Nepal Unlikely to Exit FATF Grey List Without Proof of Asset Seizure: Finance Minister

Nepal will struggle to exit the Financial Action Task Force (FATF) grey list unless it can demonstrate concrete progress in seizing assets linked to money laundering crimes, Finance Minister Rameshore Khanal said on Wednesday.

Although Nepal has enacted laws allowing the seizure and confiscation of assets obtained through money laundering, implementation has been weak, Khanal said, adding that international watchdogs are seeking tangible evidence of enforcement rather than legal provisions alone.

Nepal was placed on the FATF grey list for the second time in February 2025 after the global anti-money laundering body found deficiencies in the country’s compliance with several key standards.

Inclusion on the grey list can lead to reduced international financial assistance and development support, particularly affecting low-income countries that rely heavily on external aid. It can also make international banks reluctant to provide services to businesses from grey-listed countries, increasing transaction and trade costs.

Speaking at a programme organised by the Department of Money Laundering Investigation, Khanal said the amended law on freezing, controlling and confiscating crime-related assets allows the government, with court approval, to seize such property. However, he admitted that enforcement under the law has remained weak.

According to Khanal, both the FATF and the Asia/Pacific Group on Money Laundering (APG)—the regional body responsible for evaluating Nepal—are demanding proof of asset control and confiscation.

“APG officials have repeatedly said that Nepal’s progress in this area is unsatisfactory, which is why exiting the grey list has become difficult,” Khanal said. “They have asked investigative, prosecutorial and enforcement agencies to present evidence, but we have so far failed to do so.”

Khanal said that when cases involve both money laundering and related financial crimes, the assets derived from such offences should be seized immediately and transferred to state ownership, including through sale by the government where necessary.

“Our progress in this area is weak,” he said. “FATF and APG representatives continue to raise concerns, saying Nepal has never shown satisfactory progress on asset confiscation.”

He said Nepal could exit the grey list quickly if it is able to present credible evidence of asset seizure in money laundering cases to the international community.

Khanal also warned that Nepal remains on the grey list not only due to weak asset confiscation but also because of insufficient assessment and mitigation of risks within the financial system. He stressed the need to identify sector-specific risks and take proportionate action.

While commercial banks face relatively fewer issues, Khanal said oversight remains weak in cooperatives, microfinance institutions and finance companies.

“Unless we control money laundering risks in these institutions, exiting the grey list will not be possible,” he said.

He also flagged vulnerabilities in the capital market, saying money laundering activities are being carried out through various methods—some opaque and others seemingly transparent but designed to evade regulatory scrutiny. He stressed the need to strengthen regulatory bodies to detect such practices.

At the programme, Minister for Industry, Commerce and Supplies Anil Sinha said removing Nepal from the grey list is not the responsibility of a single agency but requires coordinated efforts across the entire state mechanism.

“All agencies must implement the action plan systematically and improve performance,” Sinha said. “An internal action plan and better execution are essential.”

Deputy Governor of Nepal Rastra Bank, Bam Bahadur Mishra, said money laundering risks in the banking sector could have significant macroeconomic consequences. He noted that Nepal has begun its third national risk assessment and stressed the need to complete it within the stipulated timeframe.

Director General of the Department of Money Laundering Investigation Gajendra Kumar Thakur said combating money laundering is a collective responsibility involving more than 50 government agencies and over 80,000 reporting institutions.

Thakur warned that between 3 and 5 percent of gross domestic product could be linked to risks associated with terrorist financing and illicit transactions. He cited Nepal’s cash-based economy, large informal sector, weak regulation of modern financial systems, shortage of skilled manpower and technology, and poor enforcement despite existing laws as key challenges.

He also identified real estate and gold trading as high-risk sectors and called for a risk-based supervisory approach, legal reforms, stronger inter-agency and international coordination, use of modern technology to combat financial crimes, integrated information-sharing systems, regulation of the digital economy and stricter control of cybercrime.