In May 2026, the Asia/Pacific Group on Money Laundering (APG), the regional FATF body overseeing Nepal, described Nepal's progress in writing as "disappointing"
Ram Bahadur Thapa works on a construction site in Qatar. Every month, he sends Rs 40, 000 home to his wife Sita and their two children in Dhangadhi. That money covers the children's school fees at a local boarding school, Sita's monthly grocery bill at the neighbourhood kirana pasal, and the EMI on the small plot of land they bought three years ago after saving for a decade. Last month, for the first time, the transfer took four days instead of one. Sita panicked. She called Ram, who called the bank, which told him there were "enhanced compliance checks" on transfers to Nepal. Nobody explained what that meant. The money arrived eventually - but with an extra Rs 1,200 deducted. Ram earns Rs 1,800 a day. That deduction cost him nearly a full day of work.
The Financial Action Task Force (FATF) is the world's financial watchdog. Established by the G7 in 1989, it sets global standards to prevent money laundering, terrorist financing, and related crimes. Every country that wants to participate in the international financial system must meet FATF's standards.
When a country fails to meet those standards, FATF places it under "Increased Monitoring" - commonly called the grey list. Think of it as a formal warning: you have time to fix the problems, but the clock is ticking. If the country still does not comply, it can be moved to the blacklist - a designation currently shared only with Iran, North Korea, and Myanmar. The consequences there are severe and near-immediate.
Nepal was placed on the FATF grey list in February 2025 - for the second time. It had previously been listed from 2008 to 2014 and managed to exit through legal reforms. This time, the reasons were familiar: weak enforcement of money laundering laws, inadequate monitoring of high-risk sectors like real estate and cooperatives, an active informal economy including illegal money transfers known as hundi, and low rates of investigation and prosecution for financial crimes.
Nepal was given a 15-point action plan and two years to show meaningful results. The two-year period is divided into five review cycles, each four months apart. Just as Nepal was supposed to be rolling up its sleeves on those 15 reforms, a wave of youth-led protests – Nepal's Gen Z uprising in September last year – shook the political establishment to its core. The movement demanded accountability, an end to corruption, and systemic change. It worked: snap elections were triggered, and by late March 2026, an entirely new government under Prime Minister Balendra Shah and the Rastriya Swatantra Party had taken power.
Political change is healthy in a democracy. But for FATF compliance, it was a serious disruption. The new administration inherited an incomplete action plan and a tightening international deadline.
In May 2026, the Asia/Pacific Group on Money Laundering (APG), the regional FATF body overseeing Nepal - sent an unusually high-level delegation to Kathmandu, led by Deputy Executive Secretary David Shannon, a veteran of 24 country evaluations. The message they delivered was blunt: Nepal has made meaningful progress on only 9 of its 15 required actions. The remaining 6 are incomplete. The APG described the situation in writing as "disappointing."
The delegation described its own visit as the final high-level intervention before a decisive September 2026 review. They flagged weak prosecution outcomes, insufficient confiscation of criminal assets, gaps in supervision of high-risk sectors, and concerns about recent legal changes made through government ordinance without proper consultation. In FATF terms, this is as close to a final warning as it gets.
To its credit, the new government has treated the grey list as a national priority. Finance Minister Swarnim Wagle has repeatedly and publicly stated that exiting the grey list is one of the administration's top goals.
Among the concrete steps being taken: arrests in money laundering cases have increased, suspicious transaction reporting has risen by over 30 percent, enforcement agencies are being strengthened with better resources and technology, a risk-based financial monitoring system with automatic alerts is being set up, and plans are underway for a unified digital asset registry under Nepal Rastra Bank. The government is also pushing stricter disclosure of beneficial ownership to prevent shell company abuse. But the APG has been clear - more reports are not enough. What counts is convictions, asset recovery, and proven enforcement.
If you think this is only a problem for bankers and regulators, consider what happened to other countries on the FATF blacklist. Iran, currently blacklisted, faces near-total correspondent banking isolation. Its banks cannot process international payments through standard channels. Businesses cannot receive wire transfers. Importers struggle to pay for goods. The result is a financial system cut off from the world, with ordinary citizens bearing the cost through inflation, shortages, and economic stagnation.
Myanmar was added to the blacklist in 2022. Since then, international banks have dramatically reduced their exposure to the country. Trade finance has become expensive and difficult to access. For a country already facing political and humanitarian crises, financial isolation has compounded the suffering of everyday families.
For Nepal specifically, the stakes are enormous. Nepal relies heavily on remittances. If international banks begin imposing extra checks or restrictions on Nepal-linked transactions, those remittances slow down, become more expensive, or in worst cases get blocked. Foreign direct investment drops. Development financing becomes harder to access. Loan and credit costs rise across the board.
Nepal is not out of options. It successfully exited the grey list in 2014, and it can do so again. But the window is narrow. The September 2026 APG review is the decisive moment. Nepal must demonstrate real results: prosecutions that stick, assets seized and recovered, enforcement agencies free from interference, and high-risk sectors genuinely supervised. Political unity is not optional - FATF compliance is a national economic survival issue, not a partisan one.
Aryal is a Certified Anti-Money Laundering Specialist (CAMS)
