The federal government plans to set up a regulator to oversee the trading of precious metals in the country’s bullion market. Government officials say the move aims transparency and eliminating the dubious practice of channelling illegal money into precious metals.

The National Co-ordination Committee formed to co-ordinate with different government agencies to check money laundering, recently recommended the government to appoint a regulator.

The Department of Money Laundering Investigation (DoMLI) Director General Jiwan Prakash Sitaula said, “The committee headed by Finance Secretary recently recommended the government to pick the regulator from among the three agencies— Inland Revenue Department, Department of Revenue Investigation and Department of Commerce and Supply Management.

The Cabinet should decide on the regulator.” Currently, there is no regulator in the bullion sector although transactions run into billions in the market.

Last fiscal year 2017-18, the country imported gold worth Rs31.97 billion and silver worth Rs11.51 billion, according to Department of Customs.

Government officials said information on dubious transaction in the bullion market goes unreported as financial institutions do. Banks report suspicious transactions over Rs1 million to the Nepal Rastra Bank, the regulator of the banking sector. Insurance companies report to Insurance Board and companies listed in the stock exchange report to Securities Board of Nepal. The regulator then submits the details to the Financial Information Unit (FIU) at the NRB that analyses and assess the information received from reporting agencies.

DoMLI Spokesperson Binod Lamichhane said, “The move to appoint regulator in bullion market aims to implement ‘Know Your Customer’. It would identify people who do gold transactions and monitor those who invest illegal earned money in gold. It also aims to follow recommendations of the Financial Action Task Force (FATF), the global anti money laundering body.”

The FATF, the inter-governmental agency, sets standards and promotes effective implementation of legal, regulatory and operational measures to combat money laundering and terrorist financing.

It recommends dealers in precious metals and precious stones should report suspicious transactions when they engage in any cash transaction with a customer equal to or above the applicable designated threshold.

Dealers in precious metals and dealers in precious stones - when they engage in any cash transaction with a customer equal to or above the applicable designated threshold, should maintain customer due diligence.

In line with these recommendations, the Money Laundering Prevention Act stipulates that bullion traders should keep records of customers who do transactions in precious metals worth Rs1 million or above in a day.

In study conducted in 2015, the FATF says gold is an alternative means for criminals to store or move their assets as regulators implement stronger anti-money laundering and counter terrorist financing measures to protect the formal financial sector from abuse.

Besides storing assets in gold, its smuggling is a major problem in Nepal. The authorities recently busted a smuggling racket allegedly led by Chudamani Upreti, aka Gore.

Official estimates peg the racketeers smuggled 3.79 tonnes of gold worth Rs17.01 billion into Nepal in one-and-a-half year period from July 2015 and February 2017.

The value of smuggled gold stood at 61 percent of total legally imported gold during the same period.

The DoMLI investigated how the accused used the money earned from smuggling gold. The department interrogated Gore, Bhujung Gurung and Tsering Wangel Ghale, the three main accused in the smuggling case in June. “The investigation is still going on,” said Lamichhane.