Curb Growing Number Of Financial Crimes

Nepal’s re-listing on the Financial Action Task Force (FATF) “grey list” for the second time since 2014 highlights difficulties in combating money laundering and financing terrorism. The reversal occurs despite ongoing efforts to improve, including marking National Anti-Money Laundering Day on January 27, 2025, and amending laws to close legislative loopholes. However, shortcomings in counter-terrorism financing and anti-money laundering policy made the re-listing necessary. The FATF has given Nepal two years to implement necessary improvements, or it may be blacklisted, which would damage foreign investment, escalate transaction costs, and slow down the flow of foreign aid. 

Nepal was ranked 107th out of 180 countries in Transparency International’s 2024 Corruption Perceptions Index (CPI), reflecting endemic public-sector corruption. This again underscores the need for greater transparency, reduced corruption, and better regulatory frameworks. Despite progress in the law, the Asia/Pacific Group on Money Laundering (APG) noted concerns about enforcement, particularly in high-risk sectors like real estate and cooperatives. These warnings indicate that while Nepal has made considerable strides in addressing financial crime, it still requires improved implementation and enforcement to meet international best practices. 

Banking fraud

In the last fiscal year, the Nepal Police reported a significant surge in banking fraud, with 59,203 total criminal cases, including 13,263 related to banking offenses. Of these, 7,662 occurred in the Kathmandu Valley. The growing use of technology has contributed to the growing incidence of banking fraud and financial crimes. As per the report, there has been a sharp rise in banking fraud during the previous fiscal year, with 59,203 criminal cases overall, of which 13,263 involved banking offenses. Financial crimes and banking fraud have become more common as a result of technological advancements. 

Cybercrime has also surged, particularly among individuals aged between 19-30 years, who are around 70 per cent of cyber fraud suspects and act as “money mules” for laundering illegal funds. As of May 31, 2024, as reported by the Nepal Rastra Bank (NRB), cyber fraud cases grew by 63 per cent compared to 2023. Meanwhile, Nepal’s cooperative sector has been impaired by mismanagement and embezzlement of depositor’s funds. Investigations reveal that the majority of cooperative operators embezzle funds, and as a result, a vast majority of cooperatives have failed to return deposits, with many shirking responsibilities. 

Effective monitoring has been lacking, and a lack of effective regulations has put around Rs. 275 billion at stake, impacting over 357 cooperatives. A parliament inquiry established that 40 cooperatives, out of which 22 are facing crises, owe a total of Rs. 87.89 billion with savings deposits amounting to Rs. 71.30 billion. Political interference has worsened the crisis, as there are charges of misappropriation of funds and a lack of legal action, with most suspects going unpunished. The police also have too many cases to handle, so these cases take lower priorities. Nepal Police Headquarters records show that from the fiscal year 2021 to the first seven months of the 2024/25 fiscal year, Nepal experienced considerable cooperative fraud, worth Rs. 33.321 billion in 266 cases. 

A total of 595 people were arrested by authorities, but 1,922 suspects are still on the run. In the fiscal year 2023/24, Rs. 11.68 billion was embezzled in 101 cases, with 294 arrests and 870 fugitives. The previous financial year saw Rs. 11.53 billion embezzled in 93 cases, of which 208 individuals were apprehended and 553 had fled. During the financial year 2021/22, Rs. 4.99 billion was embezzled in 24 cases and 50 arrests were made, whereas 149 individuals escaped. During the first seven months of the current fiscal year, 48 cases have been registered, with Rs. 5.11 billion losses reported, 43 arrests, 350 suspects evading arrest, and 89 per cent of fraudsters remaining to be held accountable.

Specialised forces

Financial crimes are dealt with by the Central Investigation Bureau (CIB) and other police divisions. Due to the rise in cases and lack of specialised forces, the government has initiated the establishment of a Financial Crime Control Bureau. This Bureau would be further strengthened to investigate with the assistance of trained officers and sophisticated technology such as the Cyber Bureau and Narcotics Control Bureau. Moreover, effective coordination among institutions, regulatory agencies, law enforcement agencies, and the judiciary is needed to combat financial crimes. 

The government needs to prioritise passing laws criminalising financial crimes and harmonise domestic laws with international ones, including that of the FATF. Most people do not know about financial crimes or their modus operandi, so the government should initiate awareness programmes to educate people about them. Strategies have to be designed for enhancing access and engagement with the public towards a more enlightened public that could make effective contributions towards financial crime prevention.

(The author is a financial crime investigator.)