FATF Retains Nepal on Grey List, Urgent Reforms Mandated for Financial Stability

The Financial Action Task Force (FATF), the global intergovernmental organization responsible for setting international standards to prevent money laundering and terrorist financing, has once again decided to keep Nepal on its 'grey list' of jurisdictions under increased monitoring. This crucial decision, made during the FATF Plenary meeting held in Paris from June 17-19, 2026, acknowledges Nepal's efforts in some areas but critically highlights that significant strategic weaknesses in its anti-money laundering and counter-terrorist financing (AML/CFT) framework remain unresolved. Nepal was initially placed on the grey list on February 21, 2025. Since then, the Nepalese government, the Nepal Rastra Bank (NRB), and other relevant regulatory bodies have been actively engaged in implementing the comprehensive action plan prescribed by FATF. The recent Paris meeting served as a review of these ongoing efforts. FATF's updated report noted some positive steps, stating, "Since Nepal made a high-level political commitment in February 2025 to work with FATF and APG to strengthen the effectiveness of its AML/CFT regime, Nepal has taken some positive steps to improve its framework by addressing technical deficiencies in its targeted financial sanctions system for terrorist financing and proliferation financing." However, these commendable efforts have not yet been deemed sufficient for Nepal to exit the increased monitoring list, which currently includes 22 countries globally. The primary reason for Nepal's continued inclusion is the incomplete implementation of the comprehensive action plan provided by FATF. An on-site review conducted in January 2026 by the Asia Pacific Group on Money Laundering (APG), FATF's regional body, assessed Nepal's progress. The assessment revealed that while meaningful improvements were observed in 9 out of 15 action points, the remaining 6 points were only partially implemented, indicating a critical gap in execution. Key areas of concern highlighted by FATF include the severe crisis and opaque transactions within savings and credit cooperatives, inadequate regulation of the casino sector, insufficient monitoring of real estate and precious metals transactions, and the persistent challenge of effectively controlling illegal 'Hundi' (informal money transfer) operations prevalent in the country. These systemic vulnerabilities pose significant risks to Nepal's financial integrity and its ability to combat illicit financial flows, potentially impacting its standing in the global financial community. Recognizing the gravity of the situation, Nepal's Parliament has been actively engaged in legislative reforms. On June 19, the National Assembly approved the 'Money Laundering (Third Amendment) Ordinance, 2083,' a crucial step towards enhancing the country's legal framework. Finance Minister Dr. Swarnim Wagle emphasized during parliamentary discussions that this measure was imperative to steer the nation towards financial transparency and safeguard Nepal's international reputation, warning that failure to enact timely legal reforms could have led to Nepal being blacklisted. While policy reforms are being expedited, the gap between policy formulation and effective implementation remains a significant challenge that Nepal must overcome. To facilitate its eventual exit from the grey list, FATF has outlined six specific strategic areas where Nepal must demonstrate immediate and tangible improvements: 1. **Enhanced Risk Understanding:** Strengthen the identification and comprehension of key and emerging money laundering and terrorist financing risks. 2. **Risk-Based Supervision:** Implement effective risk-based supervision for commercial banks, high-risk cooperatives, casinos, precious metals and stones dealers, and the real estate sector. 3. **Control of Illegal Hundi Transactions:** Identify and take stringent action against large-scale illegal Hundi and informal money transfer service (MVTS) networks, ensuring this does not impede legitimate financial access. 4. **Institutional Capacity and Coordination:** Enhance the capacity of relevant bodies responsible for money laundering investigations and improve inter-agency coordination and information sharing. 5. **Increased Investigations and Prosecutions:** Demonstrate a qualitative and measurable improvement in the rate of effective investigations and prosecutions of money laundering cases. 6. **Tracing and Confiscation of Criminal Assets:** Show practical results in tracing, identifying, freezing, confiscating, and, where appropriate, bringing under state ownership assets generated from or used in criminal activities, based on risk profiles. The implications of remaining on the grey list are substantial for Nepal's economy and financial markets. It can negatively impact the country's financial credibility, potentially increasing the cost of international banking transactions and creating hurdles in attracting foreign direct investment (FDI) and mobilizing foreign aid. This status signals to the global financial community that Nepal's financial system carries a higher risk of illicit financial activities, which can deter legitimate international business and investment, thereby affecting economic growth and development. While the path forward is challenging, the recent legislative actions and the government's expressed commitment offer a glimmer of hope. The promptness shown by regulatory bodies and the parliamentary approval of critical ordinances suggest a renewed determination to address these deficiencies. This proactive stance is vital for Nepal to demonstrate sufficient progress in upcoming review meetings and ultimately secure its removal from the FATF grey list, thereby bolstering its standing and trust in the global financial system.

Nepal's automobile sector is currently navigating a significant downturn, experiencing a pronounced slowdown during the first eleven months (Shrawan-Jestha) of the current fiscal year 2082/83. Comprehensive foreign trade statistics from the Department of Customs reveal a substantial contraction in the import of both electric vehicles (EVs) and traditional internal combustion engine (ICE) passenger vehicles, signaling a challenging period for the industry. The primary drivers behind this widespread stagnation are multifaceted, encompassing a persistent financial liquidity crunch, frequent policy adjustments, and a noticeable erosion of consumer purchasing power. These factors collectively create an environment where big-ticket purchases, such as automobiles, become less accessible or desirable for the average consumer, directly impacting sales volumes and import figures. The electric vehicle segment, despite global enthusiasm and domestic policy pushes for electrification, has not been immune to this slump. In the first eleven months of FY 2082/83, Nepal imported a total of 10,849 passenger EVs (including cars, jeeps, and vans), marking a significant 19.59% decrease compared to the 13,492 units imported during the same period in the previous fiscal year (FY 2081/82). The financial outflow for these imports also dropped from NPR 31.55 billion to NPR 25.57 billion, reflecting both reduced volume and potentially shifts in vehicle models or pricing. Delving deeper into EV categories, the most popular segment, comprising electric cars with power capacities ranging from 51 kW to 100 kW, saw imports fall to 6,357 units this fiscal year, down from 7,358 units previously. Similarly, smaller EVs (up to 50 kW) declined from 4,728 units to 3,680 units, and larger EVs (101 kW to 200 kW) saw a reduction from 1,354 units to just 798 units. This broad-based decline across various EV power segments underscores the systemic nature of the current market challenges. The traditional petrol vehicle market has also suffered considerably. Passenger cars with engine capacities between 1000 CC and 1500 CC, typically favored by the middle class, experienced an 18.40% reduction in imports, dropping from 2,347 units in the previous fiscal year to 1,915 units in the current period. In monetary terms, the value of these imports plummeted by 25.93%, from NPR 2.73 billion to NPR 2.02 billion. This parallel decline in both EV and petrol vehicle imports clearly indicates that the market slowdown is not confined to a single technology but is a pervasive issue affecting the entire passenger vehicle sector. Even efforts to electrify public and commercial transport have faced headwinds. Despite ongoing initiatives, the import of electric microbuses and minibuses has shown an unexpected lack of enthusiasm. Imports of 11-14 seater EV microbuses decreased by 32.46% to 1,236 units from 1,830 units. Similarly, 15-25 seater EV minibuses saw their imports halved, from 1,260 units to 635 units. This suggests that while the intent for green public transport is there, market conditions or specific policy hurdles might be impeding adoption. However, there is a notable exception to this trend: three-wheeled electric vehicles. This segment has witnessed an encouraging surge in imports, increasing by 51.72% to 2,247 units from 1,481 units in the prior fiscal year. The value of these imports also rose significantly from NPR 19.21 million to NPR 31.38 million. This growth indicates a robust demand for smaller, more accessible electric vehicles, likely driven by their utility for short-distance public transportation and affordability, catering to a different segment of the market. From a macroeconomic perspective, the contraction in vehicle imports, while signaling a struggling auto sector, has had a silver lining for Nepal's balance of payments and foreign exchange reserves by reducing the outflow of foreign currency. However, this benefit comes at a significant cost. The substantial drop in imports directly translates to a considerable loss in customs revenue for the government, impacting national coffers. Furthermore, the slowdown dampens overall domestic economic activity, affecting a wide array of related industries, including dealerships, service centers, financing institutions, and employment across the value chain. To revitalize this crucial sector, which contributes significantly to the national economy, a more stable policy environment and investment-friendly measures are urgently needed to restore consumer confidence and stimulate demand.

NepaliShareMarket NewsJun 22, 2026