VZCZCXYZ0001
OO RUEHWEB

DE RUEHKT #2828/01 3501051
ZNR UUUUU ZZH
O 161051Z DEC 05
FM AMEMBASSY KATHMANDU
TO RUEHC/SECSTATE WASHDC IMMEDIATE 9547
INFO RUEAWJA/DEPT OF JUSTICE WASHDC PRIORITY
RUEATRS/DEPT OF TREASURY WASHINGTON DC PRIORITY

UNCLAS KATHMANDU 002828 
 
SIPDIS 
 
SENSITIVE 
SIPDIS 
 
DEPT FOR SA/INS, EB/ESC/TFS 
JUSTICE FOR OIA ADN AFMLS 
TREASURY FOR FINCEN 
 
E.O. 12958: N/A 
TAGS: EFIN KCRM KTFN PTER SNAR NP
SUBJECT: 2005-2006 INCSR REPORT, FINANCIAL CRIMES AND MONEY 
LAUNDERING 
 
REF: KATHMANDU 210324 
 
¶1. (SBU) This is Post's 2005-2006 International Narcotics 
Control Strategy Report Part II, Financial Crimes and Money 
Laundering, per reftel. 
 
Begin Text. 
 
Nepal 
 
Nepal is not a regional financial center and there are no 
indications that Nepal is used as an international money 
laundering center.  The Government of Nepal (GON) has not 
criminalized money laundering, and legislation on money 
laundering, mutual legal assistance and witness protection, 
developed as part of the GON's Master Plan for Drug Abuse 
Control, remained stalled in 2005.  Since the dissolution of 
Parliament in May 2002, any new laws must be passed by royal 
ordinance, which must be renewed after six months.  Draft 
anti-money laundering legislation has been prepared but has 
not yet been passed into law or ordinance.  The Foreign 
Exchange Act of 1962 and the Bank and Financial Institutions 
Ordinance 2005, together, authorize prosecutions for money 
laundering.  There were no prosecutions or arrests for money 
laundering during 2005. 
 
Banks are required to record the identity of customers 
engaging in significant transactions.  In particular, all 
transactions that involve payments in foreign currency 
require prior approval by the Nepal Rastra Bank (NRB), 
Nepal's central bank.  Any Nepali citizen who wishes to open 
a foreign currency account must obtain a license to do so 
from the NRB, and Nepali citizens wishing to conduct foreign 
exchange transactions of any kind must obtain approval from 
the NRB by clearly outlining the purpose for the transaction. 
 The NRB normally approves small transactions (in USD 
thousands) for travel, education and medical treatment. 
Travelers can take out USD 2000 a year from any commercial 
bank by showing travel documents such as passport, visa, and 
air ticket, without NRB approval.  Individuals with an NRB 
approval letter can conduct a foreign exchange transaction at 
any NRB registered bank.  In addition to NRB approval, 
students must obtain a recommendation letter from the 
Ministry of Education; the transactions approved can only be 
for the amount listed on the total expenses line of the 
student's U.S. visa paperwork.  The NRB approves foreign 
exchanges for medical treatment based on the recommendation 
of the Nepal Medical Council, and there is no limit on the 
amount.  The NRB approves foreign exchange for business 
travelers to cover their food, lodging, and transportation 
expenses.  For business transactions, however, individuals 
must open a letter of credit from an NRB registered 
commercial bank documenting all the transaction details.  The 
commercial bank then forwards the letter of credit to the NRB 
for approval.  There is no maximum or minimum limit on the 
amount for transactions in legal products and services. 
 
Nepal has enacted bank secrecy laws that prevent the 
disclosure of client and ownership information to individuals 
and law enforcement authorities; however, the present law 
does not prevent the disclosure of client and ownership 
information to the NRB, courts, auditors or the Commission 
for Investigation of Abuse of Authority (CIAA).  Banks have 
provided records regarding bank accounts of individuals and 
institutions to assist in GON investigations into corruption 
by senior officials.  There are currently no free trade zones 
in Nepal.  However, different industry sector associations 
have been urging the GON to set up an export processing zone 
near the Inland Container Depot (ICD) in Birgunj, which 
borders India. 
 
The NRB has the authority to freeze accounts and seize assets 
related to criminal investigations.  However, the GON's 
ability to identify and trace assets is hindered by the lack 
of a computerized information sharing system.  For example, 
many bank branch offices do not have computers.  The Nepal 
Police also have the authority to seize any goods or property 
related to criminal investigations.  The Department of 
Revenue Investigation (DRI) under the Ministry of Finance 
functions as Nepal's financial intelligence unit (FIU).  DRI 
is responsible for the control and investigation of any kind 
of revenue loss to the GON.  It has the authority to make 
raids, seize assets, and arrest and prosecute individuals or 
institutions for causing any kind of revenue loss to the 
government, such as cash smuggling, underpaying customs duty, 
or tax evasion.  The DRI can also investigate and prosecute 
 
foreign exchange violations.  Nepal Police, Immigration, and 
Customs, forward all cash smuggling cases to the DRI for 
prosecution.  The CIAA and Royal Commission for Corruption 
Control (RCCC) refer cases of revenue loss or foreign 
exchange misappropriation to the DRI.  The DRI makes the case 
and takes it to the district court.  However, the DRI is not 
adequately staffed.  Increased cooperation among the NRB, 
Nepal Police, and the DRI would enhance Nepal's money 
laundering and terrorist financing investigative and 
enforcement capabilities. 
 
A hawala system of informal remittances (called the hundi 
system in Nepal) is still often used.  Expatriate Nepali 
workers-the primary source of hundi transactions-are often 
employed in the Gulf, Malaysia, and other countries that have 
introduced new, more stringent regulations on informal 
remittance systems.  Nepali workers in India still utilize 
hawala-hundi transactions.  In Nepal, the hundi system is 
linked to issues of capital flight, tax avoidance, and 
corruption.  The NRB has instituted an International Monetary 
Exchanges licensing policy within the past year, which 
requires financial organizations wanting to distribute 
foreign remittances to obtain an operating license. 
Additionally, many of Nepal's commercial banks have opened 
offices in countries with large numbers of Nepali expatriate 
workers to facilitate remittances through the banking system. 
 According to NRB officials, the combination of these factors 
has resulted in a decrease in the use of the hundi system in 
Nepal. 
 
The Terrorist and Destructive Activities Act and the Bank and 
Financial Institutions Ordinance 2005, working in tandem, 
criminalize terrorist financing.  The Bank and Financial 
Institutions Ordinance 2005 regulates the actions of 
financial institutions in Nepal and provides the NRB with the 
authority to seize any assets or freeze accounts deemed to 
have been used in terrorist activities.  No assets belonging 
to individuals or entities on the UNSCR 1267 Sanctions 
Committee's consolidated list have been identified in Nepal. 
Additionally, Nepal's State Offense Act of 1989 authorizes 
security forces to arrest and prosecute any Nepalese or 
foreign citizen involved in any criminal activities against 
the State or associated with foreign terrorist activity.  The 
GON made no arrests for terrorist financing in 2005. 
 
The GON is a party to the 1988 UN Drug Convention, the 1961 
UN Single Convention on Narcotic Drugs, as amended by the 
1972 Protocol, and the 1990 South Asian Association for 
Regional Cooperation (SAARC) Convention on Narcotics, Drugs, 
and Psychotropic Substances.  It has signed, but not yet 
ratified, the UN Convention against Transnational Organized 
Crime and the UN Convention Against Corruption.  Nepal is not 
a signatory to the UN International Convention against 
Illicit Traffic in Narcotic Drugs and Psychotropic 
Substances.  Legislative action in Nepal has clearly been 
handicapped by the lack of a sitting Parliament. 
 
End Text. 
MORIARTY