Identifier
Created
Classification
Origin
05KATHMANDU2828
2005-12-16 10:51:00
UNCLASSIFIED//FOR OFFICIAL USE ONLY
Embassy Kathmandu
Cable title:  

2005-2006 INCSR REPORT, FINANCIAL CRIMES AND MONEY

Tags:  EFIN KCRM KTFN PTER SNAR NP 
pdf how-to read a cable
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

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