KATHMANDU: Nepal finds itself under renewed global scrutiny as the Financial Action Task Force (FATF) places it back on the ‘grey list’. The decision, reached in Paris, underscores concerns over financial crime, weak regulatory enforcement, and a growing informal economy. This is not Nepal’s first brush with FATF oversight—it previously spent five years on the grey list from 2009 to 2014.

The implications are serious. Greylisting signals to international banks and investors that Nepal’s financial system lacks adequate safeguards against money laundering and terrorist financing. The country now faces a two-year deadline to implement reforms or risk blacklisting—a move that could severely restrict foreign investment and economic growth.

Nepal’s deficiencies include ineffective control over corruption, tax evasion, and illicit money transfers such as hundi. While the government has pledged corrective measures, enforcement remains a challenge. Alongside Nepal, Laos has also been greylisted, while the Philippines has successfully exited after addressing FATF concerns.

For Nepal, the clock is ticking. Whether it strengthens its financial framework or drifts toward deeper economic isolation depends on the reforms it undertakes in the months ahead. Here’s everything you need to know about the FATF grey list and what it means for Nepal:

Why was Nepal placed on the Grey List?

Nepal was added to the FATF Grey List on February 21, 2025, due to concerns about weaknesses in its financial system, including ineffective regulatory enforcement, inadequate control over high-risk sectors like real estate and cooperatives, and insufficient implementation of AML and CFT laws. Despite previous warnings and efforts to improve, Nepal did not meet FATF’s expectations within the set timeline.

What is the FATF Grey List?

The Financial Action Task Force (FATF) Grey List includes countries with deficiencies in their anti-money laundering (AML) and counter-terrorist financing (CFT) measures. Being on this list means Nepal must address these gaps under increased international monitoring to avoid further consequences.

The Grey List includes countries with strategic deficiencies in their anti-money laundering and counter-terrorist financing systems. These countries are under increased monitoring and must implement reforms to avoid further consequences.

What is the FATF, and why does it matter?

The Financial Action Task Force (FATF) is a global watchdog that sets international standards to combat money laundering, terrorist and proliferation financing, and other financial crimes. Countries that fail to meet these standards risk being placed on FATF’s grey list or, in severe cases, the blacklist.

Why was Nepal placed on the FATF grey list?

Nepal was added to the grey list because it has not fully implemented measures to prevent financial crimes. Key concerns include weak enforcement of anti-money laundering laws, lack of control over illicit financial activities in real estate and cooperatives, and ineffective monitoring of high-risk sectors.

How many conditions did Nepal fail to meet?

Out of FATF’s 40 key recommendations, Nepal has fulfilled only 21. The remaining conditions require stronger legal frameworks, better enforcement, and stricter monitoring of financial transactions.

What does being on the grey list mean for Nepal?

Being on the grey list means Nepal is under increased international scrutiny. It does not bring immediate sanctions, but it signals to investors, banks, and financial institutions that Nepal has deficiencies in its financial system. This can lead to reduced foreign investment, higher transaction costs, and slower economic growth.

Has Nepal been on the grey list before?

Yes, Nepal was previously placed on the grey list from 2008 to 2014. It managed to exit the list by strengthening its laws and improving enforcement. However, FATF’s latest review found gaps in Nepal’s compliance, leading to its re-listing in 2025.

What happens if Nepal fails to meet FATF’s requirements?

If Nepal does not make sufficient progress within the next two years, there is a risk of being placed on FATF’s blacklist. This would severely impact international trade, foreign investment, and access to global financial markets, as seen in cases like Iran and North Korea.

What steps is Nepal taking to get off the grey list?

Nepal is working on legal reforms, stricter enforcement, and enhanced financial monitoring. Government agencies, including Nepal Rastra Bank and the Financial Information Unit, are coordinating efforts to meet FATF’s conditions. Officials have assured that Nepal will take necessary actions to exit the grey list as soon as possible.

Who is responsible for handling Nepal’s FATF compliance?

The Nepal Rastra Bank’s Financial Information Unit, Department of Money Laundering Investigation and the Ministry of Finance play key roles in ensuring compliance with FATF regulations. A special task force has been set up to address the deficiencies highlighted in the FATF evaluation.

What is the Financial Information Unit (FIU)?

The Financial Information Unit (FIU) is Nepal’s central financial intelligence agency, established on April 21, 2008, under the Assets (Money) Laundering Prevention Act, 2008. It operates independently within Nepal Rastra Bank (NRB) and is responsible for receiving, analyzing, and disseminating financial intelligence related to money laundering and terrorist financing. The FIU plays a crucial role in monitoring financial transactions and ensuring compliance with Nepal’s anti-money laundering laws.

What is the primary role of the FIU?

The FIU is responsible for identifying and investigating suspicious financial transactions. It works closely with domestic and international law enforcement agencies to prevent financial crimes. By analyzing financial data, the FIU helps uncover illicit activities, including money laundering, corruption, and terrorist financing. It also ensures that financial institutions in Nepal comply with anti-money laundering (AML) and counter-terrorism financing (CFT) regulations.

What are the major sources of illegal funds?

Illegal funds originate from various criminal activities, including human trafficking, terrorism financing, organized crime, corruption, bribery, and fraud. Other sources include drug and arms trafficking, counterfeiting, tax evasion, environmental crimes, insider trading, and market manipulation. These illicit funds are often laundered through complex financial transactions to make them appear legitimate.

How does money laundering work?

Money laundering is the process of disguising illegally obtained money as legitimate income. It typically involves three stages: placement, layering, and integration. Placement involves introducing illicit funds into the financial system, often through small deposits or cash-intensive businesses. Layering conceals the origin of the money by moving it through multiple transactions, such as wire transfers or offshore accounts. Integration is the final stage, where the laundered money is reinvested into the economy, making it difficult to trace its criminal origins.

What are Nepal’s laws against money laundering?

Nepal has implemented several laws and policies to combat money laundering and financial crimes. The primary legal framework is the Assets (Money) Laundering Prevention Act, 2008, which mandates strict regulations for financial institutions. Nepal Rastra Bank has also issued anti-money laundering directives that require banks and businesses to report suspicious transactions. In addition, Nepal complies with international standards set by the Financial Action Task Force (FATF) and the Asia/Pacific Group on Money Laundering (APG).

What penalties exist for money laundering in Nepal?

Money laundering and financial crimes carry severe penalties in Nepal. Individuals and businesses involved in such activities may face asset seizures, heavy fines, and imprisonment. Financial institutions that fail to comply with anti-money laundering regulations risk losing their operating licenses. The government also has the authority to freeze bank accounts and confiscate properties linked to illicit financial activities.

How can individuals and businesses stay compliant with Nepal’s financial regulations?

To stay compliant with Nepal’s financial regulations, individuals and businesses should ensure transparency in financial transactions, maintain accurate records, and report suspicious activities to the FIU. Banks and financial institutions must follow Nepal Rastra Bank’s anti-money laundering guidelines and implement strict Know Your Customer (KYC) policies. By adhering to these regulations, businesses can prevent unintentional involvement in financial crimes and avoid legal consequences.

How does the grey list impact ordinary citizens?

While regular banking operations remain unaffected, the grey list can make it harder for Nepalese businesses and individuals to access international banking services. Foreign transactions may face higher scrutiny, and remittances could become more expensive due to increased compliance costs.

When will Nepal be removed from the grey list?

Nepal’s removal depends on how quickly it implements FATF’s recommendations. If significant progress is made in the next review cycle, Nepal could exit the grey list by late 2026. However, failure to comply could result in prolonged monitoring or even blacklisting.

What are the consequences of being on the Grey List?

Nepal’s financial sector will face heightened scrutiny from international regulators, making cross-border transactions more difficult and costly. Foreign investment could decline as businesses hesitate to engage with a country flagged for financial risks. Access to international loans and aid may become more challenging, and banks will need to implement stricter compliance measures. Remittances could also be affected, as international financial institutions may impose additional checks on money flowing into Nepal.

Has Nepal been on the Grey List before?

Yes, Nepal was previously placed on the Grey List from 2008 to 2014. The country successfully exited by introducing legal reforms and strengthening its financial monitoring systems. However, FATF’s latest review found that Nepal had not maintained the necessary standards, leading to its re-listing in 2025.

What steps is Nepal taking to get off the Grey List?

Nepal is working on strengthening its AML and CFT framework through legal amendments and stricter enforcement of financial regulations. The government is focusing on closing loopholes in high-risk sectors and ensuring better compliance among banks and financial institutions. Authorities are also increasing efforts to investigate and prosecute cases related to money laundering and financial crimes. A dedicated team, including officials from Nepal Rastra Bank and other regulatory bodies, is coordinating with FATF to address concerns and demonstrate progress.

How long will Nepal remain on the Grey List?

The timeline for Nepal’s removal from the Grey List depends on how quickly it implements FATF’s recommendations and proves its commitment to financial transparency. Countries that take immediate and effective action can exit within one to two years. However, if Nepal fails to make sufficient improvements, it could remain on the list longer, which may worsen its economic challenges.

What is the difference between the Grey List and the Blacklist?

The FATF Grey List includes countries with financial deficiencies that are working to fix them under international supervision. Being on this list does not lead to direct sanctions but creates financial and reputational risks. The Blacklist, on the other hand, consists of countries that have failed to take corrective actions and face severe global sanctions, limiting their ability to engage in international financial transactions. Nepal is currently on the Grey List, meaning it still has the opportunity to improve before facing harsher penalties.

How does Nepal’s Grey Listing compare to other countries?

Several countries have been placed on the Grey List over the years, including Pakistan, the Philippines, and the UAE. Some, like the Philippines, recently exited the list by making significant reforms, while others have struggled with prolonged inclusion. Nepal’s ability to exit the list depends on how effectively it implements FATF’s recommendations and demonstrates measurable progress in combating financial crimes.

What lessons can Nepal learn from other countries that have exited the Grey List?

Countries that successfully exited the Grey List, such as the Philippines, took comprehensive steps including updating laws, improving financial monitoring systems, and showing strong political commitment to reforms. Nepal must adopt a similar approach by ensuring all stakeholders—from government agencies to financial institutions—work together to address FATF’s concerns. Transparent reporting, swift action against money laundering, and international cooperation will be key to regaining financial credibility and exiting the Grey List as soon as possible.

What is the Financial Action Task Force (FATF)?

The FATF is an international body that sets global standards to combat money laundering, terrorist financing, and other financial crimes. It develops policies and monitors their implementation to protect the global financial system from illicit activities.

Why was the FATF created?

The FATF was established in 1989 by the G7 nations to address growing concerns about money laundering. Over time, its mandate expanded to include terrorist financing and the financing of weapons of mass destruction.

How does the FATF work?

The FATF sets international financial crime prevention standards, assesses countries’ compliance through periodic evaluations, and applies pressure on nations that fail to address deficiencies. It collaborates with governments, financial institutions, and law enforcement agencies worldwide.

What are FATF Recommendations?

FATF Recommendations are 40 globally accepted standards that guide countries in preventing money laundering, terrorist financing, and related crimes. These recommendations cover areas such as financial regulations, legal frameworks, law enforcement, and international cooperation.

What is the FATF Blacklist?

The Blacklist consists of high-risk countries that have failed to take adequate steps to combat money laundering and terrorist financing. These nations face severe financial restrictions and are often excluded from international banking systems.

How does the FATF evaluate countries?

The FATF conducts Mutual Evaluations, where it assesses a country’s legal and financial systems to determine their effectiveness in preventing financial crimes. Countries are then rated based on their compliance with FATF standards.

What happens if a country does not comply with FATF standards?

Non-compliant countries face increased monitoring, reputational damage, financial restrictions, and, in extreme cases, economic sanctions. International banks and investors may hesitate to engage with such nations, impacting trade and financial stability.

How does the FATF impact businesses and financial institutions?

Financial institutions must follow FATF-aligned regulations, such as conducting due diligence, reporting suspicious transactions, and implementing strong anti-money laundering controls. Non-compliance can lead to penalties, legal action, and reputational damage.

How can a country get removed from the FATF Grey List or Blacklist?

To exit the Grey or Blacklist, a country must demonstrate progress in addressing FATF’s concerns. This includes implementing stronger financial regulations, increasing law enforcement efforts, and proving effective compliance. The FATF reviews improvements through follow-up evaluations before removing a country from the list.