Government’s efforts to avoid FATF grey list: Is the new government enthusiast?

Pushpa Kamal Dahal

The Nepal government, once again has been cursed with instability. Prime Minister Pushpa Kamal Dahal broke the alliance with the Nepali Congress and shook hands with the opposition CPN UML and others.

The Prime Minister seems confused due to misdiagnosing the problem. With increasing economic challenges in Nepal, including the possibility of being added to the Financial Action Task Force (FATF) grey list, doubts emerge regarding the PM’s decision-making.

The FATF black and grey lists

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FATF is the global money laundering and terrorist financing watchdog. It sets international standards that aim to prevent these illegal activities and the harm, they cause to society. The FATF was established in 1987 by the then G7 to examine and develop measures to combat money laundering. In 2001, the FATF expanded its mandate to also combat terrorist financing.

The countries referred to as the blacklist by FATF are those high-risk countries identified with serious strategic deficiencies to counter money laundering, terrorist financing and financing of proliferation. North Korea, Iran and Myanmar are kept on the black list by FATF at present.

Similarly, in the grey list, countries that are actively working with the FATF to address strategic deficiencies in their regimes to counter money laundering, terrorist financing and proliferation financing are included.

FATF places a jurisdiction under increased monitoring to these countries. Countries like Bulgaria, Cameroon, Haiti, Jamaica, Syria, etc are listed under grey list countries by the FATF as of February 2024.

Nepal’s position under the FATF

Nepal narrowly escaped the grey list in 2023. There was a chance of Nepal being grey-listed as Nepal failed to work on improving the areas of financial crimes and money laundering. However, Nepal has been granted an extension until October 2024 to fulfil the necessary criteria to safeguard itself from potential greylisting as Nepal promised to make improvements in all necessary areas within the timeframe of October 2024.

The FATF, on November 2023 warned Nepal to avoid itself from the grey list by improving the existing laws and punishing those involved in money laundering and other big financial crimes. Nepal was on the grey list of FATF from 2008-2014. FATF removed Nepal from the grey list in 2014 after Nepal amended the Anti-Money Laundering Act 2008.

As per the experts, the Asia Pacific Group monitors the recommendation given by the FATF to minimise money laundering. Up-to-date amended laws and regulations, the status of the law enforcement institutions and lastly, the implementation process is monitored. Nepal has been seen as weak in all of these three sectors.

So, the pressure lies on the officials to improve within a short time.

Impact of the FATF grey list

No country would want to have its name listed in the grey list of FATF as being in the grey list of FATF can cause severe harm to the economy of any country. Especially for countries like Nepal, heavily relying on foreign aid, loans and investments to achieve planned growth, the grey list could create further difficulties.

The grey-listed countries will face increased monitoring from the international community, which ultimately affects attracting foreign investments. Furthermore, the greylisting could also cause severe harm to the reputation of the country.

No country would like to make a transaction with the grey-listed country. Even if they do, risk-coverage cost is added as a premium which makes the projects more expensive. As Nepal is a country based on import, the difficulty in getting a letter of credit or bank guarantee can also be a problem for Nepal if grey-listed. As per the economic times, Pakistan had a loss of $38 billion in its total GDP from 2008 to 2021 due to its enlistment in the FATF grey list.

What Nepal has been doing?

Nepal has tried to make the legal basis for controlling financial crimes. The government registered a bill to amend certain laws relating to the prevention of money laundering and promotion of the business environment at parliament 13 months ago.

The bill consists of the amendments of 19 acts. This bill has been brought as per the recommendations given by the FATF and Asia-Pacific Group to the Nepali government.

Acts related to money launderings such as the Import and Export Act, Tourism Act, Nepal Rastra Bank Act, Insolvency Act, Human Trafficking and Transportation (Control) Act, Cooperatives Act, the Foreign Investment and Technology Transfer Act, Criminal Code, Criminal Procedure Code, Insurance Act etc are aimed to be amended at once through this bill.

The irony is, 13 months since this bill has been registered in the lower house of the parliament, is still in discussion and yet to be authenticated.

Doubt on the government’s ability to policymaking

Prime Minister Dahal is looking lazy in the job of policy making as only four bills have been authenticated since he became the prime minister. Also among the four, three of the authenticated bills were the regular bills brought every year by the finance ministry and one was the amendment bill. Talking about the previous government before Dahal came into the prime ministerial post, 18 bills were authenticated in the short span of just around three months. From this, we can analyse how poor Prime Minister Dahal has been when it comes to doing things from the policy level.

Furthermore, the appointment of disputed people as ministers makes it more challenging for the prime minister to make policies that can keep Nepal out of the FATF grey list.

Questions arise about whether the new ministers are enthusiastic to make laws as recommended by the APG as such laws may cause difficulties for them. Prime Minister Dahal himself looks to be in dilemma with the transitional justice bill as it may prevent the judicial bodies from penalising the war criminals. With many of the Maoist cadres being accused of war crimes, the PM seems to be hesitating to pass the transitional justice bill.

It seems to be a tough job for the government to make and implement laws that prevent Nepal from being on the FATF grey list as the Dahal-led government has been very slow in passing bills from the parliament.

Moreover, as the ministers in the current government and the cadres of the ruling parties have been accused of financial crimes and war crimes, the willingness of the government to pass the essential bills remains questioned.

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Bhandari is a law student from Pokhara.

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