Rooted with profound history and culture, Nepal is a Himalayan nation that lies between India and China, two of the biggest economies of the world today. As with every other nation, Nepal has had its share of ups and downs. One such state of economic and financial unrest, which Nepal has been facing since a decade, resulting from political and civil conflicts even got Nepal enlisted in the global money laundering watchdog- Financial Action Task Force (FATF)’s grey list.
Walking down the lane of Nepali Civil War that lasted from 1996 to 2006, Nepal had faced a ‘people’s war’ launched by the Maoists to establish a single-party communist republic. Accordingly, low-intensity insurgencies, attacks on poorly armed police, army barracks, transport strike intensification, no provision of fuel or food, violence, mass killing, and migration started happening over the years, which ultimately resulted in a peace deal in 2006 and abolishment of the monarchy in 2007.
What was waiting for Nepal was the challenge of recovering from the economic slack of these years. On the other side, countries around the world were tackling terrorism and FATF, which was founded back in 1989 by the G7 to work against money laundering and had expanded to include terrorism financing as well. Given the scenario Nepal was facing, FATF enlisted Nepal under the ‘grey list’. The Grey list is a warning and a step closer to being enlisted in the blacklist for those countries, which seem unfit or unprepared for supporting terror funding and money laundering activities. The repercussions of being listed in the grey list meant that economic sanctions would be applied from international organizations that would, in turn, affect the country’s external trade, foreign direct investment, correspondent banking, etc.
Economic institutions are one of the primary organizations that play a significant role in shaping the economic growth and stability of a country. In the case of Nepal, the intensity of this greylisting was taken seriously only by economic institutions like the Financial Intelligence Unit (FIU), Central Bank and Ministry of Finance. Nepal lacked financial expertise in compliance with international standards, which was aggravated by the political protests going on at the time. Thus, on account of a formal request sent by the FIU to the International Monetary Fund (IMF), the IMF’s team had to help Nepal in capacity development through its special donor-backed fund. The team helped FIU in four key areas:
• Developing a national strategy
• Drafting new laws and legislation for anti-money laundering
• Strengthening the FIU
• Developing a ‘risk-based’ approach to supervision
Untiring efforts for four years brought back hope in Nepal when it was allowed to continue with the reforms in 2012 during the FATF Plenary meet. Thereon, amendment of laws, drafting of new laws and regulations and dedicated investigation unit were put in action. As a result, in 2014, Nepal was removed from the grey list by the FATF. But tragedy struck again, due to a devastating earthquake in 2015, questioning the progress made over the years.
Where does Nepal stand today?
Resilience and patience are what pay off in the long run but it is also a matter of how long is it going to take and when exactly is the run for the long run going to be over. Reflecting back, Nepal has made significant reforms in making laws and regulations regarding money laundering, tax evasion, corruption, developing systems to detect bank frauds, etc., but heaps of work are yet to be done. Nepal still lacks directives and legislatures and especially falls behind in investigation techniques. Nepal has managed to gear away from the grey list but it is time that it keeps its one eye on growth and improvement and the other on supervision.
 “TIMELINE: Main Events in Nepal’s Maoist War and March to Peace.” Reuters, Thomson Reuters, 14 Apr. 2008, www.reuters.com/article/us-nepal-elections-maoists/timeline-main-events-in-nepals-maoist-war-and-march-to-peace-idUSDEL23817820080414
 Singh, Hemant. “What Are Grey List and Black List of the Financial Action Task Force?” Jagranjosh.com, 25 Feb. 2019, www.jagranjosh.com/general-knowledge/grey-list-and-black-list-of-the-financial-action-task-force-1551079247-1
 “Nepal: Defending Against Money Laundering.” IMF, 2018, www.imf.org/en/Capacity-Development/Comics/nepal-into-and-out-of-the-grey