Identifier
Created
Classification
Origin
04KATHMANDU937
2004-05-18 08:29:00
SECRET//NOFORN
Embassy Kathmandu
Cable title:  

NEPAL: TERRORIST FINANCE UPDATE

Tags:  PTER EFIN ETTC PREL NP 
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This record is a partial extract of the original cable. The full text of the original cable is not available.
S E C R E T SECTION 01 OF 04 KATHMANDU 000937 

SIPDIS

NOFORN

STATE PASS TO SA/INS, EB/ESC/ESP, S/CT, INL/PC, INL/AAE
LONDON FOR POL/GURNEY
NSC FOR MILLARD
FBI FOR COUNTER-TERRORISM DIVISION
TREASURY PASS FINCEN
TREASURY FOR TERRORISM FINANCING TASK FORCE
TREASURY FOR OFFICE OF ENFORCEMENT/MONEY LAUNDERING

E.O. 12958: DECL: 05/09/2014
TAGS: PTER EFIN ETTC PREL NP
SUBJECT: NEPAL: TERRORIST FINANCE UPDATE

REF: A. A) SECSTATE 37211

B. B) 03 KATHMANDU 1175

C. C) 03 KATHMANDU 2096

D. D) 02 KATHMANDU 2254

E. E) 02 KATHMANDU 2306

F. F) KATHMANDU 813

Classified By: Charge d'Affaires Janet Bogue for reasons 1.5 (B,D)

SUMMARY
-------
S E C R E T SECTION 01 OF 04 KATHMANDU 000937

SIPDIS

NOFORN

STATE PASS TO SA/INS, EB/ESC/ESP, S/CT, INL/PC, INL/AAE
LONDON FOR POL/GURNEY
NSC FOR MILLARD
FBI FOR COUNTER-TERRORISM DIVISION
TREASURY PASS FINCEN
TREASURY FOR TERRORISM FINANCING TASK FORCE
TREASURY FOR OFFICE OF ENFORCEMENT/MONEY LAUNDERING

E.O. 12958: DECL: 05/09/2014
TAGS: PTER EFIN ETTC PREL NP
SUBJECT: NEPAL: TERRORIST FINANCE UPDATE

REF: A. A) SECSTATE 37211

B. B) 03 KATHMANDU 1175

C. C) 03 KATHMANDU 2096

D. D) 02 KATHMANDU 2254

E. E) 02 KATHMANDU 2306

F. F) KATHMANDU 813

Classified By: Charge d'Affaires Janet Bogue for reasons 1.5 (B,D)

SUMMARY
--------------

1. (U) The Government of Nepal (GON) indicates that no
terrorist assets listed by the United Nations 1267 Sanctions
Committee have been identified in Nepal and therefore, no
accounts have been frozen. The U.S. Embassy in Kathmandu has
no evidence of financial links in Nepal to international
terrorists designated by the UN 1267 Committee. Most of the
Government of Nepal's counterterrorism efforts are focused on
controlling the Communist Party of Nepal (Maoist) (CPN-M),
known as the Maoists, who have conducted a violent insurgency
against the GON since 1996. As a result of explicit threats
against U.S. interests, personnel and citizens, the United
States Government added the Communist Party of Nepal (Maoist)
(CPN-M) to the Terrorist Watch list in May 2003. In October
2003, this designation was upgraded under E.O. 13224
provisions to the Asset Freeze List; and, in May 2004, the
USG added the Maoists to the Terrorist Exclusion List.
High-level GON officials indicate that they appreciate these
USG efforts. Although supportive of efforts in the global
war on terrorism, the GON, specifically in the area of
identifying and freezing terrorist assets, is hampered by
institutional limitations, resource constraints, and the
prevalence of informal banking systems ("hawala" or "hundi").
END SUMMARY.

NEPAL'S FRACTURED BANKING
SYSTEM YIELDED NO RESULTS
--------------


2. (C) The Government of Nepal (GON) reported that no
terrorist assets listed by the United Nations 1267 Sanctions
Committee have been identified in Nepal and therefore, no

accounts have been frozen. The Embassy in Kathmandu has no
indication that there are currently any links to
international terrorists designated under 1267 Sanctions
Committee operating in Nepal. However, poor financial
record-keeping, lack of institutional capacity/know-how, the
relative ease in with which individuals can
change/conceal/purchase identities, and the existence of a
crippled, debt-ridden financial sector make it difficult to
track and identify the "money trail" through Nepal's
fractured banking system.


3. (S) According to Rajan Singh Bhandari, the Executive
Director of Nepal Rastra Bank (the Central Bank),the Central
Bank successfully identified and seized roughly USD 65,000
from accounts of prominent Maoists in early 2002. All
accounts were held at the Agricultural Development Bank of
Nepal (REF B). No subsequent seizures of any kind have
occurred. Bhandari and others within the GON believe that
the Maoists no longer use the formal domestic banking system.
This belief is shared by Finance Minister Prakash Chandra
Lohani, who speculated that the Maoists have resorted to
either the informal banking sector (hundi/hawala),bank
robberies, extortions from tourists and businesses, and even
to off-shore accounts in Singapore, Great Britain, Saudi
Arabia, and Malaysia to finance their insurgency (REF C).
(NOTE: Neither could provide specific details or evidence to
this effect. END NOTE)

FOCUSED ON ITS DOMESTIC TERRORISTS
--------------


4. (U) Most of the GON's resources and counterterrorism
efforts are focused on domestic terrorists, the Communist
Party of Nepal (Maoist) (CPN-M),known as Maoists. For the
past eight years, Nepal has been plagued by a violent
insurgency, affecting all but two of Nepal's 75 Districts and
resulting in over 9,000 deaths. As a result of explicit
threats against U.S. interests, personnel and citizens, the
United States Government added the Communist Party of Nepal
(Maoist) (CPN-M) to the Terrorist Watch list in May 2003. In
October 2003, this designation was upgraded under E.O. 13224
provisions to the Asset Freeze List; and, in May 2004, the
USG added the Maoists to the Terrorist Exclusion List.
High-level GON officials indicate that they appreciate these
USG efforts.

INSTITUTIONAL CONSTRAINTS
--------------


5. (U) The GON lacks the institutional capacity and
resources to monitor financial transactions, not only of
domestic insurgents, criminals involved in international
money laundering and more importantly, international
terrorist groups identified by the United Nations 1267
Committee. Currently, Nepal's Central Bank contains a
nominal financial tracking unit with only four staff, which
is responsible for coordinating with 41 domestic banks, 58
finance companies and over 200 "limited banks" or
cooperatives, on the identification and tracking of assets
held by terrorists or other criminals. The Tracking Unit
lacks the sophistication and expertise to adequately fulfill
this responsibility. (NOTE: In October 2003, Econoff was
told that the unit was staffed by eight personnel. During a
meeting with Central Bank officials in March 2004, unit
staffing stood at four individuals, one of whom was the
unit's secretary. END NOTE.) In fact, most financial
records and transactions are performed and tracked by hand
registries and cover both municipal and rural bank branches.


6. (SBU) Nepalese banks are not required, nor do they
perform, due diligence on bank deposits. Bankers from
Standard Charter, Nabil Bank, Nepal Bank Ltd, and the Central
Bank told Econoff that deposits are "viewed as assets" and
banks should be concerned with their liabilities. Only two
banks, Standard Chartered and Nabil Bank, have taken steps to
verify the identity of customers through a "Know Your
Customer" information campaign for all accounts. These
banks, however, have yet to institutionalize steps to
identify and investigate suspicious transactions. Nor have
they learned the value that public relations plays when
embarking on a customer information campaign. In fact,
Econoff was told by a U.S. government contractor residing in
Nepal that he was "so upset" when he was asked for "proof" of
his identity that he decided to change banks where he could
be more anonymous. When this example was mentioned to Sujit
Mundul, CEO of Standard Charter, he admitted that the early
stages of their "Know Your Customer" public relations efforts
were "a disaster" and translated into closure of accounts by
many long-time customers.

CENTRAL BANK: THE LEAD ON
IDENTIFYING AND TRACKING ASSETS?
--------------


7. (SBU) Rajan Singh Bhandari of the Central Bank told us
that the GON "will always" circulate information on terrorist
assets from the U.S. Embassy and other nations, as requested.
He also mentioned that "every" terrorist finance list sent
by the U.S. Embassy is passed to the Nepalese banking system,
regardless of whether it falls under the UN 1267 Committee.
Bhandari indicated that if an account was found that was
identified only under U.S. Executive Order 13224, but not
under UN 1267 Committee, the GON would need to "examine what
steps, if any, would be taken under this scenario."


8. (C) When asked for his opinion regarding obstacles/needs
to further cooperate on counter-terrorism finance, Bhandari,
in a 180-degree shift from previous meetings with Emboffs,
responded that the GON had "no obstacles" to combat terrorist
financing and required "no assistance from the U.S. in this
regard." (Comment. During several previous meetings with
Bhandari, he had indicated that Nepal required "a large
amount" of technical assistance, training and resources to
fulfill its role in combating international terrorism and
that the GON would welcome any form of USG assistance
offered. During separate meetings with Econoffs, several
expatriates bankers working on the World Bank's financial
sector reform project referred to a "change in attitudes"
within the GON against foreign involvement in its banking
sector. The bankers mentioned a perception the Nepalese were
increasingly viewing financial reforms as "foreign meddling"
and all connected Bhandari's "Hyde-like" change in attitude
with the March 2004 World Bank vote on its financial sector
reform proposal. END COMMENT)


9. (SBU) The U.S. Embassy passes all lists of organizations
and individuals pursuant to E.O. 13224 and United Nations
1267 Sanctions Committee designations to the GON, and the
GON, through the Central Bank, routinely acts quickly to
forward this information to the respective financial
institutions and includes instructions to freeze any accounts
uncovered. The Central Bank does not perform "spot checks"
on financial institutions to check the accuracy of
compliance. The U.S. Embassy is unaware of any action taken
to date to freeze accounts in Nepal. When asked the reason
why accounts have not been frozen, GON officials assert that
no accounts designated under UN 1267 Committee have been
found.


10. (SBU) Bhandari admitted that most financial transactions
occur in the informal, or hundi/hawala, banking system and
that it is "nearly impossible" to track or monitor
transactions in that realm. He estimates that over 75
percent of Nepalese workers' remittances enter through the
informal "hawala/hundi" banking system. (NOTE: GON statistics
estimate approximately USD one billion in remittance
earnings. END NOTE) Nepalese society readily accepts the
prevalence of the hawala/hundi; in fact, visa applicants
applying at the U.S. Embassy often attribute large sums of
income earned or missing to the hawala (i.e., they are either
money lenders or borrowers). In addition, there are only two
banks with nation-wide coverage, Nepal Bank Limited and
Rastriya Banijya Bank. Both institutions are state-owned
entities and are currently undergoing reform through the
World Bank Financial Sector Reform project. Therefore, the
hawala system fills a void in the Nepalese banking system.

PARTIAL LEGAL FRAMEWORK IN PLACE
--------------


11. (U) The Terrorism and Disruptive Activities Act 2002
(TADA) grants the GON sweeping authority to address any
damage or destruction that undermines the peace or
sovereignty of Nepal. It is TADA that gives the GON authority
to mobilize and tackle its domestic terrorist matters and to
address broader global terrorism trends, as identified under
the UN 1267 Sanctions Committee. The Banking and Financial
Institutions Ordinance of 2004 contains provisions granting
the Central Bank the capacity to freeze accounts presumed to
be associated with terrorist finances or activities. The
Ordinance also grants the Central Bank the authority to
cancel bank or financial institution licenses if they are
found guilty of hiding or attempting to hide transactions
associated with terrorist-related activities. The Foreign
Exchange Regulations Act of 1962 (amended) places strict
controls on the in/out flow of foreign exchange. For
example, foreigners bringing in foreign currency that exceeds
USD 2,000 must declare this at the port of entry, and any
currency conversions above USD 2000 must be pre-approved by
the Central Bank. Nepal has been a member of the
Asia/Pacific Group since March 2002. The GON is preparing a
draft anti-money laundering act based on Asia/Pacific Group's
Financial Action Task Force's (FATF) 40 8 Recommendations
on money laundering and terrorist finance. However, no solid
action has occurred. Nepal has yet to establish a Financial
Intelligence Unit (FIU),nor does it have the legal
framework or financial intelligence in place to lay the
groundwork for such an organization. Post submitted an INL
proposal to develop, equip and train a Financial Intelligence
Unit in Nepal (Ref F),which also includes an assessment of
GON's capacity to implement FATF recommendations.


12. (U) Nepal is a party to the following UN anti-terrorism
conventions:
-- Convention on Offenses and Certain other Acts Committed on
Board Aircrafts, 1963;
-- Convention on Suppression of Unlawful Seizure of Aircraft,
1970;
-- Convention on the Suppression of Unlawful Acts Against the
Safety of Civil Aviation, 1971;
-- Convention on the Prevention and Punishment of Crimes
Against Internationally Protected Persons, including
Diplomatic Agents, 1973;
-- Convention Against the Taking of Hostages, 1979; and,
-- Convention for the Suppression of Unlawful Acts Against
the Safety of Maritime Navigations, 1988.
Nepal has also signed the International Convention for the
Suppression of Terrorist Bombings, 1997. In addition, Nepal
is a party to the SAARC Regional Convention on the
Suppression of Terrorism and recently signed the SAARC
Additional Protocol on the Suppression of Terrorism.

COMMENT
--------------


13. (S/NF) Although the GON has been supportive in the
global war against terrorism, the Embassy doubts whether the
GON has the institutional strengths needed to track financial
transactions or to identify suspicious funds within its
domestic banking system. Post has been told that Nepal is
not identified by the interagency Terrorist Finance Working
Group as a priority country for anti-money laundering or
counterterrorist finance assistance. Although Nepal has the
potential to be a transit point for terrorist finances, there
is no evidence that this has happened to date nor do there
seem to be any verifiable links to international terrorist
organizations. Given the general lack of institutional
capacity and sophistication within this area, Post requests
that its INL proposal (Ref F) be given due consideration. END
COMMENT






















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