AML in Nepal
Nepal is at the precipice. Despite having criminalized money laundering as per the Asset (Money) laundering Prevention Act 2008, Nepal still faces a steep learning curve when it comes to financial crime risk management. The country is still reeling from natural calamities such as the 2015 earthquakes, decades of political instability and a rampant culture of bribery and corruption. All of this has led to episodes of setbacks when it comes to major infrastructural developments and economic initiatives.
Drug trafficking, counterfeit currency, tax evasion and gold smuggling are some of the predicate offenses that are still prevalent and criminal liabilities against the entities responsible haven’t been enacted or pursued in full force by the law enforcements. The ambiguity around the regulations, their applications and absence of support from the judicial bodies are also matters of grave concerns for Nepal.
Financial inclusion of the general populace is a topic that has been discussed in great lengths but very few initiatives have come to fruition. Despite, remittance comprising of around 28% of the total GDP of the country, financial institutions have been unsuccessful to set up appropriate channels and have ultimately forced these families of migrant workers to rely on illegal means to procure some of these funds.
The lack of long-term strategic thinking and oversight from all the responsible parties, Interdepartmental silos, lax approach towards global regulatory trends and reactive rather than proactive approach towards the culture of compliance are some of the issues plaguing the country.
What we are missing here is the bigger picture. Let’s take correspondent banking for an example. According to the Bank for International Settlement (“BIS”), “Correspondent banking is an essential component of the global payment system, especially for cross-border transactions. Through correspondent banking relationships, banks can access financial services in different jurisdictions and provide cross-border payment services to their customers, supporting, inter alia, international trade and financial inclusion.” So, what can correspondent banking licenses enable us to achieve? They allow banks to conduct common services such as currency exchange, handling business transactions and trade documentation, and money transfers. Currently, only a handful number of International banks in Nepal can provide such services, thereby limiting our ability as a nation to operate in a grander scale where movements of goods and services can occur seamlessly, which can in return pave the way for the growth of the nation and its denizens.
Another case in point is foreign direct investments. The lack of political stability and economic policies have seriously hampered our ability as a nation to attract foreign investments that can be crucial for the advancement of a country.
So, what can we do to move forward in this age of rapid globalization and financial inclusion? Globalization and financial inclusion have opened foreign markets and provided various ways to access them that have fundamentally changed the world we live in today. Border restrictions, geopolitics are no longer the dominant forces when it comes to selling of our goods and services. This in turn has helped raise the middle class and their living standards across the globe. Technologies and various skillsets can be transferred instantaneously transforming the societies, economies and individual lives. But for this to happen, all the cogs in the wheel need to be aligned and we need to start off by empowering our financial institutions.
With the ongoing scrutiny from the IMF, World Bank and FATF, the Nepali banking industry still has a long way to go when it comes to the notion of globalization and financial inclusion and realizing their true potentials. The risk of black listing or even sanctions from the major global powerhouses still looms large for Nepal and its banking industry. However, we can still turn the course of time by taking active measures by proactively adopting good AML program and setting a sound culture of compliance.