By Our Reporter
Nepal is under renewed pressure from its regional anti-money laundering watchdog, the Asia/Pacific Group on Money Laundering (APG), which has warned that weak progress could push the country from the grey list into the far more damaging blacklist.
An APG delegation led by Deputy Executive Secretary David Shannon recently met senior Nepali officials, including the finance minister, Nepal Rastra Bank governor, police leadership and representatives from key oversight bodies. The message was direct: Nepal has made progress, but not enough, and not fast enough.
The delegation reviewed Nepal’s performance under the Financial Action Task Force (FATF) action plan and found uneven implementation. Officials said Nepal has fully met only nine of 15 required actions, while six remain partially completed. APG also raised concerns that reporting on progress has been weak, not just the implementation itself.
The areas under scrutiny are wide. They include regulation and enforcement in banking, cooperatives, real estate, precious metals, tax evasion, corruption, wildlife crime, human trafficking and the use of shell companies for laundering money. In short, the entire financial enforcement ecosystem is under review.
Nepal was placed on the grey list on February 21, 2025 and has been given a two-year window to correct deficiencies. That period is split into review cycles every four months. The APG has warned that failure to show measurable results could risk a downgrade to the blacklist.
At the heart of the concern is enforcement capacity. The delegation questioned recent legal changes, especially amendments that expanded investigative authority over money laundering cases. Officials said APG is not convinced that these changes were made after sufficient consultation with prosecutors, police and regulators, or that they will improve outcomes.
This is where the system looks complicated. Nepal has tried to distribute investigative powers across multiple agencies, including police, anti-corruption bodies and sector regulators. The idea was to improve efficiency. But APG appears to see fragmentation, weak coordination and limited accountability instead-
The political sensitivity increased further when enforcement decisions intersected with high-profile cases. A recent court decision that removed money laundering and organised crime charges against Rabi Lamichhane, leaving only cooperative fraud allegations in place, has triggered debate. The timing, coming shortly after APG’s warning, has added political heat.
Strictly speaking, a single case does not determine Nepal’s FATF status. But perception matters in compliance regimes. International evaluators look at whether laws are enforced consistently, whether politically exposed persons are investigated without bias, and whether financial crimes lead to meaningful prosecution and asset recovery.
That is where Nepal still faces questions. Officials themselves admit that while suspicious transaction reporting has increased by over 30 percent, investigation and prosecution outcomes have not kept pace. More reports are not enough if they do not lead to convictions or asset recovery.
If Nepal fails to exit the grey list within the deadline, it will face tightening financial scrutiny. Cross-border payments will slow further. Banks may need guarantees from third-country institutions for trade finance. Borrowing costs will rise. Foreign investors will treat Nepal as higher risk. Development partners may impose stricter lending conditions.
The worst-case scenario is blacklisting. That would go beyond inconvenience. International banks could cut correspondent banking ties with Nepali institutions. Access to foreign currency transactions, especially US dollars, could become severely restricted. Trade payments could face delays or fail altogether. Import costs would rise sharply, and inflation pressure would build quickly. In short, Nepal’s financial system would become isolated from global networks.
Former officials and legal experts are already calling for urgency. Some argue that institutional coordination is weak and enforcement bodies remain vulnerable to interference. Others stress that political unity is essential because FATF compliance is not a partisan issue.
The country is not short of laws, agencies or frameworks. It is short on consistent enforcement, coordination and trust from evaluators. The APG warning shows that time is no longer a buffer. It is a countdown.
Even politically sensitive cases like Rabi Lamichhane’s do not define the outcome alone, but they do shape international perception of seriousness and consistency. In FATF terms, perception is part of reality.
Nepal still has a path out of the grey list. But it is narrow. It requires visible results, not just policy updates. And it requires the system to act as one machine, not scattered parts. Otherwise, the warning will stop being a warning. It will turn into a classification.
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