Outgoing Governor Maha Prasad Adhikari recently acknowledged that Nepal's banking system remains the most vulnerable sector to money laundering
In February 2025, the Asia-Pacific Group (APG) on Money Laundering – an inter-governmental body of the Financial Action Task Force (FATF) – identified significant weakness in enforcement, investigation and prosecution of financial crimes in Nepal. It especially pointed out inadequate regulation in high-risk sectors such as cooperatives and real estate. In addition, severe strategic deficiencies were identified in anti-money laundering and counter-terrorism regimes in Nepal. Despite receiving a mandate to cleanse its financial standing in accordance with the FATF compliance standards until October 2024, Nepal failed to address such financial deficiencies even four months beyond the stipulated deadline. As a result, Nepal was grey listed, making it the only country in South Asia to face this disreputable designation.
An additional two years' timeframe has been granted to make necessary reforms in Nepal's financial standings and emerge out of the FATF grey list. Failing to comply with this directive, Nepal will be downgraded to the FATF blacklist to accompany the Democratic People's Republic of Korea, Iran and Myanmar. This downgrading will severely affect Nepal's financial standing. Even under the grey list, Nepal is facing serious financial repercussions, including reduced foreign investment, higher transaction costs in international banking, capital outflows, stricter banking regulations and trade restrictions.
After Nepal was grey listed in February 2025, the present government had blamed the previous government's financial irregularities as the primary reason behind Nepal's disreputable achievement. The government had committed to address the financial deficiencies, strengthen regulatory frameworks and enhance enforcement against money laundering and financial crimes to emerge out of the grey list within the stipulated deadline of two years. As time is running out swiftly, the government was expected to immediately implement the strategies to improve Nepal's financial standing in compliance with the FAFT standards. Almost six months post grey listing, the government seems to be still hibernating as the noteworthy actions towards this endeavour have not been perceived except for the commitment of the anti-money laundering committee towards implementing an action plan with clear responsibilities and timeframes. With this pace of the state machinery, Nepal's odds of exiting out of the grey list within the stipulated two years remain doubtful.
Notable actions on improving the Corruption Perceptions Index have not been seen, so far. Instead, the state-sponsored corruption seems to be blooming and driving the ongoing financial instability. The recent embarrassing revelation of financial exploitation of foreign employment aspirants through a visit visa scam involving the Home Ministry is going to only worsen Nepal's standing amid its emergence on the FATF grey list. The lack of accountability of the government and concerned financial authorities has allowed such illicit financial activities to thrive, further jeopardising Nepal's international credibility and economic future.
In addition to the state-sponsored financial irregularities, the controversy related to the appointment of the administrative head of Nepal Rastra Bank (NRB), the financial regulatory authority of the country, might facilitate Nepal's way towards the FATF blacklisting. The FATF must be closely monitoring the consequences that developed during the NRB governor's appointment.
After a prolonged debacle, Biswa Poudel was appointed as the governor of NRB. Despite his profound professional competence, his appointment procedure has sparked significant controversy. His selection seems to contradict the spirit of the Nepal Rastra Bank Act, 2058, which explicitly states that the Governor must not be affiliated with any political party. Poudel has claimed to have given up his Nepali Congress membership before his appointment. However, he was a Nepali Congress candidate in the last federal elections, during which he publicly pledged to remain a bona fide member of the party forever. Moreover, he was originally a member of the Governor Recommendation Committee formed by the government. In a surprising turn of events, the selector himself became the candidate and was ultimately appointed to lead the NRB.
Outgoing Governor Maha Prasad Adhikari recently acknowledged that Nepal's banking system remains the most vulnerable sector to money laundering. It is now the responsibility of the newly-appointed governor to confront this reality and work towards strengthening Nepal's financial integrity. However, lingering moral concerns surrounding his appointment – along with ongoing sub-judicial court proceedings – are likely to undermine Poudel's effectiveness and credibility.
It is a dire situation for Nepal as almost six months have already passed since Nepal's FATF grey listing and no notable steps have been implemented towards improving its financial standing. Sensing the urgency, the parliament should have drafted sustainable policies in this direction. Instead, the parliament proceedings are being regularly disrupted by the confrontations of the ruling coalition and the opposition on petty issues.
Time is running out. The government and relevant financial authorities must urgently formulate a comprehensive financial policy to ensure Nepal's removal from the FATF grey list within the remaining timeframe, as almost six of the allotted 24 months have already elapsed. To achieve this, political partisanship must be set aside, and all political parties, along with other stakeholders, should work in unison to strengthen and cleanse Nepal's financial standing – an essential prerequisite for the country's removal from the FATF grey list.
Dr Joshi is a senior scientist and independent opinion maker based in Germany
pushpa.joshi@gmail.com
