Money Laundering Prevention in Nepal: Concept, Stages, Act 2064, FIU and FATF

Money laundering (सम्पत्ति शुद्धीकरण) is the process of making money earned from crime look legal. Criminals hide the source of “dirty money” from corruption, drug trafficking, tax evasion, human trafficking, fraud and similar crimes, so that they can use it openly. Terrorist financing is closely linked, so the two are controlled together as AML/CFT (anti-money laundering and countering the financing of terrorism).

1. Three stages of money laundering

2. Effects of money laundering

• Encourages crime and corruption.
• Damages the reputation and stability of banks and the economy.
• Loss of tax revenue; unfair competition for honest businesses.
• Can lead to international pressure and higher costs for foreign transactions.

3. Legal framework in Nepal

• Asset (Money) Laundering Prevention Act, 2064 (सम्पत्ति शुद्धीकरण (मनी लाउन्डरिङ) निवारण ऐन, २०६४) with its rules, amended several times.
• Related laws: Prevention of Corruption Act 2059, Mutual Legal Assistance Act, Extradition Act, and laws on organised crime.
• The Act makes money laundering and terrorist financing crimes, and allows freezing and confiscation of illegal property.

4. Main institutions

• Financial Information Unit (FIU-Nepal): works within Nepal Rastra Bank; receives and analyses Suspicious Transaction Reports (STR) and Threshold Transaction Reports (TTR) from reporting entities and passes information to investigating agencies.
• Department of Money Laundering Investigation (सम्पत्ति शुद्धीकरण अनुसन्धान विभाग): investigates money laundering offences and files cases.
• Regulators: Nepal Rastra Bank, Securities Board (SEBON), Insurance Authority and others supervise their sectors.
• A national coordination mechanism brings ministries and agencies together on AML/CFT policy.

5. Reporting entities and their duties

• Banks and financial institutions, insurance companies, securities businesses, cooperatives, money transfer companies.
• DNFBPs (designated non-financial businesses and professions): casinos, real estate businesses, dealers in precious metals and stones, lawyers, accountants and others.

Duties:

• Customer Due Diligence (CDD) / Know Your Customer (KYC): identify and verify customers and the real (beneficial) owner.
• Keep records of transactions for the period required by law.
• Report suspicious and large (threshold) transactions to FIU.
• Must not “tip off” the customer about a report.
• Extra checks for politically exposed persons (PEPs) and high-risk customers.

6. International bodies

• FATF (Financial Action Task Force): set up in 1989 in Paris; sets global AML/CFT standards (the 40 Recommendations) and lists high-risk countries.
• APG (Asia/Pacific Group on Money Laundering): regional FATF-style body; Nepal is a member and is evaluated by it.
• In February 2025, FATF placed Nepal on its list of jurisdictions under increased monitoring (“grey list”), asking Nepal to fix strategic weaknesses within an agreed action plan.

7. Ways to strengthen prevention

• Effective KYC and risk-based supervision.
• Faster, better investigation and prosecution; confiscating criminal assets.
• Control of cash-heavy sectors (real estate, gold) and informal transfers (hundi).
• Coordination between FIU, investigation agencies, tax and customs.
• Public and staff awareness.

8. Key facts at a glance

9. Stages of money laundering

• Placement: putting illegal money into the financial system.
• Layering: moving it through many transactions to hide its source.
• Integration: bringing it back as clean-looking money.

10. How this topic is asked in the exam

Objective questions ask the three stages, the year of the Act and the bodies involved. Subjective questions ask about the effects of money laundering and why grey listing matters for Nepal.