VZCZCXRO8244
OO RUEHCI
DE RUEHKT #1987/01 3201018
ZNR UUUUU ZZH
O 161018Z NOV 07
FM AMEMBASSY KATHMANDU
TO RUEHC/SECSTATE WASHDC IMMEDIATE 7477
INFO RUEHBJ/AMEMBASSY BEIJING PRIORITY 6149
RUEHLM/AMEMBASSY COLOMBO PRIORITY 6468
RUEHKA/AMEMBASSY DHAKA PRIORITY 1721
RUEHIL/AMEMBASSY ISLAMABAD PRIORITY 4491
RUEHLO/AMEMBASSY LONDON PRIORITY 5742
RUEHNE/AMEMBASSY NEW DELHI PRIORITY 1994
RUEHCI/AMCONSUL KOLKATA PRIORITY 3869
RUEAWJA/DEPT OF JUSTICE WASHDC PRIORITY
RUEKJCS/SECDEF WASHDC PRIORITY
RUEATRS/DEPT OF TREASURY WASHINGTON DC PRIORITY
RUCNDT/USMISSION USUN NEW YORK PRIORITY 2999
RHMFIUU/CDR USPACOM HONOLULU HI PRIORITY
RHEFDIA/DIA WASHDC PRIORITY
RUEAIIA/CIA WASHDC PRIORITY
RHEHNSC/NSC WASHDC PRIORITY

UNCLAS SECTION 01 OF 05 KATHMANDU 001987 
 
SIPDIS 
 
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 2007-2008 INTERNATIONAL NARCOTICS 
CONTROL STRATEGY REPORT (INCSR) PART II:  MONEY LAUNDERING 
AND FINANCIAL CRIMES 
 
REF: A. STATE 138130 
 
     ¶B. KATHMANDU 001982 
 
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.  The Government of Nepal (GON) has 
not yet criminalized money laundering.  Draft anti-money 
laundering legislation has been prepared but has not yet 
passed into law or ordinance. There were no prosecutions or 
even arrests for money laundering during 2007. 
 
Limited Black Market for Smuggled Goods 
--------------------------------------- 
 
¶2.  There is not a significant black market for smuggled 
goods in the country.  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. 
 
No Reports of Money Laundering and Financial Crimes 
--------------------------------------------- ------ 
 
¶3.  The banking system has never reported any cases of money 
laundering or terrorist financing.  Reports suggest that 
hawala operators based in Hong Kong and 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. 
 
No Laws Specifically To Prevent Money Laundering and the 
Financing of Terrorism 
--------------------------------------------- ----------- 
 
¶5.  Nepal has no laws specifically targeting money 
laundering, nor has the Government of Nepal (GON) 
criminalized money laundering.  Legislation on money 
laundering, mutual legal assistance and witness 
protections-developed as part of the GON's Master Plan for 
Drug Abuse Control-remained stalled in 2007.  The interim 
Parliament has yet to pass anti-money laundering legislation, 
but a bill has been prepared and is under review.  The 
Foreign Exchange Act of 1962 and the Bank and Financial 
Institutions Act of 2006 offer provisions to prosecute money 
laundering.  There were no prosecutions or arrests for money 
laundering in 2006 or 2007. 
 
¶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.  Current laws do not have 
provisions for the establishment and funding of a financial 
intelligence unit. 
 
Central Bank Monitors Financial Sector for Abnormalities 
 
KATHMANDU 00001987  002 OF 005 
 
 
--------------------------------------------- ----------- 
 
¶7.  The central bank of Nepal-Nepal Rastra Bank NRB)--is the 
regulator of all banks and financial 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.  Cooperation between reporting 
individuals and law enforcement entities is kept highly 
confidential; however, there are no specific laws protecting 
 
SIPDIS 
the reporting individuals.  The NRB received no suspicious 
transaction reports in 2007. 
 
No Dedicated Financial Intelligence Unit; Other Entities 
Investigate Financial Crimes 
--------------------------------------------- ----------- 
 
¶8.  There is no separate financial intelligence unit in 
Nepal.  Several government bodies are responsible for 
investigating financial crimes.  The NRB's Bank and Financial 
Institutions Supervision Department has authorization to 
investigate money laundering and terrorist financing.  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-who are adequately staffed but lack adequate 
training-handle arrests and file cases in the appellate 
court.  There were no arrests or prosecutions for money 
laundering or terrorist financing in 2007. 
 
Financing Terrorism Not Criminalized, but No Reports of 
International Terrorist Ties 
--------------------------------------------- ---------- 
 
¶9.  The GON has not criminalized the financing of terrorism 
as required by the United Nations Security Council Resolution 
¶1373.  Terrorism and terrorist financing are considered 
serious crimes but are prosecuted under other criminal laws. 
 
¶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 EU 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 
 
KATHMANDU 00001987  003 OF 005 
 
 
alternative remittance systems (called "hundi" in Nepal) that 
bypass financial institutions.  In order to regulate these 
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 
monitor and supervise their sectors for potential terrorist 
financing.  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.  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 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, Post is unaware 
of any database or information-sharing mechanism among host 
government agencies.  Information about cash smuggling is 
shared among government agencies and with foreign governments 
by request only. 
 
No Asset-Seizure Legislation, but Provisions 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.  Draft anti-money laundering legislation is 
pending in the interim Parliament.  Political uncertainty in 
Nepal-the government twice postponed constituent assembly 
elections in 2007-has prevented the GON from prioritizing 
this legislation.  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 00001987  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 2007.  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. 
 
¶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 2007. 
 
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.  There is no agreed mechanism with the United 
States or other countries 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.  The fluidity 
of the current political situation in Nepal is likely to 
delay any formal agreement.  Nevertheless, Nepal has been 
willing to cooperate with U.S. requests regarding the 
investigation of financial crimes.  There have been no major 
cases requiring U.S.-Nepal cooperation, but the GON 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 00001987  005 OF 005 
 
 
¶20.  Post POC for the INCSR as per Ref A is Kyla Dotson 
(dotsonke@state.gov or dotsonke@state.sgov.gov).  Part I of 
the INCSR draft for Nepal is Ref B. 
POWELL