A task force has been formed to combat illegal activities such as terrorist financing, money laundering, and other illegal practices that jeopardize financial integrity in countries around the world.
The Financial Action Task Force, or FATF, is the name of the Task Force.
the then Hon. Bishnu Paudel, Nepal’s finance minister, stated in 2014 that he would enact rules and laws to prevent terror funding and money laundering in Nepal, thereby avoiding inclusion on the grey list at the time. After the final on-site evaluation, the team returned to Nepal on December 1.
Similarly, the Financial Action Task Force team returned to Nepal on December 16, 2022. After reviewing the Task Force’s findings, Nepal was placed on the Gray List because it has not enacted legislation to combat terror funding and money laundering. Nepal has been added to the Grey list for the first time.
Grey List Explanation
It is placed on the grey list as a precautionary measure before being blacklisted. According to the Grey List’s terminology, it is Grey. This is the collar from which the FATF (Financial Action Task Force) separated the country for failing to create and implement laws related to terror funding and money laundering.
Something prohibited in a financial scenario grey list refers to the FATF (Financial Action Task Force), which is a global body of countries that are suspected of involvement in terror funding, money laundering, and other threats to the integrity of the international financial system.
If any countries are blacklisted for illegal activities such as terrorist financing, money laundering, or other threats to the integrity of the international financial system. Countries such as Nepal, Pakistan, Mauritius, South Africa, and Nigeria are currently on the grey list.
What impact does it have on that country?
The Impact on the Banking Sector
After Nepal was placed on the gray list for the first time, the banking sector may have suffered the most. Global “correspondent” banks and other financial intermediaries involved in transactions with Nepal entities are likely to demand increased due diligence.
Many procedures must be followed while transacting. Money transfer from foreign countries via the global SWIFT system, the worldwide communication network of banks and other financial institutions, faces numerous challenges.
This has had an impact on cross-border capital flows, particularly in the trade sector. Documentary requirements for export and import payments, such as letters of credit, may become more difficult to meet, potentially raising costs and impeding business for trade firms.
These changes will make Nepal’s foreign-exchange control regime more restrictive, but we do not anticipate any significant barriers to ongoing trade and investment flows for the economy as a whole.
External funding options will be limited.
Being placed on the gray list has an impact on the balance of payments. The balance of payments is defined as the difference between export and import. Placement on the grey list may have limited effects on its own, but when combined with a deteriorating balance-of-payments situation.
Nepal is currently facing economic challenges as a result of Corona and the rest of the world. Nepal’s foreign-exchange reserves are currently depleted. After being placed on the grey list, funds cannot be easily obtained from abroad, and Nepal may face additional difficulties.
Difficult to obtain financial assistance from the IMF and the World Bank.
Nepal is experiencing a recession as a result of the Corona and Russia-Ukraine war. Due to a lack of funds in the market, interest rates have now risen. Banks in Nepal are unable to pay interest and there is a lack of liquidity in the market. If the recession worsens, Nepal should increase the value of its currency by borrowing from the IMF and the World Bank.
It is difficult for Nepal to obtain a loan from the IMF or the World Bank in this situation. However, being on the FATF’s grey list can make potential negotiations with any multilateral donor more difficult.
The Impact on Foreign Investment
Because it affects the banking sector in Nepal, it has an impact on global banking supervision, causing problems with foreign direct investment. This would severely restrict foreign investment and trade flows, making access to global capital markets difficult for Nepal.
Nepal has been placed on the ‘Grey List’ (Negative List) due to a lack of timely laws to control financial crime and ineffective law enforcement. There is a chance that the World Bank, International Monetary Fund, Asian Development Bank, and others will restrict loans and financial aid to any country on the ‘Grey List,’ as well as suspend grants and aid.
Even after that, if no progress is made, the country will be blacklisted and subjected to a global embargo. Controlling and verifying international banking transactions from blacklisted countries is difficult.
Foreign investment will be discouraged in such a situation, the country’s financial credit will suffer in the international market, and the assets of the government and citizens abroad will be jeopardized.
The Task Force does not simultaneously be critical and blacklist. If the standards are not met during the periodic evaluation, it will be placed in the ‘Grey List’ first, followed by the ‘Black List’. T.
The annual conference of the Financial Action Task Force will be held in Canada in June 2023. If Nepal passes a law on time, it will be removed from the grey list.
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Alpana Bhandari is a founding partner and CEO of Prime Legal Consultants and Research Center. She graduated from American University Washington College of Law. She specializes in corporate/arbitration and family law.