Nepal Under Pressure to Exit FATF Grey List, But Officials Rule Out Blacklisting Risk

A recent visit by a delegation from the Asia Pacific Group on Money Laundering (APG) has intensified public discussion over Nepal’s status on the international anti-money laundering grey list, with concerns emerging in political and financial circles about whether the country risks slipping further toward blacklisting. However, government officials and regulatory authorities insist that such fears are misplaced and that the visit was intended as a technical support mission rather than a punitive intervention.

The APG delegation, which remained in Nepal from Jestha 4 to 6, held discussions with Finance Minister Dr. Swarnim Wagle, senior government officials, the governor of Nepal Rastra Bank and other regulatory agencies. The meetings focused primarily on Nepal’s ongoing efforts to exit the Financial Action Task Force (FATF) grey list, formally known as the “Jurisdictions Under Increased Monitoring” category.

According to officials involved in the discussions, the APG delegation raised concerns regarding inter-agency coordination, implementation of anti-money laundering laws, investigation and prosecution mechanisms, seizure and confiscation of illicit assets and the availability of skilled human resources dedicated to financial crime enforcement. The delegation also emphasized that Nepal still has substantial work remaining before it can satisfy international benchmarks required for removal from the grey list.

Despite public speculation, authorities say Nepal is not at risk of being moved to the FATF black list. Officials from the Office of the Prime Minister and Council of Ministers described the APG visit as a “support visit” aimed at evaluating Nepal’s strengths and weaknesses while helping authorities identify areas requiring urgent reform. According to them, the mission was designed to provide technical guidance and strengthen governance rather than impose sanctions or punitive measures.

Government officials acknowledged that although Nepal has already introduced several legal reforms in recent years, weak implementation and slow prosecution of money laundering-related cases remain the country’s biggest vulnerabilities. APG representatives reportedly expressed particular concern over sectors considered highly vulnerable to illicit financial activities, including banking, real estate, casinos, precious metals and gold trading businesses. These sectors are now expected to face tighter supervision and risk-based monitoring in the coming months.

Officials involved in the discussions also noted a widening gap between public perception and the actual status of Nepal’s international compliance efforts. According to them, rumors suggesting that FATF itself had directly intervened or that Nepal was nearing blacklisting were exaggerated. Instead, they argued that international monitoring bodies have acknowledged Nepal’s recent progress, especially in improving coordination mechanisms, suspicious transaction reporting and institutional oversight.

Nepal was placed on the FATF grey list after concerns emerged over weaknesses in anti-money laundering enforcement, investigation efficiency and prosecution effectiveness. Although the country had made commitments through legal reforms, international evaluators concluded that practical implementation remained insufficient. In response, Nepal has accelerated efforts to strengthen financial supervision, regulatory coordination and law enforcement mechanisms.

The government has since introduced multiple directives, reporting systems and coordination frameworks aimed at improving detection and monitoring of suspicious financial activities. Authorities say systems related to information sharing, transaction monitoring and financial intelligence reporting have been upgraded. The Department of Money Laundering Investigation and Nepal Rastra Bank have also intensified investigations into several large-scale suspicious financial activities in recent months.

Nepal Rastra Bank has established a dedicated division focused on identifying financial-sector risks linked to money laundering and illicit transactions. Meanwhile, the Department of Money Laundering Investigation has expanded its investigative and prosecution activities. Officials say these institutional changes are intended to demonstrate measurable progress to international monitoring agencies.

The FATF-linked reform agenda has now become closely tied to Nepal’s broader governance and economic reform discussions. Analysts note that remaining on the grey list for an extended period could damage Nepal’s international reputation, increase compliance costs for banks and discourage foreign investment. Countries on the grey list often face stricter scrutiny from international financial institutions, development partners and cross-border banking networks.

The government’s recently announced reform-oriented agenda has also been interpreted as indirectly supporting Nepal’s grey-list exit strategy. Although the government’s policy documents may not explicitly mention the grey list, several proposed measures related to anti-corruption enforcement, administrative reform, institutional transparency and financial governance align closely with FATF recommendations.

Nepal has committed to implementing seven major reform areas to secure removal from the list. These include improving understanding of money laundering and terrorist financing risks, strengthening risk-based regulation in sectors such as commercial banks, cooperatives, casinos, real estate and precious metals businesses, cracking down on illegal payment channels such as hundi operators and improving investigative and prosecutorial capacity. The country has also pledged to strengthen mechanisms for identifying, freezing and confiscating criminal assets and address technical weaknesses related to targeted financial sanctions against terrorist financing and proliferation financing.

However, experts say some of Nepal’s deepest structural weaknesses remain unresolved. Investigation and prosecution capacity continues to lag behind international expectations, while coordination among federal, provincial and local governments remains fragmented. Questions also persist regarding Nepal’s ability to maintain long-term enforcement consistency beyond temporary reform pressure created by international monitoring.

Finance Minister Dr. Wagle has insisted that the government will leave no effort unused in securing Nepal’s removal from the grey list. During discussions with APG officials, he described the current situation as the accumulated consequence of decades of weak governance and institutional inefficiency. He claimed that the present administration had begun introducing governance reforms capable of producing visible improvements.

Similarly, Law Minister Sobita Gautam reiterated the government’s commitment to strengthening legal coordination, improving institutional effectiveness and expanding international legal cooperation. She noted that Nepal had already signed mutual legal assistance agreements with India and China and planned to expand such agreements further.

Meanwhile, Dr. Bishwo Nath Poudel assured APG representatives that Nepal Rastra Bank remained committed to implementing recommendations received from international regulatory bodies. Discussions between Nepal and APG are also continuing on issues such as risk-based supervision, transparency enhancement, policy strengthening and international reporting obligations under the ICRG framework.

For now, officials maintain that Nepal’s trajectory is improving rather than deteriorating. But international observers appear to be watching closely for evidence that reforms are moving beyond legislation into effective implementation. The coming review cycles are expected to determine whether Nepal can successfully convince global monitoring bodies that its financial governance reforms are credible, enforceable and sustainable over the long term.