Nepal still on FATF ‘grey list’ for weak action against money laundering

Nepal remains on the Financial Action Task Force (FATF) ‘grey list’ for not doing enough to stop money laundering and terror financing. The FATF, an international body that monitors financial crimes, announced this after its fourth plenary meeting held on Friday.

The statement said Nepal has made some progress, but it still needs stronger and faster reforms. Back in February 2025, Nepal had promised FATF and the Asia Pacific Group (APG) that it would strengthen its system against money laundering.

However, FATF noted that Nepal must take more strategic steps, prepare a clear action plan, and implement it properly. The organization also said Nepal still lacks a full understanding of the risks related to money laundering and terror financing.

According to FATF, Nepal needs to improve monitoring in areas like commercial banks, cooperatives, casinos, jewelry shops, and real estate. It also needs to stop illegal activities like hundi (informal money transfers), strengthen investigation and prosecution, and increase the capacity of its anti-money laundering agencies.

Nepal was placed on the grey list in early 2024 after failing to fully follow anti-money laundering laws. Although Nepal had improved its legal framework, FATF said its implementation and enforcement were still very weak.

This is the second time Nepal has landed on the grey list. The first time was in 2014, but Nepal was removed after making several regulatory reforms and following a clear roadmap.

About three years ago, the Asia Pacific Group conducted an evaluation of Nepal’s system and shared its report with FATF. Based on that, FATF gave Nepal one year of observation from October 2023, identifying 40 areas for improvement. But after little progress during that time, FATF finally placed Nepal on the grey list again.

FATF found that Nepal still faces high risks in the non-financial sector, like businesses not covered under financial laws. It also said Nepal has failed to track funding for terrorist activities and remains weak in investigating such crimes.

Nepal was also advised to show stronger political commitment, allocate more resources, and coordinate between agencies. While some progress has been made, it was not enough to keep Nepal off the list.

Earlier, in 2020, Nepal had conducted a national risk assessment on money laundering and terror financing. The report found that while regulators and private sectors were somewhat aware of the risks, identifying and stopping terror funding was still very difficult.

The report also mentioned that Nepal failed to identify terrorist financing linked with political activities and that non-financial businesses were still outside proper regulation.

Experts warn that being on the FATF grey list can seriously affect Nepal’s economy. It sends a message to the world that financial crimes are increasing in the country. This can reduce global trust, harm international banking relations, and make foreign trade more difficult.

It could also encourage illegal hundi transfers, reduce remittances, and discourage foreign investment and aid. All this could weaken Nepal’s economy and increase the risk of capital flight.

Ultimately, this situation could expand the informal economy and weaken Nepal’s financial stability, creating long-term obstacles for the country’s growth.

Along with Nepal, FATF also reviewed countries like Algeria, Angola, Bulgaria, Burkina Faso, Cameroon, Kenya, Laos, Monaco, Mozambique, Nigeria, South Africa, and Vietnam.

However, Burkina Faso, Mozambique, Nigeria, and South Africa were removed from the grey list after showing improvement. Meanwhile, countries like Bolivia, Haiti, Lebanon, and Yemen were criticized for delaying progress reports.