A delegation from the Asia/Pacific Group on Money Laundering (APG), the regional body of the Financial Action Task Force (FATF), has met Nepali officials in Kathmandu and reminded them of areas where the country has failed to make adequate improvements after being placed on the grey list. The delegation warned that failure to address those shortcomings could put Nepal at risk of being blacklisted, instead of being removed from the grey list.

The two-member delegation, led by APG Deputy Executive Secretary David Shannon, met Finance Minister Swarnim Wagle, senior ministry officials, Nepal Rastra Bank governor Bishwo Nath Poudel, senior central bank officials, the police chief and other stakeholders. During the meetings, the delegation reviewed progress in areas where authorities have been working and pointed out shortcomings in implementation.

Based on conversations Kantipur held with more than six officials involved in the meetings, the APG said Nepal had made limited progress on several commitments outlined in the action plan for exiting the grey list and suggested improvements.

“They are dissatisfied not only with implementation but also Nepal’s inability to properly report the progress already made,” one official who attended the meetings said. “The APG also appears dissatisfied with progress in regulation, investigation and prosecution related to the banking and financial sector, cooperatives regulation, banking offences, real estate transactions, precious metals trading, corruption, tax evasion, human trafficking, environmental and wildlife crimes, and money laundering through shell companies.”

The delegation held a series of meetings with various government agencies from early Tuesday morning. Discussions began at around 8:30am with Nepal Police and other security agencies and concluded at around 6pm with Finance Minister Wagle.

Throughout the day, the delegation held eight separate meetings with senior officials of Nepal Rastra Bank, the Commission for Investigation of Abuse of Authority, members of the parliamentary Finance Committee, the law minister, the foreign minister and other stakeholders. Officials said the APG acknowledged Nepal’s efforts to exit the grey list but stressed that the measures taken so far were inadequate and had not produced sufficiently effective results.

According to one official present during the meetings, the APG said meaningful progress had been made on only nine of the 15 items outlined in Nepal’s FATF action plan, while the remaining six had seen only partial implementation. The assessment was based on a January 2026 review. However, Nepali officials claimed that further improvements had been made on those six partially completed items since January.

Mahesh Acharya, chief of the Financial Sector Management & Corporation Co-ordination Division at the finance ministry, said the APG urged Nepal to intensify efforts to complete the action plan within the two-year timeline.

“The Nepali side also expressed commitment to implementing the action plan effectively,” Acharya said. “The APG delegation said it was willing to provide facilitation and support if Nepal faces difficulties during implementation.”

The APG also raised concerns over recent amendments to Nepal’s anti-money laundering laws introduced through an ordinance.

The government amended the Anti-Money Laundering Prevention Act to allow the Department of Money Laundering Investigation to probe financial crimes categorised as predicate offences under FATF standards.

According to an official present at the meetings, APG Deputy Executive Secretary Shannon questioned whether the amendment had been introduced after sufficient consultation with investigative agencies, regulators and prosecutors, and whether the long-term implications had been properly assessed.

“The law published in the gazette on April 12, 2024 had been introduced following consultations with FATF to strengthen money laundering investigations and prosecutions,” the official said.

“Now the APG is asking why the government again changed the law through an ordinance to allow the department itself to investigate predicate offences. The delegation has raised serious questions over whether consultations were held with the Office of the Attorney General, Nepal Police, the anti-graft agency and other regulatory institutions.”

APG Deputy Executive Secretary Shannon met Inspector General of Police Dan Bahadur Karki on Tuesday to discuss issues related to money laundering. During the meeting, Karki expressed commitment to fulfilling the stipulated conditions and carrying out the measures required for Nepal to exit the grey list, the police headquarters said.

According to police spokesperson Abi Narayan Kafle, Inspector General Karki informed the APG delegation that police investigations have so far led to 21 money laundering cases being filed in court, while 36 cases remain under investigation. He said a separate division has been established within the Central Investigation Bureau to handle financial crimes, and an anti-money laundering and counter-terrorism financing action plan formulated and implemented. Karki also told the delegation that parallel money laundering investigations are being conducted alongside investigations into all major crimes.

Officials who attended the discussions said the APG questioned the intent behind the ordinance and raised concerns over what it described as weak enforcement efforts. According to one joint secretary present at the meetings, the delegation criticised authorities for neglecting certain offences during investigations, failing to show urgency in meeting FATF targets, ignoring confiscation and management of criminal assets, weakening investigations through institutional interference, failing to strengthen investigative agencies and neglecting regulation and monitoring in identified high-risk sectors.

Nepal was placed on the FATF’s grey list on February 21, 2025. FATF then provided the country with a detailed action plan, giving Nepal two years to implement the reforms required to exit the list. The two years have been divided into five four-month phases because FATF holds review meetings every four months.

According to the annual report of Nepal Rastra Bank’s Financial Intelligence Unit for the fiscal year 2024-25, reports related to suspicious financial activities increased by more than 30 percent after Nepal was grey-listed.

The report said authorities received 9,565 suspicious transaction reports and suspicious activity reports during the fiscal year, an increase of 30.34 percent compared to the previous year. Nepal had received 7,338 such reports in 2023-24 and 5,335 in 2022-23.

Commercial banks accounted for 7,303 reports, or 76 percent of the total. Development banks submitted 708 reports, finance companies 355, securities brokers 491, payment service operators and related entities 252, insurance companies 244, remittance companies 100, cooperatives 36, casinos two, and microfinance institutions and government agencies one each.

Debate over investigative authority

Parliament had amended the anti-money laundering law in April 2024 to allow agencies investigating predicate offences to also investigate related money laundering crimes.

Under the revised law, 13 offices related to the Commission for Investigation of Abuse of Authority, the Nepal Police, the Revenue Investigation Department, forest authorities and national parks authorities, among others, were authorised to investigate money laundering cases linked to their jurisdiction.

After the law came into effect, the Department of Money Laundering Investigation was no longer allowed to independently register complaints and investigate such cases unless they related to older cases predating the amendment.

However, on May 1 this year, the government again amended the law through an ordinance, allowing the department to investigate money laundering cases linked to smuggling, customs and tax evasion, securities and commodities market manipulation, insider trading, currency offences, banking and financial crimes, foreign exchange violations and insurance-related offences.

Officials said the APG questioned the rationale behind the latest amendment.

Former officials urge stronger commitment

Khumraj Punjali, former secretary and founding director general of the Department of Money Laundering Investigation, said Nepal had failed to achieve the goals envisioned when the department was established.

“Our initial focus after the law was introduced was on building the institution and managing human resources,” Punjali said. “We did work on policy, administration and investigations, but despite efforts by successive governments, we have not done enough. The grey listing is the result. Now the entire state machinery must work together to prevent Nepal from slipping into the blacklist.”

Punjali said all political parties and state institutions must unite because the issue concerns the country’s international reputation.

“If Nepal ends up on the blacklist, the consequences will not affect only one government or one political party. The entire country will suffer,” he said. “The concerns raised by the APG must be addressed honestly and seriously.”

Former appellate court judge and former anti-graft commissioner Kishor Silwal said Nepal has no alternative but to strictly follow APG directives and FATF guidelines.

According to Silwal, agencies investigating predicate offences must be institutionally strong and free from interference.

“The principle behind allowing agencies investigating predicate offences to also investigate money laundering is that the agency handling the original crime is better positioned to conduct an effective money laundering investigation and prosecution,” he said. “FATF supported that approach because separating investigations between agencies had not been effective in the past.”

Silwal also warned that weak investigations could allow offenders to escape conviction in court.

Economic consequences of grey listing

Experts say remaining on the grey list could have wide-ranging economic consequences for Nepal.

Imports and exports are likely to become more expensive because banks and financial institutions face heightened scrutiny from international partners.

A Nepal Rastra Bank official said traders opening letters of credit may increasingly be required to obtain guarantees from third-country banks. Banks and companies borrowing from abroad may also face higher interest rates.

“As long as Nepal remains on the grey list, inflationary pressure will rise, and foreign investors will think several times before investing,” the official said.

Officials also warned that development partners, including the World Bank, the International Monetary Fund and the Asian Development Bank, could reduce financial assistance or impose stricter conditions on lending.

Bankers say international transactions are already becoming slower and more expensive due to additional documentation and compliance procedures.

“Transactions are not being blocked outright, but each transfer now requires more time and cost, and that burden ultimately reaches customers,” one banking source said.

Analysts say the grey listing has also increased Nepal’s country risk profile, potentially discouraging foreign direct investment.

Experts say the grey listing will not immediately trigger an economic crisis, but could gradually raise costs in banking, trade and investment while weakening Nepal’s access to international financial systems.

What happens if Nepal is blacklisted?

Analysts warn that if Nepal fails to exit the grey list within the extended timeline and eventually falls onto FATF’s blacklist, the consequences would be far more severe.

While grey listing mainly increases scrutiny and compliance burdens, blacklisting could result in international banks cutting ties with Nepali financial institutions altogether.

Foreign investment could sharply decline, and imports and exports could face major disruptions.

International banks could either impose extremely strict conditions on dealings with Nepali banks or terminate correspondent banking relationships entirely. Access to US dollars and other major foreign currencies could become highly restricted, creating serious obstacles in international payments.

Countries on the blacklist are considered high-risk by international financial institutions, making borrowing difficult and expensive. Risk premiums and interest rates could rise sharply, development financing could slow, and supply chains and international trade could face severe disruption.