The recent rise in dubious financial transactions has posed a risk to the country’s financial health lately. Nepal Rastra Bank (NRB) reported 7,338 such cases in the fiscal year 2023/24, an increase of 24 percent as compared to the previous year. The Financial Information Unit Nepal (FIU-Nepal) received 1, 403 more suspicious cases from Banks and financial institutions (BFIs) in the same review year, as compared to the previous year. Despite the rise in such cases, NRB investigated just 1,635 transactions, a mere 22 percent of the total. Of these, 889 of the cases were referred to government agencies for investigations. The issue has grown substantially over the last half-decade, with reported cases rising nearly tenfold from a mere 787 during 2018/19. Many financial analysts claimed that the failure to control such transactions has landed Nepal in the grey-list of the Financial Action Task Force (FATF), which identified several weaknesses in Nepal's financial monitoring system. One of the major reasons for the increase in suspicious financial acts is the complexity in regulations and a lack of proper legal enforcement. Even though NRB has integrated 1,639 government entities into the goAML system to keep an eye on doubtful transactions, the issue is far from being addressed.
Most financial crimes and money laundering remain undetected or unsolved due to a lack of proper oversight mechanisms. The current system demands reporting of high-value cash deposits, cross-border transfers, foreign currency exchange, and high-value insurance policies, but loopholes persist. Improper or low investigation capacity and possible political interference make it difficult to act against all offenders. Dubious financial transactions not only taint Nepal’s reputation within the global financial system, but also discourage foreign investment and reduce economic stability and vibrancy. When Nepal was placed on the grey list in February by the FATF, it charged Nepal that the country was not doing enough to combat financial crimes. These allegations will result in international banking restrictions as well as additional scrutiny of the transactions originating from Nepal. It would become more difficult for firms to operate globally while increasing the cost of remitting money back home. To combat this problem, Nepal needs a strong and transparent system of financial oversight along with a commitment to punish any offenders. For this, the NRB and FIU-Nepal must have a better investigative capacity. While 22% of cases are being questioned, most suspicious transactions are left uninvestigated, which requires hiring additional money laundering experts, enhancing analytical tools, and coordinating among various agencies. A quick legal action against all offenders without caring about any political interference is required. Additionally, Nepal needs to enhance its technological infrastructure for identifying financial crimes. The goAML system needs to be upgraded constantly to identify advanced fraud techniques.
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Meanwhile, data analysis and the use of artificial intelligence for monitoring illicit transaction patterns will help locate culprits. Financial literacy and public awareness need to be enhanced as many individuals become unwitting participants in illicit transactions due to their ignorance of financial laws. Nepal must continue to work with international agencies such as FATF in adopting best practices in financial surveillance. Unless Nepal acts quickly, it cannot avoid strict international monitoring. The country, therefore, needs to strengthen its surveillance and technology and support accountability as well as build cooperation for having a financial system that is trusted nationally and internationally. The time to act is now, before any suspicious financial acts lead the country into further troubles.
