KATHMANDU, June 23: Nepal has failed to exit the Financial Action Task Force (FATF) grey list this year due to inadequate progress in strengthening its legal and institutional framework to combat money laundering and terrorist financing. The country remains under FATF's "increased monitoring" regime in 2026 after falling short in effectively implementing laws and regulatory mechanisms needed to curb illicit financial activities.
Although Nepal was formally placed on the grey list in 2025 and has since undertaken some legal and institutional reforms, FATF concluded that the measures have not produced the expected results. In its latest report released this week from Paris, FATF noted shortcomings in Nepal's anti-money laundering system, capacity to investigate and prosecute financial crimes, efforts to curb illegal hundi transactions, and risk-based supervision mechanisms.
FATF, an intergovernmental body established at the initiative of the G7 nations, sets global standards to combat money laundering, terrorist financing and other illicit financial activities. The report acknowledged that Nepal has addressed some technical deficiencies related to financial sanctions targeting terrorist financing and the proliferation of weapons of mass destruction.
However, FATF identified six key areas requiring further improvement. It urged Nepal to strengthen its identification and management of terrorist financing risks and ensure effective risk-based supervision of commercial banks, high risk cooperatives, casinos, dealers in precious metals and stones, and the real estate sector.
FATF’s Grey List: A Wake-Up Call for Nepal
The report also called on Nepal to identify and take legal action against operators involved in illegal money transfer services and hundi transactions without undermining financial inclusion. It recommended enhancing the capacity of relevant agencies to investigate money laundering cases and improving coordination among institutions.
Nepal has also been asked to significantly increase both the number and effectiveness of money laundering investigations and prosecutions. FATF stressed the need for stronger mechanisms to identify, trace, freeze, seize and confiscate criminal proceeds and assets used in criminal activities in line with the country's risk profile.
Nepal was placed on the grey list for a second time last year after failing to effectively implement laws and institutional mechanisms required under international standards. The country was first grey listed in 2008 and was removed in 2014 following a series of reforms.
The FATF's regional partner, the Asia Pacific Group (APG), has repeatedly pointed to weaknesses in Nepal's efforts to combat corruption, tax evasion, hundi transactions, cryptocurrency related crimes, human trafficking and arms smuggling. It has recommended reforms in more than three dozen areas.
In February 2025, Nepal made a high-level political commitment to FATF and APG to strengthen its anti-money laundering and counter terrorist financing framework. Since then, the government has initiated several legal reform measures, though implementation has remained weak.
Authorities have sought amendments to 16 laws related to money laundering prevention and the promotion of a better business environment. These include the Export Import Act, Tourism Act, Nepal Rastra Bank Act, Human Trafficking and Transportation Control Act, Cooperatives Act, Foreign Investment and Technology Transfer Act, Insurance Act, Organized Crime Prevention Act and the National Penal Code. However, many of the proposed reforms remain incomplete.
Successive governments have repeatedly pledged to remove Nepal from the grey list. The government led by the Rastriya Swatantra Party (RSP), which holds a two thirds majority, has also identified the issue as a priority. Finance Minister Swarnim Wagle has pledged to pursue the legal and policy reforms necessary for Nepal's removal from the list. Yet the pace of reform has fallen short of expectations, leaving the country on the grey list for another year.
According to economists, grey listed countries face greater scrutiny in international financial transactions and higher compliance costs. The designation can make it harder to attract foreign investment, increase remittance transaction costs, complicate international banking operations and create incentives for illegal hundi activities. It may also affect assistance and investment from multilateral institutions such as the International Monetary Fund and the World Bank.
Before placing Nepal on the grey list, FATF had identified 40 areas requiring improvement. Under Nepal's Anti Money Laundering Act, authorities are required to investigate and take action against individuals who conceal the source of assets obtained through tax evasion, terrorist activities or other illegal means.
Since February 2026, FATF has reviewed progress in Algeria, Angola, Bolivia, Bulgaria, Cameroon, Côte d'Ivoire, the Democratic Republic of the Congo, Haiti, Kenya, Laos, Lebanon, Monaco, Namibia, Nepal, South Sudan, Syria, Venezuela, Vietnam, the British Virgin Islands and Yemen. All remain under increased monitoring.
