A couple of important and interrelated issues have arisen in recent weeks for the KP Oli government. How they are handled—and with what urgency—has the potential to inflict a lasting impact on Nepal. On February 21, the Financial Action Task Force (FATF) placed Nepal on its grey list. The country risks being relegated to the dreaded black if no necessary reform is carried out within two years; corruption and money laundering are at the root of it all. At the same time, widespread corruption and a lack of good governance have elevated former King Gyanendra’s popularity to a new height. On March 10, tens and thousands welcomed him at Kathmandu’s airport upon his return from Pokhara.

The FATF is a Paris-based anti-money laundering watchdog established in 1989. In 2001, it expanded its mandate to also combat terrorist financing. The so-called grey list comprises jurisdictions under increased monitoring; there are currently 25 nations on that list, including Nepal, the only South Asian nation. The blacklist consists of high-risk jurisdictions with significant deficiencies to counter money laundering and terrorist financing. Iran, Myanmar and North Korea are the only three countries that have been put on the blacklist. In all, over 200 jurisdictions globally are associated with FATF standards. No member country wishes to be blacklisted. However, Nepal is at risk of being labelled one.

This is not the first time Nepal has been on the grey list. It made the list in 2008 and remained there until 2014. During those six years, in 2014, the Asset (Money) Laundering Prevention Act of 2008 was amended by enhancing the ability to combat money laundering and terrorist financing by incorporating international standards and best practices; regulatory authorities were given additional powers. These were hardly practised, however, as implementation woefully fell short. Serious attempts to thwart black money from being converted into white are lacking. The problem lies in the political leadership, which ensures the bureaucracy is incapacitated to fulfil its duties.

Legislative progress not implemented

Being grey-listed may not bring immediate adverse reactions, but it does telegraph to investors, financial institutions and donor agencies that Nepal has deficiencies in its system. Risks include higher transaction costs, such as in letters of credit, a drop in foreign direct investment and higher hurdles in obtaining loans/grants. The fact that Nepal finds itself grey-listed for the second time reflects successive governments’ inability—and unwillingness—to understand the severity of the issue. Since 2008, when the monarchy was abolished, there have been 13 governments, all cut from the same cloth as far as good governance—or a lack thereof—is concerned.

In its review, the FATF said there is a lack of understanding of money laundering at both the political and regulatory levels. Money laundering is a secondary offence. In the case of tax evasion, for example, the related tax authorities will first investigate and decide if an evasion has occurred. Only then will the Department of Money Laundering Investigation try to find out if and how the ill-gotten money was laundered in the economy. Loopholes are plentiful. Currently, bank customers are not asked to disclose a source of funds for deposits of up to a million rupees. Someone with an intention of hiding the origin of funds can open an account at 10 different banks and layer 10 million rupees.

A lot needs to improve for Nepal not to be labelled black, which essentially amounts to a failed state. As things stand, laws and regulatory bodies are only there symbolically. The Commission for the Investigation of Abuse of Authority, which routinely prosecutes small fries but not the big fish, is highly politicised, while the upper echelons of bureaucracy with years of on-the-job expertise risk getting transferred if they do not toe the line. Over the years, corruption allegations have swirled around all top three leaders—Sher Bahadur Deuba of the Nepali Congress, Oli of the Communist Party of Nepal (Unified Marxist-Leninist) and Pushpa Kamal Dahal of the Communist Party of Nepal (Maoist Centre).

Slogans do about-face in 17 years

A serious political commitment is needed. The government can begin by giving the pertinent authorities free rein to follow the law and investigate and prosecute even the top political leaders. This will set an example and telegraph a message to the likes of FATF that Nepal now means business. Realistically, however, the odds of this happening are negligible. Oli’s 2019 decision to bring the Department of Revenue Investigation, Department of Money Laundering Investigation and Department of National Investigation under the Prime Minister’s Office exemplifies how these leaders are driven by power consolidation. As controversial as this decision was, subsequent Prime Ministers Deuba and Dahal continued it.

In a budding democracy, a ‘nothing can go wrong’ attitude can backfire. How the issue of monarchy has evolved since its abolition should serve a point. Living as a commoner since May 2008, Gyanendra issued a statement on the eve of Democracy Day, February 19, calling for citizens’ support to protect the country and maintain national unity. This has resonated with corruption-weary and disillusioned supporters—both old and new. How times have changed! Seventeen years ago, people took to the streets and chanted ‘down with monarchy.’ Now, the likes of Oli are greeted with slogans such as ‘leave the country,’ even as Gyanendra receives a warm welcome from the crowd, which is getting larger by the day.

The shift in sentiment is palpable. The ruling political elite, which is to blame itself for the reversal in fortunes, is doing its best to shrug it off, belittling monarchy supporters and talking of counter-rallies. This will be unfortunate. Confrontation can easily push the grey-listed country into the throes of a political crisis. To avert one, all powers that be should coalesce to co-exist. The palace is turning out to be a dormant power. History has shown us that it is never easy to let go, but it is also essential to read the tea leaves. Until just a few weeks before the fall of the Panchayat system in April 1990, supporters were taking out rallies; when the time came, it fell like a deck of cards. There is a lesson here somewhere.