Nepal is holding out its hand after the devastating Bhotekoshi flood. At a recent event in Malaysia where Nepal presented its case for progress on the Financial Action Task Force (FATF) grey list, the assessors, the Asia/Pacific Group on Money Laundering (APG), handed out a poor report card. These two stories, flooding destruction and the grey list, are running side by side in our newspapers. A country that wants the world to trust it with billions must first show it can stop illicit funding. Unfortunately, so far, the progress has been subpar.

Although APG rated bank supervision as sound, almost everything else worried them. They assess that the thorny issues of cooperatives, casinos and real estate remain loosely watched. The Department of Criminal Proceeds Management, created to seize illicit wealth, has produced almost nothing. Investigators keep filing rushed cases that collapse in court. Watchdogs no longer care what laws Nepal passes, but whether the alleged is convicted and illicit wealth is confiscated.

Let’s now link the current grey list scenario with the possible picture for the next two years. Billions of reconstruction funds need to flow through contractors, local governments, land deals, cooperatives and aid groups. Assessors consider some of these channels weak and leaky. Every donor and lender will ask one question: Can this financial resource be tracked, and will theft be punished? The affirmative conviction is clearly questionable for a grey-listed country with few convictions. Worse, if reconstruction funds leak into the same loosely watched sectors, the FATF will see its concerns confirmed in real time.

The financial scrutiny problem runs deeper than aid. Rebuilding the lost hydropower capacity will need private and foreign investors. Research by International Monetary Fund (IMF) economists finds that grey-listing alone cuts capital inflows by an average of 7.6 percent of GDP. Foreign banks and investors do not delay in pricing the risk. Clearly, the challenge for Nepal is that it is requesting capital at the very moment its listing makes that capital more cautious and more costly.

The doomsday prediction is that the blacklist would turn caution into closure. Only North Korea, Iran and Myanmar are on it today, with the FATF asking the world to apply enhanced checks and, in the worst cases, countermeasures such as cutting banking links. Myanmar offers a lesson with its action plan that expired in 2021. A year later, with most tasks undone, it was blacklisted. The FATF now says it will consider countermeasures if Myanmar makes no further progress by October. Worryingly, the watchdog does escalate.

For ordinary Nepalis, blacklisting would be a second disaster, not one caused by nature but by poor governance. Remittances equal about a third of the economy and now also fund flood recovery in countless households. The FATF asks countries not to block remittances, but international banks’ own operational risk management policies require action to address the impending risk. If correspondent banks pull back, the worker in Qatar sending money to a flood-hit family in Nuwakot might have to pay more and wait longer. Many might turn to expensive and risky hundi, the channel the FATF wants closed. That vicious circle would be hard to break.

There is also a political test here. The Gen Z uprising of last September was, at its heart, a revolt against corruption and impunity. The FATF action plan also calls for the same reforms that the protesters demanded. It wants to see the state prosecute the dirty powerful, seize stolen wealth and regulate cooperatives that have swallowed ordinary savings. A government born of that movement should see the grey list not as a foreign burden but as its own mandate, with an international deadline attached. Blaming the political transition no longer works, as the new government has just completed its six months in office.

What must change, and fast? The Prime Minister should take personal charge, as the APG itself requested ministerial leadership. One named minister should answer publicly for all 15 tasks. The reconstruction plan should carry financial integrity from day one. That means transparent procurement, published beneficiary lists, verified ownership of contracting firms, and flood funds kept away from weakly supervised cooperatives. Done well, this would reassure donors and assessors at once.

Investigators and prosecutors need to bring fewer but convincingly stronger cases to see them through. The courts should fast-track money laundering trials. The criminal proceeds department needs staff, legal teeth and public targets, and every rupee it confiscates should be reported openly. Casinos, property dealers, gold traders and cooperatives need inspections, and all wrongdoings must result in penalties. Illegal hundi networks must be hit hard, which is only possible if the formal remittance channels become cheaper than informal ones. Finally, Nepal must document its progress effectively and efficiently. The APG has already complained about the quality of our reports and statistics. Nepal must be cognisant that good work poorly recorded earns no credit.

Nepal outgrew from the grey list once before, in 2014, and surely with the right policies and bold approaches, it can do so again. But the hard truth is that the timing has changed the stakes. Before the floods, the grey list looked like a technical problem for the finance ministry. However, and unfortunately, today it is perched between Nepal and the money it needs to rebuild. When the government goes to its donor conference, the first question in the room may very well be about trust and credibility, with verifiable evidence of progress. The most convincing answer Nepal can offer is a record of convictions and confiscations of illegal and corrupt activities and practices. That work has to start now, not after the pledges arrive.