Nepal tightens real estate transactions to Exit FATF Grey List, mandates bank statements

KATHMANDU: In a decisive move to remove Nepal from the Financial Action Task Force (FATF) grey list, the government has introduced stricter regulations for real estate transactions. The Department of Land Management and Records has issued a directive mandating that both buyers and sellers provide bank statements for all property deals, aiming to curb money laundering and terrorist financing activities.

The directive, issued under the framework of the Prevention of Money Laundering and Financial Investment in Terrorist Activities, requires that real estate transactions be supported by proof of funds transferred from the buyer’s bank account to the seller’s account. This proof must be submitted alongside other documentation during the transaction process. The FATF placed Nepal on its grey list earlier this year, citing weak implementation of anti-money laundering laws, and has given the country two years to address the deficiencies.

Finance Minister Bishnu Paudel has repeatedly pledged to expedite Nepal’s removal from the grey list, ahead of the two-year deadline. The new measures in the real estate sector are a direct response to this pressure, aiming to enhance transparency and traceability in financial transactions. For offices where revenue payments are processed through banks, property transactions exceeding NPR 1 million must now have registration fees and duties paid directly from the buyer’s bank account. Similarly, capital gains tax must be deposited into the designated revenue account from the seller’s bank account.

Even in cases where a local authority certifies a preliminary agreement (bainapatra) for a property deal, the submission of bank statements remains mandatory. For preliminary agreements involving amounts above NPR 1 million, the funds must be transferred from the buyer’s account to the seller’s via banking or electronic payment systems, with transaction details attached to the agreement documentation.

The directive further stipulates that any real estate transaction—whether a single deal or multiple deals in a day—totaling NPR 30 million or more must be reported to the Financial Information Unit (FIU) of Nepal Rastra Bank. Additionally, if a transaction appears suspicious, reporting entities and offices are required to notify the FIU, ensuring close monitoring of high-value or dubious property deals.

The directive applies to both natural and legal persons involved in real estate transactions. For deals between NPR 1 million and NPR 5 million, payments must be made through banking or electronic systems. Transactions exceeding NPR 5 million must be conducted via electronic payment systems or “good for payment” cheques issued directly in the seller’s name, further reducing the risk of cash-based illicit activities.

Background and Implications

Nepal’s placement on the FATF grey list has raised concerns about its international financial credibility, potentially affecting foreign investment and access to global financial systems. The grey list status signals deficiencies in combating money laundering and terrorist financing, prompting the government to take urgent action. Real estate has long been a sector vulnerable to financial crimes in Nepal, often used to launder money due to the high volume of cash transactions and lack of stringent oversight.

The new regulations aim to formalize property transactions by integrating them into the banking system, ensuring a clear audit trail. By mandating bank statements and electronic payments, the government seeks to deter illicit financial flows and demonstrate compliance with FATF standards. However, the measures may pose challenges for smaller buyers and sellers who rely on cash transactions, potentially slowing down the real estate market in the short term.

Economists and financial experts have welcomed the move, noting that it aligns with global best practices for financial transparency. Yet, they caution that effective implementation and public awareness will be critical to achieving the desired outcomes. As Nepal races to exit the grey list, these reforms mark a significant step toward strengthening its financial integrity on the global stage.