Releasing suspicious funds 'may hit nation's credibility'

Published On: February 8, 2018 06:50 AM NPT By: Republica  | @RepublicaNepal

Even minor action by FATF may cause difficulties in opening letter of credit (LC) for importing goods.

KATHMANDU, Feb 8: Allowing businessman Ajaya Raj Sumargi to use the money received from suspicious sources may prove costly for the country. The country faces the prospect of being at least included in the 'watch-list' countries by the Financial Action Task Force (FATF) and this could put the image of the nation at stake, according to an economist and former officials of the Nepal Rastra Bank. FATF is a Paris-based body to examine and develop measures to combat money laundering and terrorist financing.
The Supreme Court on Tuesday issued an interlocutory stay order in favor of businessman Ajaya Raj Sumargi, allowing him to use Rs 2 billion which was transferred from a foreign bank and subsequently frozen by Nepal Rastra Bank.
Knowing the customers, identifying any suspicious amounts in its accounts and reporting amounts above set threshold (which is Rs 1million in Nepal) to the regulatory authorities are the basic tasks of banks and financial institutions according to anti-money laundering laws. Nepal is member of FATF and Asia/Pacific Group on Money Laundering and therefore it is primary duty of the government to stop suspicious funds until the source is identified.  

"The act of releasing suspicious funds may lead to Nepal being put in the watch-list among other categories and such actions will have other implications for the country," said a former staffer of the Nepal Rastra Bank having knowledge about the anti-money laundering initiatives. 

The other categories may vary from grey, dark grey or black list and the country could be put into the watch-list or even blacklist. 

Depending on the gravity of the issue, FATF or its subsidiary Paris-based International Co-operation Review Group (ICRG) will decide what action to take actions a country, said the staff.
Various firms including the Nepal Satellite Telecom owned by Sumargi had brought a total of Rs 12 billion from tax haven countries like Cyprus and British Virgin Island as foreign investment to Nepal. Of the Rs 12 billion, Sumargi has already used Rs 8 billion before the issue came into notice of regulatory agencies.
Another former staff of NRB talking to Republica echoed similar concerns. "Releasing  suspicious funds, whose sources have not been established, may lead to even blacklisting by FATF or ICRG," said the former staffer.
Even minor action by FATF may cause difficulties in opening letter of credit (LC) for importing goods or the country concerned might have to pay additional fees and charges for opening an LC and these will make imports expensive, according to the former NRB officials. 

"When LC can't be used all imports have to be made using cash," one of the former official said.
Economists and former ambassador to USA Shankar Sharma said if Nepal is put into watch-list by FATF, Nepal's all banking transactions will be under suspicion globally. "Nepal's goodwill and credibility will suffer globally," added Sharma.  

Nepal had to close its Citibank account in 2013

In 2013, when Nepal was dillydallying in passing laws on anti-money laundering, Nepal had to close its bank accounts at US-based Citibank. The bank had requested the government of Nepal to close its bank account as Nepal was put under monitoring by the FATF. Following the request by the reputed bank, Nepal had to opened its account at another small US bank, according to Nepal's former ambassador to US, Shankar Sharma. 

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