In a significant move aimed at strengthening financial transparency and preventing illicit financial activities, the Department of Cooperatives has issued a strict directive prohibiting cooperatives from conducting any business-related transactions through personal bank accounts. The directive, released on Tuesday, underscores growing regulatory concern over the misuse of cooperative funds and the increasing risk of money laundering through unmonitored individual accounts.

According to the department, the instruction is rooted in the Asset (Money) Laundering Prevention Act, 2064, which recognizes cooperatives as financial institutions subject to the same regulatory standards as banks and other financial entities. This legal classification obligates cooperatives to maintain a clear separation between institutional transactions and personal financial dealings. The latest directive reiterates this principle, emphasizing that no business transaction—whether receipt or payment—should occur through any individual’s private account.

The circular refers specifically to Rule 10 of the Asset Money Laundering Prevention Regulations, 2081, which requires financial institutions to immediately report any instance where business-related funds are channeled through personal accounts. If a cooperative is found making payments or receiving business money via a member’s or an operator’s personal account, it must notify both the Financial Information Unit (FIU) and the Internal Revenue Department (IRD). The department warned that non-compliance may trigger legal scrutiny under anti-money laundering provisions.

The directive also draws upon Section 81(Kha) of the Income Tax Act, 2058, which explicitly prohibits individuals from depositing business income — whether received in cash, cheque, QR code, or digital form — into personal bank accounts. Such income must be channeled exclusively through accounts registered in the name of the business, firm, or cooperative. The department stressed that using personal accounts for institutional transactions not only violates tax laws but also creates loopholes for tax evasion and irregular financial reporting.

Regulatory officials note that the directive comes at a time when Nepal’s cooperative sector is under heightened public scrutiny. Multiple cases have surfaced in recent years where cooperative operators allegedly diverted member deposits into private accounts, misused savings, or conducted unauthorized lending activities off the books. These malpractices not only jeopardize depositor confidence but also expose the sector to systemic financial risks similar to bank-run scenarios.

Analysts say the latest instruction reflects the government’s growing urgency to restore credibility in the cooperative system. With millions of Nepalis relying on cooperatives for credit, savings, and microfinance services, strengthening oversight has become a national priority. The mandatory reporting requirement to FIU and IRD aims to create an auditable trail of financial activities, making it harder for institutions or individuals to hide irregularities.

The directive also carries broader implications for internal controls within cooperatives. Institutions will now be required to maintain more robust accounting systems, ensure that all business receipts are deposited into cooperative-operated accounts, and verify that members or officials do not manipulate transactions through personal channels. This shift is expected to reduce opacity in financial records and improve cooperative governance standards.

However, experts caution that enforcement will be crucial. Many rural cooperatives still operate with limited digital infrastructure and record-keeping capacity, making oversight challenging. Without regular monitoring and capacity-building support, the directive alone may be insufficient to curb entrenched practices. The department, therefore, faces the dual challenge of enforcing compliance while facilitating institutional strengthening across a diverse and decentralized cooperative landscape.

Despite these hurdles, policymakers assert that the new directive marks a firm step toward aligning Nepal’s cooperative sector with global anti-money laundering standards. By bringing informal financial behavior under formal regulatory frameworks, the government aims to enhance financial discipline and reduce risks of abuse that have long plagued the cooperative system.

In essence, the department’s instruction signals a clear policy stance: institutional money must flow through institutional accounts, and any deviation from this standard will invite regulatory action. As Nepal continues to modernize its financial governance, the cooperative sector — once seen as a flexible alternative for grassroots finance — is being pulled toward stricter compliance and greater accountability.