FATF status

Nepal is on the FATF List of Countries that have been identified as having strategic AML deficiencies

Latest FATF Statement - 21 February 2025

In February 2025, Nepal made a high-level political commitment to work with the FATF and APG to strengthen the effectiveness of its AML/CFT regime. Since the adoption of its MER in August 2023, Nepal has made progress on some of the MER’s recommended actions including streamlining MLA requests and increasing the capabilities of the FIU. Nepal will continue to work with the FATF to implement its FATF action plan by: (1) improving its understanding of key ML/TF risks; (2) improving risk-based supervision of commercial banks, higher risk cooperatives, casinos, DPMS and real estate sector; (3) demonstrating identification and sanctioning of materially significant illegal MVTS/hundi providers, without hindering financial inclusion; (4) increasing capacity and coordination of competent authorities to conduct ML investigations; (5) demonstrating an increase in ML investigations and prosecutions; (6) demonstrating measures to identify, trace, restrain, seize and, where applicable, confiscate proceeds and instrumentalities of crime in line with the risk profile; (7) addressing technical compliance deficiencies in its targeted financial sanctions regime for TF and PF.

Compliance with FATF Recommendations

The latest follow-up Mutual Evaluation Report relating to the implementation of anti-money laundering and counter-terrorist financing standards in Nepal was undertaken in 2023. According to the Evaluation, Nepal was deemed Compliant for 5 and Largely Compliant for 16 of the FATF 40 Recommendations. It was deemed Highly Effective for 0 and Substantially Effective for 0 with regard to the 11 areas of Effectiveness of its AML/CFT Regime.

Corruption in Nepal is described as endemic and institutionalized, significantly impacting government procurement, licensing, and revenue management. The Prevention of Corruption Act 2002 aims to combat these issues, but its enforcement is inadequate, leading to pervasive corruption within the judicial system and among government officials. Despite the existence of anti-corruption laws, there are no specific regulations addressing conflicts of interest in contract awards, and foreign companies face challenges due to widespread corruption that raises business costs.

Nepal's economy, with an annual GDP of approximately USD 53.81 billion, faces significant challenges due to political instability, corruption, and bureaucratic inefficiencies, which hinder foreign investment despite the country's potential in sectors like energy and tourism. While foreign direct investment has been increasing, the government's commitment to attracting investment has not yet resulted in substantial improvements in the business environment. The recent ratification of the Millennium Challenge Corporation's Compact aims to enhance infrastructure and energy sectors, potentially fostering economic growth.

Nepal's investment climate is challenged by political instability, corruption, and bureaucratic inefficiencies, which have historically deterred foreign investment despite the government's stated commitment to attracting it. However, there has been a recent increase in foreign direct investment, particularly from the U.S., which constitutes about 3.2% of total FDI stock. The Millennium Challenge Corporation's Compact, focusing on energy infrastructure, is expected to enhance economic growth and investment opportunities in the country.