The banks needs to maintain an additional database of ‘high-profile’ and ‘high-risk’ clients to help the government track the flow of dirty money, according to a revised directives issued by the central bank.
According to the new move, all the banks will need to ensure that ‘high-profile’ and ‘high-risk’ clients employ only legitimate sources of income for transactions, which will be monitored for money laundering and other suspicious transactions.
According to the anti-money laundering law, high-profile clients include politically exposed persons (PEPs) ranging from Rural Municipality vice-chairpersons and bureaucrats above secretary level to the central leaders of political parties up to the President, whereas high-risk clients include people with criminal backgrounds, those that the banks consider prone to corruption, those involved in the sale and purchase of commodities like gold, and those dealing in heavy cash transactions, and arms deal, apart from the human trafficking.
Until now, customers were required to make a self-declaration about the sources of income for any transactions above Rs 1 million and the objective of their transactions but the new rule makes it mandatory for the banks and financial institutions to either seek all documents from high-profile people about their transactions or develop an intelligence mechanism to confirm whether they had a legitimate income source for the transaction.
According to the Financial Information Unit (FIU) of the central bank, the measure has been introduced in line with the Money Laundering Prevention Act, which was brought according to Nepal’s international commitment to fight the flow of dirty money.
Nepal will have to be present in the mutual evaluation on compliance at the Asia-Pacific Group (APG) on Money Laundering – a regional cluster of the Financial Action Task Force (FATF) – in 2020-21. Nepal must comply with the FATF – the global anti-money laundering body – 40 plus nine recommendations on Anti-Money Laundering and Financing of Terrorism (AML/CFT) as the country’s international commitment.
The government agencies – apart from the central bank – have been introducing more stringent measures to control money laundering but the private sector fears that the government is intimidating them in the name of international commitment. The incumbent Prime Minister KP Sharma Oli has brought the Department of Money Laundering Investigation (DMLI) under his direct supervision.
The government has – in recommendation with FIU and DMLI – has prepared five-year strategy in its fight against the Anti-Money Laundering and Financing of Terrorism (AML/CFT).
But a recent self-evaluation of compliance conducted by the government has found to be deficient in most FATF recommendations including law-making and particularly law enforcement.
Nepal faces the risk of being blacklisted by the FATF, if the mutual evaluation shows more deficiencies. Blacking of FATF means it will create difficulties for Nepali banks to conduct international financial transactions, Nepali passengers have to pass through the red channels in the international airports as they are all suspected of involved in the flow of dirty money. Nepal will not get any foreign aid, assistance and direct investment as the country will lose its credibility in the international community.
The banks and financial institutions have been collecting details from customers perceived to be making suspicious transactions and reporting (STR) to the Financial Information Unit (FIU) that processes, analyses and disseminate financial information and intelligence on suspected money laundering and terrorist financing activities. The STR has also been increasing as the banks and financial institutions have been actively reporting the FIU.
But according to the new directive, BFIs should develop a specific mechanism, according to the international best practices, for enhanced customer due diligence and collect information about high-profile and suspicious customers. They need to collect details from the government and other agencies every year and update the list regularly, after conducting a risk-based analysis, according to the FIU. “The database will also include senior elected representatives from all three layers of the government, high-level government officials and those in other state bodies, and those convicted of corruption will be placed in the ‘high-risk’ category.”
Likewise, banks should prepare ‘red flag indicators’ – for people with high net worth – that indicate any suspicious transactions. “But the banks are free to determine, who constitute high net worth people,” the FIU informed, adding that internal and external auditors will monitor whether banks have AML/CFT systems that conduct risk-based analysis. “Auditors will look into whether banks have taken necessary AML/CFT measures with regard to transactions of politically exposed persons, high-risk countries, high-risk production, equipment, services and transactions.”
January 15, 2020, the banks will have to submit details about suspicious transactions above the threshold of Rs 1 million through the goAML software installed by the FIU. The goAML software – specifically designed by the United Nations Office of Drugs and Crime (UNODC) to meet the data collection, management, analysis, and statistical needs of Finance Intelligence Units – has been purchased by the FIU in 2014 and installed in 2018 to track the STR. The goAML is also a part of Nepal’s compliance to the FATF recommendation to fight the flow of dirty money.
According to the new move, all the banks will need to ensure that ‘high-profile’ and ‘high-risk’ clients employ only legitimate sources of income for transactions, which will be monitored for money laundering and other suspicious transactions.
According to the anti-money laundering law, high-profile clients include politically exposed persons (PEPs) ranging from Rural Municipality vice-chairpersons and bureaucrats above secretary level to the central leaders of political parties up to the President, whereas high-risk clients include people with criminal backgrounds, those that the banks consider prone to corruption, those involved in the sale and purchase of commodities like gold, and those dealing in heavy cash transactions, and arms deal, apart from the human trafficking.
Until now, customers were required to make a self-declaration about the sources of income for any transactions above Rs 1 million and the objective of their transactions but the new rule makes it mandatory for the banks and financial institutions to either seek all documents from high-profile people about their transactions or develop an intelligence mechanism to confirm whether they had a legitimate income source for the transaction.
According to the Financial Information Unit (FIU) of the central bank, the measure has been introduced in line with the Money Laundering Prevention Act, which was brought according to Nepal’s international commitment to fight the flow of dirty money.
Nepal will have to be present in the mutual evaluation on compliance at the Asia-Pacific Group (APG) on Money Laundering – a regional cluster of the Financial Action Task Force (FATF) – in 2020-21. Nepal must comply with the FATF – the global anti-money laundering body – 40 plus nine recommendations on Anti-Money Laundering and Financing of Terrorism (AML/CFT) as the country’s international commitment.
The government agencies – apart from the central bank – have been introducing more stringent measures to control money laundering but the private sector fears that the government is intimidating them in the name of international commitment. The incumbent Prime Minister KP Sharma Oli has brought the Department of Money Laundering Investigation (DMLI) under his direct supervision.
The government has – in recommendation with FIU and DMLI – has prepared five-year strategy in its fight against the Anti-Money Laundering and Financing of Terrorism (AML/CFT).
But a recent self-evaluation of compliance conducted by the government has found to be deficient in most FATF recommendations including law-making and particularly law enforcement.
Nepal faces the risk of being blacklisted by the FATF, if the mutual evaluation shows more deficiencies. Blacking of FATF means it will create difficulties for Nepali banks to conduct international financial transactions, Nepali passengers have to pass through the red channels in the international airports as they are all suspected of involved in the flow of dirty money. Nepal will not get any foreign aid, assistance and direct investment as the country will lose its credibility in the international community.
The banks and financial institutions have been collecting details from customers perceived to be making suspicious transactions and reporting (STR) to the Financial Information Unit (FIU) that processes, analyses and disseminate financial information and intelligence on suspected money laundering and terrorist financing activities. The STR has also been increasing as the banks and financial institutions have been actively reporting the FIU.
But according to the new directive, BFIs should develop a specific mechanism, according to the international best practices, for enhanced customer due diligence and collect information about high-profile and suspicious customers. They need to collect details from the government and other agencies every year and update the list regularly, after conducting a risk-based analysis, according to the FIU. “The database will also include senior elected representatives from all three layers of the government, high-level government officials and those in other state bodies, and those convicted of corruption will be placed in the ‘high-risk’ category.”
Likewise, banks should prepare ‘red flag indicators’ – for people with high net worth – that indicate any suspicious transactions. “But the banks are free to determine, who constitute high net worth people,” the FIU informed, adding that internal and external auditors will monitor whether banks have AML/CFT systems that conduct risk-based analysis. “Auditors will look into whether banks have taken necessary AML/CFT measures with regard to transactions of politically exposed persons, high-risk countries, high-risk production, equipment, services and transactions.”
January 15, 2020, the banks will have to submit details about suspicious transactions above the threshold of Rs 1 million through the goAML software installed by the FIU. The goAML software – specifically designed by the United Nations Office of Drugs and Crime (UNODC) to meet the data collection, management, analysis, and statistical needs of Finance Intelligence Units – has been purchased by the FIU in 2014 and installed in 2018 to track the STR. The goAML is also a part of Nepal’s compliance to the FATF recommendation to fight the flow of dirty money.
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