The Financial Action Task Force (FATF) is an international organisation that establishes standards and encourages the successful implementation of legal, regulatory, and operational measures to combat money laundering, terrorism financing, and other risks to the integrity of the global financial system. One of its primary responsibilities is to identify countries with critical gaps in their anti-money laundering and counter-terrorist financing (AML/CFT) frameworks. Countries with substantial weaknesses are put on the “grey list,” indicating that they are being closely monitored but have promised to resolve these concerns within specified periods.
On February 21, 2025, Nepal was placed on the FATF grey list. This decision was made in response to concerns about Nepal’s financial system, which included inefficient regulatory enforcement, insufficient supervision over high-risk sectors like as real estate and cooperatives, and insufficient implementation of AML and CFT regulations. Despite repeated warnings and efforts to improve, Nepal failed to fulfil FATF objectives by the deadline.
The FATF monitors and analyses a country’s efforts to prevent money laundering and terrorism funding via a method known as mutual assessment. These are detailed nation studies that examine the implementation and efficacy of measures to prevent money laundering, terrorist funding, and proliferation finance. The reports are peer reviews, in which individuals from other countries evaluate another country. Mutual assessments give a detailed description and analysis of a country’s AML/CFT system, as well as specific recommendations to enhance it.
In response to being placed on the grey list, Nepal’s Deputy Prime Minister and Finance Minister, Bishnu Prasad Paudel, acknowledged the situation and expressed the government’s commitment to implementing effective measures to meet the criteria set by the FATF. He stated that Nepal aims to be removed from the grey list within the set timeframe by forwarding effective activities to meet the criteria outlined in the FATF’s action plan.
Being on the grey list can have serious consequences for a country, including heightened scrutiny from international financial institutions, a potential drop in foreign investment, and difficulty accessing global financial markets. As a result, Nepal must rectify the highlighted inadequacies as soon as possible in order to reduce the potential consequences.
