The Nepalese government has accelerated deadline-driven reforms to exit the global anti-money laundering watchlist amid mounting international pressure.

The office of the Prime Minister and Council of Ministers of Nepal has instructed all government secretaries to implement a strict, time-bound action plan aimed at removing Nepal from the Financial Action Task Force (FATF) grey list, the global watchlist of jurisdictions with strategic deficiencies in combating money laundering and terrorist financing.

A high-level meeting of secretaries, chaired by chief secretary Govinda Bahadur Karki on Tuesday, reviewed the country’s progress and directed every ministry and agency to deliver results against fixed deadlines. The Prime Minister’s office will monitor implementation closely and demand regular progress reports from relevant bodies.

Nepal was placed on the FATF grey list on 21 February 2025. It has two years to address the identified shortcomings or risk further escalation, including possible blacklisting that would severely complicate international financial transactions and damage the country’s reputation. The government has set a firm internal target of completing the required reforms by mid-February 2027.

Background of Nepal’s Grey List Status

This is the second time Nepal has appeared on the FATF grey list. The country was previously listed from 2008 to 2014 and exited after introducing a series of legal and institutional reforms. The 2025 listing stemmed from persistent weaknesses in enforcement, inadequate supervision of high-risk sectors, low rates of investigation and prosecution of financial crimes, and gaps in controlling informal money transfer systems such as hundi (hawala).

Since the listing, Nepal committed to a 15-point International Co-operation Review Group (ICRG) action plan. Reviews by the FATF and its regional body, the Asia/Pacific Group on Money Laundering (APG), have acknowledged political commitment and some technical improvements, including amendments to the Assets (Money) Laundering Prevention Act and updated directives from Nepal Rastra Bank. However, they have consistently flagged insufficient progress on effectiveness – particularly in investigations, prosecutions, asset confiscation, and risk-based supervision of non-banking sectors.

An APG delegation visited Nepal in May 2026 and expressed concern over the slow pace of implementation. Officials were told that meaningful progress had been made on only a portion of the required actions, with several key areas still incomplete. The visit was described as a high-level intervention ahead of subsequent review cycles.

Priority Areas Demanding Immediate Action

The secretary-level meeting identified several critical sectors that require accelerated reforms. These include tighter regulation and supervision of banks and financial institutions, stronger oversight of cooperatives, effective handling of banking offences, monitoring of real estate transactions, and controls on trading in precious metals and stones.

Additional deficiencies highlighted by international assessors cover investigation and prosecution of corruption, tax evasion, human trafficking and smuggling, environmental and wildlife crimes, and the use of shell companies for money laundering. Authorities have also been urged to improve understanding of national money-laundering and terrorist-financing risks, crack down on illegal money or value transfer services without harming legitimate remittance flows, and demonstrate a measurable increase in investigations, prosecutions and successful confiscation of criminal proceeds.

Finance Minister Swarnim Wagle has repeatedly described exit from the grey list as one of the government’s top priorities. Recent interactions with APG officials have reiterated Nepal’s commitment to the full action plan, including enhanced mutual legal assistance agreements already signed with India and China and plans to expand such cooperation further.

Monitoring Mechanism and Broader Governance Push

The secretaries also decided to prioritise reforms that can deliver tangible benefits for citizens in the short term. They were informed that the Prime Minister’s office will maintain continuous oversight and ministries and agencies will have to submit regular updates to a monitoring team.

In parallel decisions, the meeting designated fiscal year 2026-27 as the “Year of Lawmaking and Reform.” Ministries were instructed to update or repeal outdated laws and draft new legislation where needed. They were further directed to resolve inter-agency policy and administrative bottlenecks through coordination among secretaries, escalating unresolved issues to the Prime Minister’s Office. Public procurement processes under the government’s zero-day procurement policy are to begin immediately for eligible programmes and projects.

The secretaries also agreed to review the implementation of governance reform procedures, guidelines and circulars issued by the Prime Minister’s Office.

Stakes for the Economy and Ordinary Citizens

Remaining on the grey list carries concrete costs. International banks and financial institutions apply enhanced due diligence to transactions involving grey-listed jurisdictions, raising compliance costs, delaying payments and increasing the expense of trade finance and remittances. For a remittance-dependent economy such as Nepal’s, these frictions can affect ordinary households and businesses. Prolonged listing also deters foreign investment and complicates correspondent banking relationships.

Failure to demonstrate sufficient progress by the February 2027 deadline could lead to blacklisting – a far more severe designation that would isolate Nepal from much of the formal international financial system. Officials and analysts note that technical compliance alone is insufficient; FATF evaluations increasingly emphasise measurable outcomes in enforcement and asset recovery.

The current administration, which took office after the 2025 political transition, has framed the grey-list exit as part of a wider governance and anti-corruption agenda. Steps already reported include rises in suspicious transaction reporting, increased arrests in money-laundering cases, efforts to strengthen investigative capacity, and plans for a unified digital asset registry under the Nepal Rastra Bank. Whether these measures will translate into the sustained prosecution and confiscation results demanded by the FATF remains the decisive test in the months ahead.

Road Ahead and Review Cycles

FATF reviews progress through periodic plenaries and APG assessments. Nepal faces successive checkpoints before the mid-February 2027 target. The government has signalled that it intends to treat the remaining period as a national priority, with the secretary-level directive intended to convert high-level political commitment into concrete, deadline-driven action across the bureaucracy.

Success will depend on coordination among investigative agencies, the Financial Information Unit, regulators and the judiciary, as well as political will to pursue high-profile cases without interference as the clock is running.