A latest study has revealed that many commercial and development banks operating in the country do not assess money laundering risks at every transaction. The study conducted jointly by Fintelect, an India-based research firm, and the National Banking Institute found that only 41 percent of banks review money laundering risks at every transaction. The study also found that 35 percent of the banks have never carried out an anti-money laundering risk assessment.

Money laundering has long posed a threat to different countries, as the practice of concealing assets obtained through illegal means breeds corruption and threatens financial stability. Lately, terror financing, closely related to money laundering, has also emerged as a major threat, as it results in loss of human lives and impacts tourist flow and investment.

Since many criminals use financial institutions as conduits to transfer ill-gotten wealth, banks should remain vigilant of these activities and maintain a robust system to counter threats. But many banks in Nepal lack technology and human resources to flag suspicious transactions.

The study found that 55 percent of banks are relying on manual processes to identify suspicious money laundering activities, while 70 percent of banks are operating with a team of five or fewer anti-money laundering compliance professionals.

If banks continue to operate in this manner, they will not only lose credibility here, but tarnish the entire banking sector’s image abroad. This may prompt foreign financial institutions to blacklist Nepali banks, pushing up transaction costs. It may also reduce the flow of foreign investment into the country, as genuine investors do not want to work in nations where anti-money laundering compliance is weak.

It is well known that the Financial Action Task Force (FATF), a global body that creates standards for fighting financial crime worldwide, removed Nepal from its watch-list in June 2014 after it was satisfied with efforts made by the country to combat financial crimes, such as money laundering and terror financing.

Nepal was removed from the list after it introduced five legislations, namely the Money Laundering Prevention Act, Proceeds of Crime (Confiscating, Seizing and Freezing) Act, Mutual Legal Assistance Act, Organised Crime Control Act and Extradition Act.

The FATF will review Nepal’s performance once again in 2019. Therefore, it is imperative that Nepal create a sound system that can detect money laundering and terror financing. Otherwise, Nepal will be known worldwide as a financially undisciplined country.