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AML/CTF compliance in Nepal

WHAT ARE THE

Money laundering and terrorism financing laws in Nepal?

In Nepal, money laundering and terrorism financing are serious offenses and are governed by the following laws: Asset (Money) Laundering Prevention (First Amendment) Act, 2068 (2011) and Terrorist and Disruptive Acts (Prevention and Punishment) Act, 2058 (2002), The AML/CFT laws aim to prevent, detect, and penalize money laundering and terrorism financing activities to ensure the integrity and security of the country's financial system.

WHAT ARE THE

Key obligations reporting entities have under Nepalese laws?

  • Customer Due Diligence (CDD): Identify and verify customers, understand their business, and assess their risk.
  • Record Keeping: Keep records of transactions for at least 5 years.
  • Suspicious Transaction Reporting (STR): Report suspicious transactions to the FIU.
  • Internal Policies, Procedures, and Training: Establish and implement policies, procedures, and training to prevent money laundering and terrorism financing.
  • Risk Assessment and Management: Conduct regular risk assessments to develop and implement policies and procedures to mitigate risks.

WHO ARE THE

ML/TF regulators in Nepal and what functions do they perform?

  • The Nepal Rastra Bank: The central bank of Nepal, responsible for formulating monetary and foreign exchange policies, and ensuring stability in the banking and financial sectors.
  • The Securities Board of Nepal: is the regulatory body for the securities market. It develops and enforces regulations for securities trading, including preventing insider trading and other securities-related crimes.
  • The Financial Information Unit (FIU) of Nepal: is an independent unit within the Nepal Rastra Bank. It receives, processes, analyses, and disseminates financial information related to suspected or potential money laundering and terrorism financing activities. It works closely with law enforcement agencies and foreign FIUs.

WHAT ARE THE

Industry sectors subject to ML/TF regulations?

Banks

This refers to all commercial banks, rural banks, and sharia banks. They are required to conduct customer due diligence, report suspicious transactions, and maintain comprehensive records.

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Insurance Companies

All types of insurance providers, including life, general, reinsurance, and sharia insurance companies, fall under the purview of AML/CFT laws. They need to adhere to the same standards of due diligence and reporting as banks and non-bank financial institutions.

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Securities Companies and Capital Markets

Securities underwriters, brokers, dealers, and investment managers, as well as mutual funds. They are obliged to follow AML/CFT regulations in their operations.

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Non-Bank Financial Institutions

Including money remitters, finance companies, credit unions, pawnshops, and leasing companies. Similar to banks, they are also obligated to comply with AML/CFT regulations.

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Larger Financial Institutions

Are more closely regulated due to the higher risks associated with their size and the volume of transactions they handle. This includes larger banks, insurance companies, and other financial services providers.

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WHAT ARE THE

Penalties for non-compliance with AML/CTF laws?

  • Fines:

Financial institutions (FIs): NPR 1 million to NPR 50 million.

Other reporting entities (Res): NPR 100,000 to NPR 10 million

  • Business restrictions: Full or partial restrictions can be placed on the business activities of non-compliant entities.
  • Suspension or cancellation of license: The registration, permission, or license of non-compliant entities can be suspended or cancelled.
  • Other sanctions: Other appropriate sanctions may be imposed as determined by the relevant authorities.

WHAT ARE THE

Largest fines for non-compliance with AML/CTF laws?

As of the time of writing there is only one recorded penalty for non-compliance with AML/CFT laws in Nepal.

In February 2020, 7 individuals were imprisoned and each fined between NPR 70 million and NPR 3.61 billion by Nepal's Special Court for money laundering violations.

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