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Dr. Chiranjibi Nepal
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As is well known, the impact of money laundering and
terrorism financing to the financial institutions and financial system has
serious implications to the overall financial system, which jeopardizes
socio-economic development for the country. At the global level, the IMF
estimated the extent of money laundering to be around 2% to 5% of global GDP. A
country's rating on compliance with standards set by Financial Action Task
Force (FATF) on AML/CFT, is often considered as a key measure of the country's
AML/CFT regime. An unfavorable rating would mean that the businesses, including
financial institutions, would face greater scrutiny, higher costs of doing business,
delays and other time consuming including unnecessary barriers when doing
business with overseas counterparts.
While Nepal had received satisfactory rating in our last
mutual evaluation in 2014 by APG, after the various efforts and reforms in
respective sectors since the second mutual evaluation 2010, we have to do a lot
for upcoming evaluation in 2020 which will be based on a more holistic
methodology where greater focus will be on the effectiveness of our
implementation. If we do not attain good rating, the consequences could be high
and Nepal will be listed in the FATF Public Statement as a country with
significant deficiency in AML/CFT.
Bank and Financial Institutions (BFIs), being the most
important partner for financial transactions, can play an important role of
deterring as well as detecting money laundering and activities related to
terrorism financing. Compliance with AML/CFT law and regulations in these
financial institutions require high commitments with non-compliances being
seriously dealt with. At the international level, we have witnessed that banks
have been penalized billions of dollars for failure to comply with AML/CFT
directives. In Nepal, Nepal Rastra Bank (NRB), the Central Bank of Nepal, has
been taking strong actions upon NRB licensed BFIs that have failed to comply
and implement such directives related to AML/CFT. (For instance, the financial
penalty that normally applies for noncompliance ranges from one to fifty
million rupees.)
Money laundering can take different forms, and is not
limited to tax evasion, cybercrime, identity fraud, phishing, card fraud,
skimming, advance fee scams, fund transfer schemes, fake prizes, international
lottery fraud, wills and legacies and loan fraud and international transfers
etc. The technologies adopted by BFIs are making them increasingly vulnerable
to various risks in money laundering. Generally, vulnerability to money
laundering is greater when there is inadequate internal control system, poor
risk management practices, weak good governance, inadequate board and senior
management oversight, inadequate policy, procedure and monitoring the
functional activities and breach of contract and trust etc. Although the
banking system is stringent in Know Your Customer (KYC), it is not sufficient
as expected to identify the beneficial owner and to apply the risk based
approach. NRB has observed that money laundering is largely the result of weak
internal control and poor risk management and practices of the respective
banks. This highlights the need of efficient internal audit, strong internal
control system and better risk management practices within the BFIs in addition
to compliance to regulation and supervision for prevention, control and
detection of financial crime.
BFIs must adopt strategic approach and also comply with the
KYC regulations based on risk based approach, real time transaction monitoring
and transaction analysis for prevention and timely detection of financial
crimes. The Board and senior management of BFIs should be proactive in
understanding the potential risks and also put in place a crime prevention,
control and detection mechanism. They should have a deep understanding of the
institution’s strengths and weaknesses and be able to move their respective BFI
in right direction. The prevention and corrective measures should also be a key
concern to minimize the impact of financial loss that impact our economy.
Nepal has established legal and institutional foundation to
comply with AML/CFT standards. The whole of the legal and organizational
framework of AML/CFT revolves around FATF's 40 recommendations. In that regard,
NRB has been extensively working to strengthen its legal and organizational
framework. In this regime BFIs can play a very important role, not just because
launderers have been abusing the financial system but also because as victim of
such crimes, they are always at various risks such as legal, regulatory,
concentration and reputational.
In the case of Nepal stakeholders including
the NRB and FIU-Nepal, have been proactively working to implement the
preventive measures of financial crime, so as to investigate and disseminate
the cases of money laundering and terrorist financing (ML/TF) to Law
Enforcement Agencies (LEAs). FIU-Nepal received 45,93,5817 TTRs' and 887 STR's
in FY 2017/18 and out of the total STRs' that has been received; almost 312
were disseminated to the LEAs. I hope that FIU-Nepal and LEAs will continue to
coordinate to further investigate the cases for prosecution and convictions. I
understand that FIU-Nepal has already installed the goAML system for
strengthening the receiving, reporting and dissemination mechanism of
information and reports from commercial banks and is now reporting under the
test environment. I am confident banks will soon move to live environment of
goAML in reporting of STR and TTR to FIUNepal. Hence, leadership of
Government of Nepal and joint and coordinate efforts among the regulators,
BFIs, LEAs, FIU, civil society and support agencies such as ISP,
Telecommunication companies, vendors, etc. including with the public private
partnership can play an important role to control the financial crime and help
to maintain the financial stability in country.
At
last, but not least, I would convey my best wishes that the conference will be
successful and reach a concrete conclusion about the implementation of robust
mechanism of AML compliance. In addition to this, I believe that, this program
will able to help improve your knowledge on the risks associated with of ML/TF.
It will also help to further continue discussions on plan of action to help
prepare for the upcoming mutual evaluation scheduled in 2020.
Address by Dr.
Chiranjibi Nepal, Governor, Nepal Rastra Bank for “Anti‐Money Laundering
Conference ‐ 4th Annual Summit (Nepal) 2019” Kathmandu, February 1, 2019
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