James Crickton*

Nepal is heading the Pakistan way in matters money laundering and terror financing with the landlocked nation emerging as a safe haven for Pak-backed India centric terrorists under the patronage of China, according to US observers, who say that Kathmandu may come under the scanner of global watch dog, the Paris-based Financial Action Task Force, FATF, in another three months.

A team from FATF’s Asia-Pacific Group (APG) visited Nepal last month, and found 15 irregularities in the anti-terror funding and money laundering laws of the country. It also noticed that Nepal lacks effective enforcement machinery.

Nepal government is aware of these ‘shortcomings’ particularly in the Assets Laundering Prevention Act 2008, the Land Revenue Act 1978, Confiscation of Criminal Proceeds Act 2014,Mutual Legal Assistance Act 2014 and Organized Crimes Prevention Act 2014 but has failed to fall in-line with the global requirement due to ever-changing political landscape in the country.   

If this situation continues, Nepal will find itself on the Grey List of the global watch dog. It may even inch closer to the dreaded Blacklist like it did in 2012, and thus invite a cascading impact on its economy.

Nepal is not new to the Grey List, though.

Between 2008 to 2014, Nepal was on FATF radar, and secured a breather by amending its anti- money laundering legislation. Subsequent FATF advisories were cold shouldered.

Put simply, like Pakistan, Nepal has not learnt from its FATF experience, and is expecting a geo-political miracle to protect its interests.

One such miracle that had brought Washington and Islamabad on the same Kabul page paved the way to take Pakistan off the grey list in October last year.  

Nepal may not be that lucky.  Because of the China factor.

Also, because international diplomacy runs on “meaningful business conjoined by realpolitik”.

There are cold vibes between Washington and Kathmandu.

American aid agency, Millennium Challenge Corporation, is keen to help Nepal but it has been facing rough weather even after announcing the single largest grant of $500 million for building transmission lines and for the maintenance of highways.

With China leaning Communists in the driver’s seat, Kathmandu’s immediate priority is neither Covid -19 battered economy nor   money laundering blues. It is domestic political engineering in order to steadily hold the reins of power. 

For this, the splintered Communist mavericks are to be brought on the same platform.

China has been working for unity amongst the comrades often giving a go-by to diplomatic niceties. Only partial success has come its way so far since Nepal Communist parties are pocket – boroughs of leaders with elephantine egos.

Now cut to the FATF timeline. 

Its APG will produce next month its preliminary report based on its December field visit.  The report will be finalized after taking Nepal’s inputs. The plenary of the watch dog will take the call on the final report in April.

Frankly, all is not lost for Nepal.

It can escape the grey list by showing commitment for the reforms ordered by FATF or by putting its act together between Feb and April.

However, its track record will not help its cause.  

For two reasons.

One: big offenders have hardly been punished. The Commission for Investigation of Abuse of Authority is itself facing accusations of failing to prosecute those involved in big scams.

Two: suspicious transactions are increasing. Financial Intelligence Unit (FIU) of the Nepal Rastra Bank (Central Bank) reports that the share of suspicious transactions reporting and suspicious activities reported by commercial banks range from over two-thirds to 85 percent in the last six years.

Prospects of a miracle rescuing Nepal also appear dim for yet another reason.

As of now the powers that matter in Kathmandu are on a two-track mode – snub local political rival, Nepal Congress, and take pot shots at India.   

Clearly, Nepal leadership is economical with its memory. 

When Nepal was on its maiden Grey List, India helped Nepal to fight against money laundering and terror financing. It also trained Nepali officials to counter money laundering. 

Nepal is dependent on aid, investment, imports and remittances, which will take a direct hit from grey listing.  Pakistan suffered a loss of more than $38 billion from the grey list – induced reduction in consumption expenditures, exports, and foreign direct investments.  

The grey list signals enhanced transactional risks from doing business with Nepal.  As the economy shrinks, and Nepal’s currency, Rupee, depreciates vis-à-vis the US dollar, credit rating agencies will rush to downgrade Nepal.  

Nepal’s Rupee reached an all-time high of Rs132.88 just a day before the Christmas (Dec 24, 2022), making imports more costly and fueling inflation further.  

Just like Pakistan, Nepal is cosying up with China and is virtually becoming a vassal state.

Through CPEC and the illegal secession of Saksham valley, Pakistan compromised its sovereignty to China.

Nepal is doing the same by ignoring the dragon’s great advances into its territory.

Both the nation’s polity and economy have come to a stage of virtual collapse that is only glued with Chinese adhesive.

To spice this ugly porridge, leaders of both Nepal and Pakistan use anti-India rhetoric to get traction and run away from their shoddy acts.

After the return of the Communist government in the Himalayan nation, China started making deep inroads into its polity.  But going by Pakistan’s experience, Nepal cannot expect a bail out from the Bamboo capitalist.  (POREG)

* The writer is a regular contributor to Poreg from his London perch