Why Nepal Remains on the FATF Grey List Despite Legal Reforms

Nepal faces a test of enforcement, not just legislation

Nepal remained on the Financial Action Task Force's grey list after its June 17–19, 2026 plenary in Paris, with investigators, prosecutors and financial regulators still under pressure to show stronger results against criminal money. The country returned to increased monitoring on February 21, 2025, more than a decade after leaving an earlier monitoring process in June 2014.

The central problem is the gap between changing laws and making them work. A regional assessment based on a January 2026 review found meaningful progress on nine of Nepal's 15 action plan items, while six were only partially implemented. Nepali officials say they have made further improvements since that assessment.

Financial intelligence reporting has grown rapidly. Nepal Rastra Bank's Financial Intelligence Unit received 9,565 suspicious transaction and activity reports in fiscal year 2024–25, compared with 7,338 a year earlier. Yet FATF continues to seek more investigations, prosecutions and recovery of criminal assets, alongside stronger supervision of businesses vulnerable to abuse.

For households receiving money from relatives abroad and businesses paying overseas suppliers, the consequences can be practical: more requests for documents, longer processing times and higher banking costs. Nepal's challenge is to strengthen financial safeguards while keeping legitimate payments accessible.

What increased monitoring means

FATF sets international standards against money laundering, terrorist financing and proliferation financing. Money laundering means disguising money earned through crime so that it appears legitimate. Terrorist financing concerns funding terrorist activity, while proliferation financing concerns funding the spread of weapons of mass destruction.

The organisation's Nepal country record identifies February 21, 2025 as the date Nepal entered increased monitoring alongside Lao PDR. Countries in this process commit to addressing weaknesses through an agreed action plan and regular reviews.

Foreign banks may respond by examining Nepalese transactions more closely. A correspondent bank, which helps another bank make payments internationally, may request additional information about customers, the purpose of a transfer or the origin of funds. That adds work for banks and customers alike.

Nepal remains connected to international finance under increased monitoring. The immediate pressure comes through closer scrutiny and the commercial decisions of banks and investors. During meetings in Kathmandu in May, an Asia/Pacific Group on Money Laundering delegation warned that continued shortcomings could expose Nepal to a more serious listing.

How Nepal returned to the list

Nepal belongs to the Asia/Pacific Group on Money Laundering, or APG, which assesses members against FATF standards. FATF's mutual evaluation page identifies Nepal's APG membership and directs readers to its regional assessment.

The assessment published in January 2024 examined both compliance with FATF's 40 Recommendations and the effectiveness of Nepal's system. Its findings reflected an inspection conducted from December 5 to 16, 2022. Later reviews tracked efforts to correct the weaknesses.

• June 27, 2014: FATF recognised Nepal's progress and removed it from its earlier monitoring process.
• December 5–16, 2022: Assessors conducted the inspection underpinning the evaluation published in January 2024.
• February 21, 2025: Nepal entered increased monitoring again and committed to reforms with FATF and APG.
• January 2026: A progress review formed the basis for APG's assessment of nine items showing meaningful progress and six showing partial implementation.
• May 2026: An APG delegation visited Kathmandu, and FATF published a technical compliance follow-up on May 22.
• June 19, 2026: Nepal remained under increased monitoring following the Paris plenary.

The May follow-up concerned technical compliance, meaning whether laws and formal arrangements meet the standards. The June decision also reflected the wider demand for effective supervision, investigations and enforcement.

What FATF wants Nepal to deliver

FATF's reform agenda concentrates on how Nepal understands financial crime risks, supervises vulnerable sectors, disrupts illegal transfers and pursues criminal wealth. Regulators are expected to focus their attention where the risks are greatest, rather than apply the same level of scrutiny everywhere.

Commercial banks, cooperatives with greater exposure to abuse, casinos, real estate businesses and dealers in precious metals and stones are among the sectors drawing attention. Each can offer ways to move or store large sums, making checks on customers, ownership and the origin of money particularly important.

Illegal money or value transfer services, commonly called hundi in Nepal, are another priority. These networks can move value between countries without an ordinary bank transfer connecting the sender and recipient. FATF wants Nepal to identify and sanction significant illegal providers while protecting access to legitimate financial services.

Investigators must also follow the money after identifying an underlying crime. Authorities are being asked to identify assets, trace their ownership, prevent their disposal, seize them and seek confiscation where the law allows. Confiscation is the legal process through which criminal property is permanently taken away.

Nine items showing meaningful progress out of 15 amounts to 60 percent of the action plan. The remaining six represent 40 percent. Those figures describe APG's assessment of progress, rather than a count of reforms fully completed, which helps explain why Nepal remained listed despite advances.

Why investigative powers are under scrutiny

Nepal changed its investigative arrangements in April 2024, authorising 13 offices to investigate money laundering linked to crimes within their responsibilities. These included offices associated with Nepal Police, the Commission for Investigation of Abuse of Authority, revenue investigators, forest authorities and national parks authorities.

The arrangement connected money laundering inquiries to investigations of predicate offences. A predicate offence is the crime that generates the money, such as bribery, trafficking or tax evasion. Investigating both together can help authorities connect criminal activity with the property bought using its proceeds.

The April changes restricted the Department of Money Laundering Investigation's ability to independently register and investigate new cases under that arrangement. An ordinance issued on May 1, 2026 restored authority over specified offences, including smuggling, customs and tax evasion, banking crimes, market manipulation, insider trading and foreign exchange violations.

APG Deputy Executive Secretary David Shannon's delegation questioned the rationale for changing the arrangements again and whether investigators, regulators and prosecutors had been sufficiently consulted. The delegation also raised concerns about institutional interference, weak coordination and the handling of criminal assets.

The practical issue is whether agencies can share information and pursue cases without uncertainty over responsibility. Repeated changes in authority require clear working arrangements so that evidence, financial intelligence and prosecution decisions move between the right offices.

More suspicious reports, but pressure for court results

The Financial Intelligence Unit's annual figures show a sharp increase in alerts: 5,335 suspicious transaction and activity reports in fiscal year 2022–23, 7,338 in 2023–24 and 9,565 in 2024–25. The latest annual increase was 2,227 reports, or 30.34 percent.

Commercial banks submitted 7,303 reports in 2024–25, roughly 76 percent of the total. Development banks submitted 708, securities brokers 491, finance companies 355 and insurance companies 244. Cooperatives submitted 36 and casinos two, despite both sectors receiving attention in the reform agenda.

A suspicious report alerts the intelligence unit to activity requiring examination. Investigators then need to establish where the money came from, whether a crime occurred and whether evidence supports prosecution. That process requires financial records, cooperation between agencies and staff able to analyse complicated transactions.

Police spokesperson Abi Narayan Kafle said Nepal Police had filed 21 money laundering cases in court and had another 36 under investigation. Police also described a separate financial crime division within the Central Investigation Bureau and parallel money laundering inquiries alongside investigations into major crimes.

FATF's demand is for a stronger chain of results: useful alerts, well supported investigations, prosecutions and recovery of criminal property. The number of reports shows how much information is entering that chain; enforcement outcomes show what authorities can do with it.

Why cash and informal transfers complicate investigations

Nepal's widespread use of cash makes financial investigations harder. Agricultural earnings, daily wages, small shops and household transactions often leave fewer records than salaries or purchases paid through a bank. Investigators must reconstruct those money flows when checking whether wealth has a lawful origin.

The open border with India creates further challenges for monitoring cash, gold, foreign currency and goods. Hundi networks can also separate the movement of money from the records that normally help authorities identify senders, recipients and the purpose of payments.

Property transactions present another difficulty when the amount recorded in official documents differs from the amount actually paid. Shell companies, which can hold assets while concealing the people ultimately controlling them, create additional work for investigators trying to identify owners.

For ordinary customers, a risk based approach means checks should reflect the nature and size of a transaction. Banks may seek evidence for unusually large deposits, major property dealings or transfers that do not fit a customer's known income. Basic records for substantial purchases, business earnings and property sales can help explain legitimate funds.

FATF's instruction to tackle illegal transfers without hindering financial inclusion matters here. Rural households and workers abroad need affordable, accessible formal services. Stronger enforcement works better when those customers can use lawful channels without unnecessary difficulty.

What the listing changes for families and businesses

A worker sending earnings home may face requests for more information about employment or the recipient. An importer may need additional documents before an overseas bank processes payment. A prospective investor may spend longer obtaining compliance approval before committing funds.

Foreign banks can also reconsider relationships that they judge costly to monitor. When a bank reduces or ends such relationships, Nepalese institutions may face fewer payment routes or more expensive services. These costs can reach customers through fees and delays.

Development financing faces scrutiny too. Officials have warned that international lenders could attach stricter conditions or reduce assistance. Decisions on particular loans depend on the institutions involved; no specific reduction in assistance was identified in the June review accounts.

Nepal's economic interest therefore extends beyond securing removal from a list. Better supervision and reliable investigations can protect depositors, help legitimate businesses explain their transactions and make it easier for foreign partners to assess risks.

What comes next, and what comparisons show

Nepal's action plan was described during the May review as allowing two years from February 21, 2025, pointing to February 2027. The account of the June plenary describes a target extending toward mid-2027. A single confirmed completion date is not clear from those accounts.

Mahesh Acharya, chief of the finance ministry's Financial Sector Management and Corporation Coordination Division, described Nepal's response after the APG discussions:

"The Nepali side also expressed commitment to implementing the action plan effectively," Acharya said.

Other countries show that the list changes as assessments advance. The Philippines left increased monitoring in February 2025, when Nepal entered. Croatia and Mali left in June 2025, followed by Mozambique, Nigeria and South Africa in October. Bosnia and Herzegovina and Iraq were added in June 2026.

The British Virgin Islands entered increased monitoring in June 2025, a relevant example in debates about wealthy offshore centres. FATF examines legal safeguards and their effectiveness, including whether authorities can identify owners and investigate criminal funds. Nepal's immediate task is similarly concrete: demonstrate stronger supervision, coordinated investigations and recovery of criminal assets.

Key Points

• Nepal remained on the FATF grey list after the June 17–19, 2026 Paris plenary.
• APG found meaningful progress on nine of 15 action plan items, with six partially implemented, based on a January 2026 review.
• Suspicious transaction and activity reports rose to 9,565 in fiscal year 2024–25, an increase of 30.34 percent.
• Nepal Police reported 21 money laundering cases filed in court and 36 under investigation.
• FATF is seeking stronger supervision, action against significant illegal hundi providers, more prosecutions and better recovery of criminal assets.
• Closer international banking scrutiny can add documentation, delays and costs for legitimate Nepalese transactions.