VZCZCXRO7341
OO RUEHCI
DE RUEHKT #1143/01 3500612
ZNR UUUUU ZZH
O 160612Z DEC 09
FM AMEMBASSY KATHMANDU
TO RUEHC/SECSTATE WASHDC IMMEDIATE 1164
INFO RUEHBJ/AMEMBASSY BEIJING PRIORITY 7237
RUEHLM/AMEMBASSY COLOMBO PRIORITY 7578
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UNCLAS SECTION 01 OF 05 KATHMANDU 001143 
 
SIPDIS 
 
STATE FOR INL, SCT, EEB AND SCA/INS 
JUSTICE FOR AFMLS, OIA AND OPDAT 
TREASURY FOR FINCEN 
 
E.O. 12958: N/A 
TAGS: EFIN KCRM KTFN SNAR NP
SUBJECT: NEPAL: DRAFT 2009 INTERNATIONAL NARCOTICS CONTROL 
STRATEGY REPORT (INCSR) PART II - MONEY LAUNDERING AND 
FINANCIAL CRIMES 
 
REF: STATE 114962 
 
Summary 
------- 
 
¶1.  Nepal is not a regional financial center and there are no 
indications that the country is used as an international 
money laundering center.  In January 2008, the Government of 
Nepal (GON) for the first time passed legislation on 
anti-money laundering.  There were no prosecutions or arrests 
for money laundering during 2009. 
 
Limited Black Market for Smuggled Goods 
--------------------------------------- 
 
¶2.  There is not a significant black market for smuggled 
goods in the country; however, organized crime groups are 
involved in smuggling.  Nepalese traders in most cases fund 
the consumer goods, food stuff, fertilizers and construction 
materials traditionally smuggled into Nepal from India and 
Tibet.  There are no reports that narcotics or other illicit 
proceeds fund these items. 
 
Limited Reports of Money Laundering and Financial Crimes 
--------------------------------------------- ----------- 
 
¶3.  Since the creation of the Financial Information Unit, 
within the Nepal Rastra Bank (NRB) in 2008, commercial banks 
have begun reporting cases of suspected money laundering. 
Reports suggest that hawala operators based in Hong Kong and 
Persian Gulf countries work as a parallel banking system, but 
these operators are chiefly involved in transferring 
remittances from workers in the Gulf and other Asian 
countries as well as funds for Nepalese traders dealing in 
foreign merchandise.  There have been no reported cases of 
Nepalese financial institutions engaging in currency 
transactions involving international narcotics trafficking 
proceeds. 
 
Not an Offshore Financial Center or Free Trade Zone 
--------------------------------------------- ------ 
 
¶4.  Nepal is not an offshore financial center.  Offshore 
banks, international business companies, or other forms of 
exempt or shell companies and trusts are not permitted in the 
country.  There are no free trade zones in Nepal. 
 
New Law Targets Money Laundering, Financing of Terrorism 
--------------------------------------------- ----------- 
 
¶5.  The GON passed its first law, the Anti-Money Laundering 
Act targeting money laundering in January 2008.  The new law 
formally criminalized money laundering, previously addressed 
in provisions of the Foreign Exchange Act of 1962 and the 
Bank and Financial Institutions Act of 2006.  Further 
legislation on mutual legal assistance and witness 
protections-developed as part of the GON's Master Plan for 
Drug Abuse Control-remained stalled in 2008.  There were no 
prosecutions or arrests for money laundering in 2009. 
 
¶6.  There are no secrecy laws in Nepal that prevent 
disclosure of client and ownership information by domestic 
and offshore financial services companies to bank supervisors 
and law enforcement authorities.  The Anti-Money Laundering 
Act of January 2008 established a Financial Information Unit 
within Nepal Rastra Bank (NRB), the central bank of Nepal. 
 
Central Bank Monitors Financial Sector for Abnormalities 
--------------------------------------------- ----------- 
 
¶7.  NRB is the regulator of all banks and financial 
 
KATHMANDU 00001143  002 OF 005 
 
 
institutions in Nepal.  NRB supervises compliance with all 
Nepalese laws, international conventions and agreements 
pertaining to any kind of financial crime, terrorist 
financing, or irregularity.  The NRB has issued a directive 
called "know your customer" compelling banks and other 
financial institutions to record and report the identity of 
all customers and notify the NRB about customers engaging in 
significant transactions.  Foreign exchange is regulated in 
Nepal, and the NRB must grant clearance for any significant 
transaction.  The NRB's controls extend to all banking and 
non-bank financial institutions, including exchange houses, 
stock brokerages, cash couriers, casinos, dealers in jewels 
and precious metals, and insurance companies, as well as 
intermediaries such as lawyers, accountants, and brokers. 
Banks and financial institutions must report suspicious 
activity to the NRB.  The NRB then makes recommendations to 
the appropriate government body to file a case with the 
courts.  Cooperation between reporting individuals and law 
enforcement entities is kept highly confidential; however, 
there are no specific laws protecting the reporting 
individuals.  The NRB receives hundreds of suspicious 
transaction reports, few of which are deemed credible enough 
for further investigation. 
 
FIU and Other Entities Investigate Financial Crimes 
--------------------------------------------- ------ 
 
¶8.  An independent Financial Information Unit (FIU) was 
established within the NRB in 2008 and has authorization to 
investigate money laundering and terrorist financing, 
previously the responsibility of several government bodies. 
The NRB may pursue prosecution of any bank or financial 
institution.  The supervisory departments of the NRB have 
access to the records and databases of financial 
institutions.  To access the records of other government 
entities, the NRB must seek permission from the appropriate 
government entity-either the concerned ministry or the 
Cabinet-or forward the matter to the Commission for the 
Investigation of Abuse of Authority (CIAA).  The CIAA is a 
constitutional body mandated to investigate any irregularity 
or financial crime in any government entity.  The Nepal 
Police have the authority to handle arrests and file cases in 
the appellate court.  There were no arrests or prosecutions 
for money laundering or terrorist financing in 2009. 
 
No Reports of International Terrorist Ties 
------------------------------------------ 
 
¶9.  The GON passed the Money Laundering Prohibition Bill on 
January 14, 2008, criminalizing the financing of terrorism as 
required by the United Nations Security Council Resolution 
¶1373.  Terrorism and terrorist financing previously were 
prosecuted under other criminal laws, including the Terrorist 
and Destructive Acts (Control and Punishment) Ordinance of 
2004, which is no longer in force. 
 
¶10.  The NRB circulates to financial institutions the list of 
individuals and entities included on the UN 1267 sanctions 
committee's consolidated list as being linked to Usama bin 
Laden, al-Qa ida, or the Taliban.  The NRB also circulates 
the list of financiers the United States or European Union 
has designated under relevant authorities.  The NRB has not 
reported any accounts or assets of terrorist organizations or 
individuals in Nepal. 
 
Alternative Remittance Systems Acknowledged 
------------------------------------------- 
 
¶11.  The GON acknowledges the existence and use of indigenous 
alternative remittance systems (called "hundi" in Nepal) that 
bypass financial institutions.  In order to regulate these 
 
KATHMANDU 00001143  003 OF 005 
 
 
systems, the NRB, under the Foreign Exchange Act of 1962 and 
the Bank and Financial Institutions Act of 2006, has granted 
licenses to financial institutions and money exchangers 
allowing trade in foreign exchange.  Any unauthorized 
transaction of foreign exchange is considered a crime, but 
the NRB and law enforcement agencies such as the police and 
Department of Customs have very little effective control on 
unauthorized remittances, trade-based money laundering, 
cross-border cash smuggling, or the misuse of gold, precious 
metals and gems. 
 
No Special Efforts To Thwart Misuse of Charitable Entities 
--------------------------------------------- ------------- 
 
¶12.  The GON has made no special effort nor drafted 
legislation to thwart the misuse of charitable and non-profit 
entities that could be used as conduits for the financing of 
terrorism.  Local law enforcement agencies such as the 
District Administration Office and the District Police Office 
in theory monitor and supervise their sectors for potential 
terrorist financing but in practice lack the resources to do 
so.  The NRB regulates all transfers or transactions in 
foreign exchange, and police and the Customs Department 
monitor physical smuggling of foreign currencies. 
 
Cross-Border Transportation of Currency 
--------------------------------------- 
 
¶13.  The NRB formulates statutory requirements to limit and 
monitor the cross-border transportation of currency and 
monetary instruments, although an open border with India 
renders enforcement efforts ineffective.  There is no 
limitation on inbound cross-border transportation of 
currency, but the cash courier or entity must declare the 
amount of money, source and purpose of bringing the money 
into Nepal.  Declaration forms are available at border 
crossings.  Foreign nationals and entities must show the 
entry declaration form to transport currency out of Nepal. 
The source of monetary instruments must be declared. 
Nepalese nationals may take a maximum of USD 2,000 if 
traveling to any country other than India.  Travelers must 
declare the source and purpose of currency in excess of this 
amount.  Nepalese nationals traveling to India may carry a 
maximum of 16,000 Indian rupees (approximately USD 300-400). 
Travelers must declare the source and purpose of currency in 
excess of this amount. 
 
Limited Exchange of Information About Cash Smuggling 
--------------------------------------------- ------- 
 
¶14.  The Nepal Police and the NRB are authorized to keep 
tandem records of cash smuggling; however, no database or 
information-sharing mechanism exists among host government 
agencies.  Information about cash smuggling is shared among 
government agencies and with foreign governments by request 
only.  In practice, Nepalese government and law enforcement 
entities cooperate very little. 
 
Provisions for Asset Seizures Exist 
----------------------------------- 
 
¶15.  Nepal does not have specific legislation for 
identifying, tracing, freezing, seizing, and forfeiting 
assets derived from or intended for narcotics, terrorism, or 
serious crimes.  The seizure of assets is addressed in a 
number of other policies, including the anti-money laundering 
act passed in 2008, although with questionable efficacy. 
Nepal has not enacted laws for the sharing of seized assets 
with other governments, but various GON agencies reportedly 
are engaged in negotiations with other governments to enhance 
asset tracing, freezing and seizure. 
 
KATHMANDU 00001143  004 OF 005 
 
 
 
¶16.  The government may freeze assets through regular law 
enforcement mechanisms applied to other criminal proceedings. 
 The Narcotic Drugs Control Act of 1976 allows for the 
seizure of assets and instruments used in or gained from the 
manufacture or production of narcotics.  This includes all 
movable and immovable property.  The GON may also pursue 
asset seizure under the Foreign Exchange Act of 1962 and the 
Bank and Financial Institutions Act of 2006, but there have 
been no reported cases through 2009.  The NRB is responsible 
for tracing, seizing, and freezing assets within the banking 
system of Nepal.  The Nepal Police is responsible for 
tracing, seizing, and freezing assets related to narcotics 
sales and transportation.  Assets may be frozen for three 
months without a court case.  Frozen assets may be 
confiscated by a court's verdict only, after which it becomes 
the property of the cabinet in the GON.  There is no asset 
forfeiture fund.  Cash and valuable metals are deposited in 
the GON's account in the NRB.  The Home Ministry and police 
auction seized vehicles, and the Land Tenure Office is 
responsible for the sale of seized land and buildings.  All 
proceeds go to the GON's account but are not shared with 
police. 
 
¶17.  The banking community cooperates with enforcement 
efforts to trace and seize bank accounts.  Existing laws 
allow for civil as well as criminal forfeiture.  The 
government in theory enforces existing asset seizure and 
forfeiture laws, and police have the power and resources to 
trace, seize, and freeze assets without undue delay. 
However, rampant corruption and a culture of graft in law 
enforcement agencies and the judicial system means in most 
cases the accused are either acquitted or successful in 
mitigating the charges.  Post has no data regarding the 
dollar amount of any narcotics-, terrorist- or 
criminal-related asses frozen, seized, or forfeited in 2009. 
 
International Cooperation 
------------------------- 
 
¶18.  The GON has issued directives that allow for the 
exchange of records with the United States on investigations 
and proceedings related to narcotics, all-source money 
laundering, terrorism and terrorist financing.  However, 
Nepal has neither adopted related laws or regulations nor 
signed any treaties with the United States or other 
countries.  The FIU signed a memorandum of understanding with 
its counterpart in Bangladesh in October 2008, but there is 
no agreed mechanism with the United States or any other 
country for the exchange of records connected to the 
aforementioned investigations and proceedings.  The GON has 
expressed to the United States willingness to establish an 
exchange mechanism.  Nepal has been willing to cooperate with 
U.S. requests regarding the investigation of financial 
crimes, and promptly circulates to all banks and financial 
institutions UN and U.S. terrorist finance designations. 
 
¶19.  Nepal is party to the UN International Convention 
Against Illicit Traffic in Narcotic Drugs and Psychotropic 
Substances (Vienna Convention).  Nepal has signed but not 
ratified the UN Convention Against Transnational Organized 
Crime (Palermo Convention) and the UN Convention Against 
Corruption.  Nepal has not signed the UN International 
Convention for the Suppression of the Financing of Terrorism 
or any other applicable agreements and conventions.  Nepal 
adheres to all relevant international money laundering 
standards but not by systematic implementation of various 
international declarations.  The NRB issues directives to 
banks and financial institutions to implement specific 
recommendations on a case-by-case basis. 
 
 
KATHMANDU 00001143  005 OF 005 
 
 
¶20.  Post point of contact is Charles Fouts, 
Political/Economic Officer (foutsck@state.gov), phone: 
977-1-400-7200 Ext.4544. 
BERRY