The Office of Company Registrar has drawn up a draft proposal on anti-money laundering which requires companies to develop a customer identification mechanism and make reporting of purchased goods or services worth over Rs1 million.

The office said it was currently discussing the draft with various government agencies and the private sector. The draft proposal prescribes severe punishment for the companies that fail to develop anti-money laundering mechanism.

The proposal was drafted as the government is racing against time to strengthen its enforcement mechanism of anti-money laundering laws and rules ahead of Mutual Evaluation of Nepal’s Performance by Asia Pacific Group on Money Laundering, a regional anti-money laundering body, in 2020-21. Nepal is a member of this body which evaluates the performance of member countries based on a peer review system.

Faring badly during the evaluation could lead to blacklisting of the company by Financial Action Task Force, a global anti-money laundering body.

International financial institutions would stop conducting transactions with the country which is blacklisted. In the modern banking system, import and export would be shut if any bank rejects transactions.

Although the anti-money laundering law was first introduced in 2008, it took more than a decade for the Company Registrar Office to prepare for issuing directive regarding money laundering and terrorist financing.

“After the government categorically instructed us to issue the directive recently, we came up with the draft of the directive,” said Bhuwanhari Aryal, the registrar.

Aryal said that his office plans to introduce the anti-money laundering directive soon after securing clear direction from the higher authority.

The proposed directive is a part of the government’s recent push to improve the number of deficiencies related to Anti-Money Laundering and Combating Financing to Terrorist (AML/CFT).

Recently, the government unveiled a five-year ‘National Strategy and Action Plan for Combating Money Laundering and Financing of Terrorism,’ which allows anyone accused of financial impropriety to be investigated for money laundering.

This means that any complaint registered with government agencies such as the Commission for Investigation of Abuse of Authority, Nepal Police, Department of Revenue Investigation, and the Department of Foreign Employment, will automatically be up for investigation for money laundering.

The proposed directive says that a company will have to conduct a detailed identification process about the customer (a person or an institution) who has done transactions over Rs2.5million in a day or over Rs10 million in a year. The directive states that such transaction should be considered unnatural and requires detailed customer identification.

According to the proposed directive, failure to maintain a Know Your Customer (KYC) record would also lead to a fine up to Rs10 million and the abolition of the company. A reporting entity should maintain record up to five years since the suspicious transaction or transactions above threshold takes place.

The penalty is as high as Rs10 million for the failure to develop an institutional mechanism including capacity enhancement of employees to deal with money laundering and terrorist financing.

Likewise, a company will face a fine up to Rs1 million for failure to submit a report about transactions above threshold (Rs1 million) and suspicious transactions.

A company which cannot prepare an anti-money laundering policy and one which does transactions with an unnamed company will also face penalty, according to the draft proposal.

The Office of the Company Registrar has proposed different penalty provisions based on the number of times a company violates the directive.

Firstly, the company registrar office can issue a warning notice, followed by denial of the government services and fines.

“The provisions on penalty have been proposed in line with the law,” Aryal said.

The private sector, meanwhile, is uncomfortable with the proposed provision of requiring to maintain KYC for any transactions above Rs1million.

“This will complicate doing business,” said Pashupati Murarka, former president of the Federation of Nepalese Chambers of Commerce and Industry, the apex private sector body, commenting on the draft proposal.