September 10: A report prepared by the Asia Pacific Group (APG) under the Financial Action Task Force (FATF) has shown that Nepal's position in preventing money laundering is deteriorating.

The mutual assessment report was released recently by the APG.

The report mentions that the main challenges Nepal faces in controlling money laundering include corruption, revenue evasion and human trafficking. All this has caused negative effects on the economy and social ills, the report points out.

The report states, “Nepal's open border is the key risk for drug trafficking, gold and currency smuggling and environment-related crime, linking domestic and foreign potential crimes. Hundi is also a problem in Nepal.”

APG conducted an on-site assessment from December 5 to January 16. During that time, APG and the team of Nepal studied the situation of Nepal in the prevention of money laundering and financial management in terrorism. The evaluation report of the study is prepared on the basis of the situation of financial crime in Nepal and the methods and mechanisms to control it.

The team submitted the first draft of the study to Nepal on February 2. Nepal presented and defended the draft in the Annual General Assembly of FATF with answers to the questions asked. The situation in Nepal was discussed at the 23rd Annual General Meeting of APG held in Canada from July 9 to 14.

In 2013, FATF created 11 indicators of effectiveness and 40 indicators of technical compliance for evaluation, and mutual evaluation is based on the same indicators. In the mutual evaluation published recently, 11 indicators of effectiveness are also included, in which the situation of Nepal is not satisfactory. According to the report of APG, not one of the 11 indicators of Nepal shows a satisfactory result. In the report, 7 indicators are mentioned as 'low' and 4 indicators as 'moderate' or partially effective.

Among the indicators, it is mentioned that risk, policy and coordination, international cooperation, financial intelligence mechanism and money laundering investigation and prosecution are partially effective.

Similarly, it is said that supervision, preventive measures, legal manpower and system, confiscation, investigation and prosecution, preventive measures and financial restrictions and restrictions on financial dissemination are low.

The mutual evaluation report showed that out of 40 indicators of technical compliance of FATF, five indicators are in accordance with the recommendations and 16 indicators are largely in accordance with it. The report shows that 19 indicators are satisfactory, 16 indicators are partially compliant and 3 indicators are not compliant.

The previous assessment of Nepal was done in July 2011. From 2010 to 2014, Nepal was kept under surveillance by FATF for further monitoring. Nepal was removed from the gray list on 27 June 2014 after reforming the money laundering control system.

For now, Nepal has avoided landing in FATF's gray list for one year due to reforms under close supervision after the commitment to bring improvements in all the necessary areas within the specified time.

Nepal has already been put on APG's watch list once due to lack of diligence in law making. Nepal was removed from the list after establishing structures including the Money Laundering Investigation Department. So far, the department has investigated 58 incidents and filed 45 cases.

It is mentioned in the report that Nepal needs to make a high level of commitment and mobilize large resources in the field of money laundering. The report emphasizes on increasing the efficiency of the Criminal Assets Management Department under the Ministry of Home Affairs by adding resources including manpower, increasing coordination between agencies, streamlining the mechanism of mutual legal assistance and collaborating with international regulators.

The report mentions that public and private sector understanding of the risk of money laundering should be increased, and laws related to anti-money laundering and business promotion should be amended and implemented effectively.