Money laundering is the process by which criminals disguise the illegal origins of their wealth to avoid suspicion of law enforcement agencies. In Nepal, anti-money laundering measures are primarily governed by the Asset (Money) Laundering Prevention Act 2064 (2008), which criminalizes money laundering and terrorist financing. The Act establishes the Financial Information Unit (FIU) within Nepal Rastra Bank and provides comprehensive mechanisms for prevention, detection, investigation, and prosecution of money laundering offenses. This guide covers the legal framework, definitions, predicate offenses, institutional structures, compliance requirements, investigation procedures, and penalties under Nepali anti-money laundering law.
Legal Framework
Anti-money laundering in Nepal is governed by multiple laws and international instruments:
| Legislation/Instrument | Year | Key Provisions |
|---|---|---|
| Asset (Money) Laundering Prevention Act | 2064 (2008) | Primary law criminalizing money laundering and terrorist financing |
| Asset (Money) Laundering Prevention Rules | 2066 (2009) | Procedural guidelines for implementation |
| Mutual Legal Assistance Act | 2070 (2014) | International cooperation in criminal matters |
| Extradition Act | 2070 (2014) | Extradition of offenders for money laundering crimes |
| Vienna Convention 1988 | Ratified | UN Convention against illicit trafficking in narcotic drugs |
| FATF 40 Recommendations | Adopted | International standards for AML/CFT |
Institutional Framework
| Institution | Role |
|---|---|
| National Coordination Committee | Policy oversight for AML/CFT coordination |
| Financial Information Unit (FIU) | Collection and analysis of suspicious transaction reports |
| Asset Laundering Investigation Department | Investigation and inquiry of money laundering offenses |
| Special Court | Adjudication of money laundering and terrorist financing cases |
| Nepal Rastra Bank | Regulatory authority for banks and financial institutions |
Definition of Money Laundering
Money laundering is the process of washing, cleaning, and converting criminally earned money into legal form. It disguises the illegal origin of proceeds and presents them as legitimately acquired assets. The sources of laundered money typically include:
- Drug trafficking and narcotics dealing
- Bribery and corruption
- Smuggling of gold and goods
- Organized crime
- Tax evasion
- Human trafficking
- Credit card fraud
- Counterfeiting of goods and currencies
- Terrorist financing
Three Stages of Money Laundering
| Stage | Description |
|---|---|
| Placement | Moving funds from direct association with the crime into the financial system |
| Layering | Disguising the trail through multiple transactions to foil pursuit |
| Integration | Making money available to criminals with origins hidden from view |
Acts Constituting Money Laundering
Under Section 4 of the Asset (Money) Laundering Prevention Act, assets shall be deemed to have been laundered when anyone, directly or indirectly:
- Earns from tax evasion or terrorist activities
- Invests in terrorist activities
- Acquires, holds, possesses, or utilizes assets from predicate offenses
- Presents illegally acquired assets as legally earned
- Conceals sources or origin of such assets
- Assists anyone to transform, conceal, or transfer such assets
- Acts to help avoid legal action against persons having such assets
Predicate Offenses
The following offenses are designated as predicate offenses under Section 4 of the Act:
| Category | Offenses |
|---|---|
| Arms & Security | Offenses under prevailing arms and ammunition laws |
| Foreign Exchange | Offenses under foreign exchange regulation laws |
| Drugs | Offenses under drug control laws |
| Serious Crimes | Murder, theft, cheating, forgery, counterfeiting, kidnapping, abduction |
| Wildlife | Offenses under national park and wildlife conservation laws |
| Human Trafficking | Offenses under human trafficking and transportation control laws |
| Financial Sector | Offenses under cooperatives, bank, financial institution, and banking crime laws |
| Environment | Offenses under forest laws |
| Corruption | Offenses under corruption control laws |
| Heritage | Offenses under ancient monument conservation laws |
Additional Predicate Offenses (Gazette Notification)
The Government of Nepal has expanded predicate offenses through gazette notifications to include:
- Consumer protection, black market control, and competition offenses
- Company, commerce, supply, transport, business offenses
- Education, health, medicine, environment offenses
- Foreign employment offenses
- Lottery, gambling, and donation offenses
- Securities and insurance offenses
- Negotiable instruments offenses
- Election offenses
- Intellectual and industrial property offenses
- Communication, transmission, advertisement offenses
- Real estate property offenses
- Custom, revenue, tax offenses
- Immigration, citizenship, passport offenses
- Coercive collection or provision of amounts for terrorism
- Sexual exploitation of children, women, and destitute
- Robbery and looting
- Illegal profession, business, or trade
Terrorist Financing
Under the Act, investment in terrorist activities includes providing or collecting money for acts under the following international conventions:
- Tokyo Convention on Offences on Board Aircraft (1963)
- Hague Convention for Suppression of Unlawful Seizure of Aircraft (1970)
- Montreal Convention for Suppression of Unlawful Acts Against Civil Aviation (1971)
- Convention on Prevention of Crimes Against Internationally Protected Persons (1973)
- International Convention Against Taking of Hostages (1979)
- SAARC Regional Convention on Suppression of Terrorism (1987)
- Any other convention against terrorist activities to which Nepal is a party
Financial Information Unit (FIU)
Section 9 of the Act establishes the Financial Information Unit within Nepal Rastra Bank:
Structure
- Located within Nepal Rastra Bank
- Chief appointed by Governor of NRB from first class officers
- NRB manages staffing requirements
- Acts as secretariat for Coordination Committee
Functions, Powers, and Duties (Section 10)
- Obtain transaction details from government entities, banks, and financial institutions
- Maintain records by scrutinizing submitted details
- Conduct preliminary inquiry when required
- Send suspicious transaction information to Asset Laundering Investigation Department
- Exchange information with FIUs of other countries and international organizations
- Inspect transactions and records of financial institutions
- Obtain information, clarification, and copies of records
- Manage training programs for AML/CFT
- Issue directives to financial institutions on reporting procedures
Coordination Committee
Section 8 establishes a Coordination Committee for AML/CFT policy coordination:
| Position | Role |
|---|---|
| Secretary, Ministry of Finance | Coordinator |
| Secretary, Ministry of Law, Justice and Parliamentary System | Member |
| Secretary, Ministry of Home | Member |
| Secretary, Ministry of Foreign Affairs | Member |
| Deputy Governor, Nepal Rastra Bank | Member |
| Chief, Financial Information Unit | Secretary |
Customer Identification Requirements
Section 6 requires banks, financial institutions, and non-financial institutions to maintain clear customer identification:
Documents Required
| Customer Type | Required Documents |
|---|---|
| Natural Person | Name, family surname, citizenship or passport copy, permanent address, profession/business |
| Legal Entity | Incorporation/registration certificate, name and address of directors/proprietor/partners |
| Representative | Principal's identity, address, power of attorney clarifying business |
| Beneficial Owner | Name, surname, address of close relative or benefiting person/institution |
| Negotiable Instruments | Name, surname, address of issuer and payee |
Reporting Obligations
Section 7 establishes reporting obligations for government entities, banks, and financial institutions:
Mandatory Reporting
- Threshold Transactions: Maintain records of transactions beyond NRB-prescribed limits
- Suspicious Transactions: Investigate transactions appearing doubtful or with money laundering motive
- Reporting Timeline: Inform FIU within 7 days for threshold transactions; immediately for suspicious transactions
- Updated Information: Report immediately if different details are received after initial submission
- Record Retention: Maintain transaction records for at least 5 years
Doubtful Transactions: Transactions appearing improbable economically, commercially, or by business in general situations must be reported to the FIU.
Investigation and Inquiry
Asset Laundering Investigation Department (Section 11)
- Established by Government of Nepal for investigation and inquiry
- Chief is a first class officer of civil service
- Department of Revenue Investigation designated as provisional investigation authority
Powers of the Department (Section 12)
- Issue orders to submit documents, evidence, or details within specified time
- Conduct search operations and seize documents, material evidence
- Summon and inquire officials, staff, or concerned persons
- Release persons on bail, guarantee, or dated attendance
- Keep persons under custody with court permission if bail not provided
- Order freezing of assets at request of foreign nations or international organizations
- Freeze assets related to offenses during inquiry and investigation
Custody for Investigation (Section 17)
- Investigation officer may detain person with warrant if evidence may be destroyed
- If inquiry not completed within 24 hours, court approval required for continued detention
- Maximum detention period: 90 days (not exceeding 30 days at a time)
- Detainee may petition adjudicating officer for release
Freezing of Assets (Section 18)
- Department may order freezing of assets collected by offense
- Order prevents transfer, pledge, or sale/disposal
- Concerned entity must comply with freezing order
- Non-compliance penalty: Up to NPR 50,000 fine to chief of concerned entity
Punishments
Punishment for Money Laundering (Section 30)
| Offender | Punishment |
|---|---|
| Any person or staff of financial institution | Fine equal to amount involved OR imprisonment 1-4 years OR both |
| Office bearer, chief, staff, or public servant | 10% more than above punishment |
| Person assisting, provoking, or causing offense | Half of punishment to principal offender |
Other Penalties
| Offense | Penalty |
|---|---|
| Not submitting documents to FIU (Bank/FI) | NPR 500,000 fine |
| Not submitting documents to FIU (Non-FI) | NPR 25,000-100,000 fine |
| Concealing or destroying evidence | 1-3 months imprisonment OR NPR 50,000-100,000 fine OR both |
| Creating obstacles in investigation | Up to 6 months imprisonment OR up to NPR 5,000 fine OR both |
| Non-compliance with Department orders | Up to NPR 1,000 fine |
| Non-compliance with freezing order (foreigner) | Up to NPR 100,000 fine plus recovery of losses |
Confiscation of Assets (Section 34)
The following assets are subject to confiscation:
- Assets obtained from offense under the Act
- Assets accumulated from proceeds of offense
- Assets utilized for committing such offense
Transfer of Entitlement: If entitlement to confiscated assets has been transferred to someone else with quoted amount, the amount shall be dealt as per deed with security (Kapali).
Burden of Proof (Section 28)
Assets are deemed to have been gained by laundering if:
- Assets are unnatural compared to income source or financial condition
- Person lives at unnaturally high standard
- Person has donated, granted, gifted, loaned, contributed, or endowed more than capacity
- Person is required to prove source of earnings
- Failure to prove source results in assets being deemed illegally acquired
No Statute of Limitations
Section 23 provides that there shall be no limitation to file a case relating to offenses under the Act. This means money laundering cases can be filed at any time without time restriction.
International Cooperation
Nepal is a member of the Asia Pacific Group (APG) on Money Laundering since June 2002. The Act provides for:
- Freezing assets at request of foreign nations or international organizations
- Exchange of information with FIUs of other countries
- Bilateral and multilateral treaty-based cooperation
- Delivery of notices to foreign persons through diplomatic channels
- Mutual legal assistance for investigation and prosecution
Whistleblower Protection and Rewards
Protection (Section 37)
No action shall be taken against government entities, banks, financial institutions, or their staff for providing information to FIU in compliance with the Act.
Reward (Section 45)
- Person making complaint with cooperation in investigation may receive reward
- Amount: 10% of claimed amount OR NPR 1 million, whichever is lesser
- If multiple complainants, amount distributed proportionately
Automatic Suspension (Section 27)
Any official or staff of bank, financial institution, non-financial institution, or civil servant shall be in automatic suspension:
- For the period under custody as per the Act
- For the period until case is decided if case has been filed
Need Legal Assistance?
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Frequently Asked Questions
Money laundering is the process of converting illegally obtained money into legal form by disguising its criminal origins. Under the Asset (Money) Laundering Prevention Act 2064 (2008), assets are deemed laundered when anyone directly or indirectly earns from tax evasion or terrorist activities, acquires or utilizes assets from predicate offenses, presents illegally acquired assets as legally earned, conceals the origin of such assets, or assists others to transform, conceal, or transfer such assets to avoid legal action.
The Asset (Money) Laundering Prevention Act 2064 (2008) is the primary legislation governing anti-money laundering in Nepal. Supporting laws include:
- Asset (Money) Laundering Prevention Rules 2066 (2009)
- Mutual Legal Assistance Act 2070 (2014)
- Extradition Act 2070 (2014)
- FATF 40 Recommendations (adopted)
- Vienna Convention 1988 (ratified)
Predicate offenses under Section 4 include:
- Arms and ammunition offenses
- Foreign exchange regulation offenses
- Drug control offenses
- Murder, theft, cheating, forgery, counterfeiting, kidnapping
- Wildlife and forest conservation offenses
- Human trafficking offenses
- Cooperatives and banking offenses
- Corruption offenses
- Ancient monument conservation offenses
- Additional offenses notified in Nepal Gazette (tax, securities, real estate, foreign employment, etc.)
The Financial Information Unit (FIU) is established under Section 9 within Nepal Rastra Bank for collection and analysis of money laundering information. Functions include:
- Obtaining transaction details from banks and financial institutions
- Conducting preliminary inquiries
- Sending suspicious transaction reports to Investigation Department
- Exchanging information with foreign FIUs
- Inspecting financial institution records
- Managing AML/CFT training programs
- Issuing compliance directives
| Customer Type | Required Documents |
|---|---|
| Natural Person | Name, citizenship/passport, address, profession |
| Legal Entity | Registration certificate, directors' details |
| Representative | Principal's identity, power of attorney |
| Beneficial Owner | Name, address of benefiting person |
| Negotiable Instruments | Issuer and payee details |
Records must be maintained for at least 5 years.
Reporting obligations under Section 7:
- Maintain records of transactions beyond NRB-prescribed limits
- Investigate doubtful or suspicious transactions
- Report threshold transactions to FIU within 7 days
- Report suspicious transactions to FIU immediately
- Report updated information if different details received
- Retain transaction records for minimum 5 years
Failure to report attracts NPR 500,000 fine for banks/FIs and NPR 25,000-100,000 for non-FIs.
| Offender | Punishment |
|---|---|
| Any person/staff of FI | Fine equal to amount involved OR 1-4 years imprisonment OR both |
| Office bearer/public servant | 10% more than above |
| Person assisting/provoking | Half of principal offender's punishment |
Additional penalties: Concealing evidence (1-3 months OR NPR 50,000-100,000), creating obstacles (up to 6 months OR up to NPR 5,000).
Under Section 34, the following assets are subject to confiscation:
- Assets obtained from money laundering offense
- Assets accumulated from proceeds of offense
- Assets utilized for committing such offense
If entitlement has been transferred with quoted amount, the amount is dealt as per deed with security (Kapali).
No. Section 23 provides that there shall be NO limitation to file a case relating to offenses under the Act. Money laundering cases can be filed at any time without time restriction. This is a critical provision ensuring criminals cannot escape prosecution through delay.
Under Section 28, assets are deemed laundered if:
- Assets are unnatural compared to income source
- Person lives at unnaturally high standard
- Person has donated/granted/gifted more than capacity
The person is required to prove the source of earnings. Failure to prove source results in assets being deemed illegally acquired. The burden shifts to the accused to explain their wealth.
The Coordination Committee (Section 8) provides policy oversight for AML/CFT:
| Member | Role |
|---|---|
| Secretary, Ministry of Finance | Coordinator |
| Secretary, Ministry of Law | Member |
| Secretary, Ministry of Home | Member |
| Secretary, Ministry of Foreign Affairs | Member |
| Deputy Governor, NRB | Member |
| Chief, FIU | Secretary |
The FIU serves as the Committee's secretariat.
Provisions for foreign persons:
- Notices delivered to office/representative in Nepal
- If no representative, notice sent to business address through telex/fax/post
- Diplomatic channel used for freezing accounts abroad
- If foreigner doesn't appear, assets in Nepal can be frozen
- Non-compliance with orders: Up to NPR 100,000 fine plus recovery of losses
Protection under Section 37:
- No action against entities/staff providing information to FIU in compliance with the Act
- Reward available: 10% of claimed amount OR NPR 1 million (whichever is lesser)
- Multiple complainants share reward proportionately
- Waiver may be given in punishment for cooperation in investigation
Under Section 27, automatic suspension applies to:
- Officials/staff of banks, financial institutions, non-financial institutions
- Civil servants
Suspension period:
- Duration of custody under the Act, OR
- Duration until case is decided if case has been filed
This is automatic and does not require separate suspension order.
Terrorist financing is addressed under Section 4, which includes:
- Providing or collecting money for terrorist activities
- Acts under international conventions (Tokyo 1963, Hague 1970, Montreal 1971, etc.)
- Murdering or physically disabling persons knowingly using such money
Investment in terrorist activities is treated as money laundering. Nepal is bound by SAARC Regional Convention on Suppression of Terrorism 1987 and other international conventions against terrorism.
