has, however, failed to incorporate the progress made by Nepal in complying with AML/CFT. Hence, some of its findings are outdated.
The report says that Nepal has not criminalized terrorist financing and money laundering offences and the Anti-Money Laundering Act does not encompass terrorist financing. However, it was based on the old anti-money laundering act. Now, the amended act has sought to criminalize terrorist financing. As per the amended act, those financing terrorism will face imprisonment of one to five years and be fined as per the amount of funds involved in the offence. “If the amount of the offence remains undisclosed, they are fined up to Rs 500,000,” the act has stated.
Nepal has addressed another deficiency outlined in the report that says that Nepal lacks a mechanism for freezing the assets of terrorists under the UN Security Council Resolution 1267 that covers financing to terrorist organizations such as Al-Qaeda and Taliban. However, the amended act says the assets and equipment used in the offences as per this act will be seized. The act has also provisioned that Nepal would request international organizations through diplomatic channels in freezing the assets of offenders under this act if necessary.
“As the report like that published by the APG covers the progress made in just two months after the field visit, compliance with the amendment to the act has not been included,” said Dharma Raj Sapkota, chief of the FIU under Nepal Rastra Bank (NRB).
With most of the deficiencies outlined in the report being based on the legal framework, Sapkota said that endorsement of the amendment to the Anti-Money Laundering Act by the parliament had addressed 75 percent of the deficiencies indicated by the APG.
According to the report, Nepal has complied fully with only one (income disclosure in banking) recommendation out of the 40 made by the Financial Action Task Force (FATF). “This means Nepal is in the list of countries that should be monitored closely,” said Sapkota. Hence, Nepal has to submit progress reports on the deficiencies shown in the report to the APG next January and May 2012, according to him.
The FATF, an anti-money laundering body formed by G-20, has removed Nepal from its list of risky countries with regard to AML/CFT.
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