Grey List Hold: FATF Says Nepal's Anti-Money Laundering Push Still Lacking

The Financial Action Task Force (FATF) has kept Nepal on its grey list, a watch list of countries with weaknesses in preventing money laundering and the financing of terrorism, while issuing six specific areas where the country must show improvement.

Nepal was placed on the FATF grey list in February 2025 after the watchdog identified shortcomings in the country's anti-money laundering and counter-terrorism financing framework. The latest update follows FATF's June 2026 Plenary held in Paris, where Nepal's progress was reviewed alongside that of several other countries since February 2026.

The FATF provided some flexibility to jurisdictions not facing immediate deadlines, allowing them to report progress on a voluntary basis. Nepal is among the 22 countries currently under increased monitoring.

Reviewing progress since February 2026, FATF outlined six areas Nepal must address to move toward exiting the grey list. These are: improving the understanding of key money laundering and terrorism financing risks; strengthening oversight of commercial banks, higher risk cooperatives, casinos, dealers in precious metals and stones, and the real estate sector based on each sector's level of risk; identifying and taking action against illegal informal money transfer operators, commonly known as hundi providers, without disrupting access to legitimate financial services; building the capacity of relevant agencies and improving coordination among them to carry out money laundering investigations; demonstrating a measurable increase in money laundering investigations and prosecutions; and proving the ability to trace, freeze, seize, and confiscate proceeds of crime in line with the risk each case presents.

Nepal's regional peer body, the Asia Pacific Group (APG) on Money Laundering, assessed that meaningful progress had been made on only nine of the 15 items in Nepal's FATF action plan, while the remaining six had seen only partial implementation, based on a January 2026 review. Nepali officials, however, claimed that further improvements had been made on those six items since January.

Being on the grey list can increase scrutiny of cross border financial transactions and may raise compliance costs for banks and businesses, although it does not trigger economic sanctions. The FATF cautioned against practices that could disrupt legitimate financial flows, including humanitarian assistance and remittances.

The FATF noted that since February 2025, Nepal has taken steps to address remaining weaknesses in its framework for imposing targeted financial sanctions related to terrorism financing and proliferation financing. Nepal must continue implementing its action plan to address the remaining gaps, the watchdog said.