Co-ops that violate rules to be fined up to Rs50mCooperatives that do not keep adequate information about their members and hold transactions by creating fake accounts will now be subject to cash penalty of Rs1 million to Rs50 million.
Cooperatives that do not keep adequate information about their members and hold transactions by creating fake accounts will now be subject to cash penalty of Rs1 million to Rs50 million.
The Department of Cooperatives has enforced this provision following the introduction of the Directive on Money Laundering Prevention for the Cooperatives. The directive, promulgated two weeks ago, aims to prevent the use of ill-gotten money in the cooperative sector, said the department.
It was formulated as per the provision in the Money Laundering Prevention Act 2008, said Narayan Gyanwali, deputy registrar of the department. “Although cooperatives are expected to self-regulate their work, the directive has been enforced on them to safeguard the interest of general people,” he added.
The directive has made it mandatory for all cooperatives to update the details of their members by mid-April. If members belong to ‘high risk’ category, their details can be updated within nine months from the date of enforcement of the directive, according to the Cooperatives Department. The department has defined ‘high risk’ clients as those who have purchased shares or deposited money in excess of Rs3 million.
“Transactions of these high risk clients must be assessed once every year,” states the directive.
These measures are a part of the ‘know your members’ policy, which is similar to ‘know your customer’ policy adopted by banks and financial institutions.
As per this policy, cooperatives must develop mechanisms for risk management, closely monitor their business activities, identify suspicious transactions, carry out transactions by remaining within the threshold and keep a close eye on annual transactions beyond Rs3 million.
If cooperatives fail to carry out these activities, they will be fined up to Rs3 million, says the directive.
The department has fixed ‘threshold transaction’ of Rs1 million for cooperatives. The limit is applicable while purchasing shares, collecting deposits, issuing loans, and receiving payments from remittance companies and those providing fund transfer services. “Such transactions have to be reported to Financial Information Unit of the Nepal Rastra Bank within 15 days,” Gyanwali said.
The department has also made it mandatory for cooperatives to appoint a separate compliance officer to enforce the provisions of the new directive. The cooperatives need to provide details of the compliance officer to the both the department and the Financial Information Unit of the central bank.
Cooperatives have also been told to develop internal working guideline and report to the regulator every four months. Likewise, cooperatives with assets of Rs50 million or more have to enrol themselves in the government-approved Integrated Management Information System within one to three years depending on their accessibility to the internet.
There are a total of 34,512 cooperatives operating in the country. These cooperatives, according to the department, have collected deposit worth Rs302.2 billion as of 2016-17 and disbursed Rs274.2 billion in loans within the same period.