While cases related to cooperative fraud and money laundering are still under judicial and investigative review, a recent controversial decision by the government has pushed Nepal into deeper risk under international anti-money laundering scrutiny.
Analysts warn that Nepal, already on the Financial Action Task Force (FATF) ‘grey list,’ could now be heading toward the far more damaging ‘black list.’
Nepal is currently classified by FATF as a ‘jurisdiction under increased monitoring,’ which means ‘grey list’. However, concerns intensified after the Office of the Attorney General (OAG) decided to amend charge sheets in cases involving Rastriya Swatantra Party (RSP) chair Rabi Lamichhane, his business partner and fugitive GB Rai, altogether 153 accused of cooperative fraud and money laundering. The move has raised fears that international confidence in Nepal’s commitment to fighting illicit finance is eroding.
The present civilian government, led by former Chief Justice Sushila Karki and formed in the aftermath of the Gen-Z protests of September 8 and 9 protests – that claimed the lives of 76 young demonstrators demanding good governance – now finds itself engulfed in a serious moral and legal crisis, largely due to decisions taken by its chief legal advisor.
Those protests were driven by calls for transparency, accountability, and the rule of law. Yet critics argue that the very government formed out of that movement has undermined its spirit. Attorney General Sabita Bhandari, appointed by the Karki administration, has issued a series of controversial decisions that many say strike at the core of judicial integrity.
And one of them is damaging to the country also. Most recently, on Thursday and Friday, Bhandari ordered amendments to charge sheets in money laundering and organised crime cases filed against Rabi Lamichhane, GB Rai – chair of Gorkha Media – and more than hundred others implicated in a major cooperative fraud scandal.
The decision is against the Section 36 of the Criminal Procedure Code, according to legal experts, who say that the OAG has misinterpreted it to alter cases that are already under judicial consideration.
Initially, the Attorney General sought to revise charges only against Rabi Lamichhane. However, citing legal complications in treating defendants differently within the same charge sheet, she ultimately removed organized crime and money laundering charges against all 153 accused linked to five cooperatives associated with Lamichhane. This decision also benefited fugitive suspect GB Rai, who according to Rabi Lamichhane also was the mastermind behind the fraud of billions.
AG Bhandari amended all accused charges as amending charges for only one accused in a case involving multiple defendants could have led to rejection by the court. As a result, even serious allegations against absconding suspects were diluted.
Critics further allege that Friday’s decision effectively legitimizes over Rs 5 billion allegedly siphoned from cooperatives and transferred abroad through shell companies, land transactions, and cryptocurrency. “This move has made it easier for those involved to sanitize illicit funds,” one former secretary said.
“Dropping serious charges against a politically exposed person under FATF’s highest-risk category is an act that places both citizens and the state itself in danger."
FATF classifies Politically Exposed Persons (PEPs), along with their family members and close associates, as high-risk under global Anti-Money Laundering and Counter-Financing of Terrorism (AML/CFT) standards. Under FATF Recommendations 12 and 22, financial and designated non-financial institutions are required to apply enhanced due diligence and continuous monitoring to such individuals.
FATF also follows the principle of ‘once a PEP, always a PEP,’ meaning that heightened scrutiny does not automatically end when a person leaves office. “Given this framework, it is hard to believe that such a decision was taken without the knowledge or consent of the Prime Minister,” he noted.
Under Nepal’s own laws, organised crime and money laundering cases are not meant to be withdrawn in this manner. Beyond domestic legality, observers warn that the decision has put Nepal’s international financial credibility at stake.
After the controversial decision by AG Bhandari, victims of cooperative fraud have already taken to the streets, accusing the state of failing to recover their savings and protect their rights.
Nepal was previously placed on the FATF grey list due to weak enforcement, delayed investigations, and political interference. Analysts say leniency shown by past governments toward illicit financial networks worsened the situation and that the current administration’s actions have only amplified the risk.
Nepal is under pressure to fully implement its FATF action plan by January 2027. However, delays in completing a national risk assessment, poor coordination among investigative bodies, and a soft approach toward high-profile cases suggest the country may struggle to meet its commitments.
FATF has repeatedly urged Nepal to strengthen oversight of banks, cooperatives, casinos, precious metal and real-estate transactions, curb informal money transfer systems such as hundi – illegal transfer of money – enhance investigative and prosecutorial capacity, and ensure effective confiscation of illicit assets. Full compliance with targeted financial sanctions related to terrorism and weapons of mass destruction has also been emphasised.
Although the government claims to be working closely with FATF and the Asia-Pacific Group (APG) to address these weaknesses, analysts say recent decisions have made Nepal appear increasingly vulnerable in the global fight against money laundering.
As cooperative fraud and money laundering now directly affect Nepal’s international credibility, economic and foreign investment climate, experts warn that continued inaction – and politically motivated decisions – could push the country onto the FATF blacklist.
Observers also question the silence of political parties and civil society as the government appears to undermine the very ideals born out of the Gen-Z movement and the sacrifice of 76 young lives.
Despite having laws and institutions in place to combat illicit finance and terrorist funding, Nepal has produced limited tangible results in investigations, prosecutions, and asset seizures. Critics attribute this not only to institutional weakness but also to long-standing collusion between political leadership and notorious financial middlemen under previous administrations.
Analysts warn that Nepal’s situation deteriorated sharply in the immediate past after the then Prime Minister KP Sharma Oli government withdrew cases against members of the controversial ‘Thurman Gun gang’ and individuals including Deepak Bhatt from the Department of Money Laundering Investigation (DMLI) and Nepal Rastra Bank (NRB). They claim the risk has increased even further under the current government due to its controversial decisions, raising fears that Nepal could slide into the FATF ‘dark grey list’ or even the ‘black list.'
Although Nepal has established rules, laws, and institutional mechanisms to combat money laundering and terrorist financing, it has failed to produce tangible results in practice. As a result, progress in investigations, prosecutions, and asset seizures remains limited. Critics argue that this is not due to government inefficiency alone, but also because of alleged collusion between past governments and notorious networks and intermediaries like the so-called Thurmal Gun gang, during the tenure of former Prime Minister KP Sharma Oli and his Finance Minister Bishnu Paudel.
At present, however, analysts say Nepal has been pushed into even greater risk due to what they describe as the Karki government’s inexplicable leniency toward Rabi Lamichhane, a politically influential figure (PEPs) listed under FATF’s high-risk category.
Similar flawed decisions and delays in enforcing the law under previous governments led to Nepal being placed back on the FATF ‘grey list.'
Observers now find it troubling that a country already weakened by alleged close ties between political leaders and intermediaries accused of laundering illicit money may be moving toward the FATF ‘black list’ under Prime Minister Karki and her controversial Attorney General Bhandari.
This is because money laundering in Nepal is not limited to brokers and intermediaries alone; it is also widespread among politically connected figures like Rabi Lamichhane involved in the cooperative sector. Many cooperatives are allegedly operated by politicians and their family members, where public funds are misappropriated while enjoying protection from political parties and law-enforcement agencies. Rabi Lamichhane, critics argue, is only an example of a much broader problem.
For these reasons, the Lamichhane case is no longer just a domestic legal matter, it has become a test of Nepal’s commitment to global financial integrity. Failure to correct course, experts warn, could see Nepal slide from the grey list into the far more damaging FATF blacklist.
(Originally published at Nepalkhabar: https://en.nepalkhabar.com/news/detail/16925/)
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