VZCZCXRO7638
OO RUEHCI
DE RUEHKT #1200/01 3191659
ZNR UUUUU ZZH
O 141659Z NOV 08
FM AMEMBASSY KATHMANDU
TO RUEHC/SECSTATE WASHDC IMMEDIATE 9424
INFO RUEHBJ/AMEMBASSY BEIJING PRIORITY 6719
RUEHLM/AMEMBASSY COLOMBO PRIORITY 7011
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UNCLAS SECTION 01 OF 05 KATHMANDU 001200 
 
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 104800 
 
KATHMANDU 00001200  001.2 OF 005 
 
 
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 even 
arrests for money laundering during 2008. 
 
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 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 and the Financing of 
Terrorism 
--------------------------------------------- --------------- 
--- 
 
¶5.  The GON passed its first law targeting money laundering 
in January 2008.  The Anti-Money Laundering Act 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 2007 or 
¶2008. 
 
¶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 
 
KATHMANDU 00001200  002.2 OF 005 
 
 
--------------------------------------------- ----------- 
 
¶7.  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.  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 received 
approximately one hundred suspicious transaction reports in 
2008, only one of which was deemed credible enough for 
further investigation. 
 
Financial Information Unit 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 2008. 
 
Financing Terrorism Criminalized; 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 
 
KATHMANDU 00001200  003.2 OF 005 
 
 
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 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 in Variety of 
Legislation 
--------------------------------------------- --------------- 
- 
 
KATHMANDU 00001200  004 OF 005 
 
 
 
¶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. 
 
¶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 2008.  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 
¶2008. 
 
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.  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. 
 
KATHMANDU 00001200  005 OF 005 
 
 
 
¶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. 
 
¶20.  Post point of contact is Kyla Dotson 
(dotsonke@state.gov). 
POWELL