Suspicious transactions in Nepal’s financial system cross Rs 42 billion as AML risks intensify

KATHMANDU: Suspicious financial transactions in Nepal’s formal financial system have surged sharply, crossing Rs 42.51 billion in the last fiscal year, raising fresh concerns about money laundering risks at a time when the country remains under enhanced international scrutiny. The latest Annual Report of the Financial Information Unit (FIU) under Nepal Rastra Bank (NRB) shows a significant rise in both the volume and value of Suspicious Transaction and Activity Reports (STRs/SARs), underlining growing pressure on regulators, banks, and law enforcement agencies.

According to the FIU’s Annual Report for fiscal year 2081/82 (2024/25), the number of suspicious transaction reports increased by 30.35 percent compared to the previous year. In fiscal year 2080/81, a total of 7,338 suspicious transaction and activity reports were filed. That figure climbed to 9,565 reports in the review year, reflecting a substantial expansion in detected or reported irregular financial behavior across the system.

More alarming is the surge in the monetary value associated with these reports. On a value basis, suspicious transaction information rose by 82.75 percent year-on-year. While suspicious transactions worth Rs 23.26 billion were reported in fiscal year 2080/81, the amount jumped to Rs 42.51 billion in fiscal year 2081/82. The FIU has explicitly noted that such an increase is not a positive signal, particularly as Nepal continues to remain on the global anti–money laundering (AML) “grey list”.

The report states that Nepal’s placement on the grey list for asset laundering risks makes the rising trend in suspicious financial activities an added challenge for the country’s financial stability, international credibility, and investment climate. The FIU warns that unless risks are effectively mitigated, growing volumes of suspicious transactions could further complicate Nepal’s efforts to strengthen its AML and counter-terrorist financing (CTF) framework in line with international standards.

Out of the total reports received through the FIU’s “GoAML” system, 945 financial intelligence reports were forwarded for investigation and possible prosecution. These cases were sent to the Nepal Police and the Department of Money Laundering Investigation for further action, indicating a direct pipeline from financial institutions to law enforcement agencies.

The Annual Report broadly covers Nepal’s progress in preventing money laundering, financing of terrorist activities, and financial investments linked to the proliferation of weapons of mass destruction. It also reviews policy-level reforms, operational improvements, and technical measures undertaken during fiscal year 2081/82 to strengthen the national AML/CFT regime.

In terms of institutional reporting, commercial banks accounted for the largest share of suspicious transaction information. During the review year, commercial banks submitted 7,303 reports involving transactions worth Rs 38.88 billion. This dominance reflects the central role of banks in Nepal’s financial system, as well as stricter compliance and reporting obligations imposed on them by the central bank.

Development banks reported 780 suspicious transaction reports amounting to Rs 759.6 million. Share broker companies also emerged as a notable source of reports, submitting 491 suspicious transaction reports involving Rs 1.91 billion. The growing reporting from capital market intermediaries points to increasing regulatory attention on the securities market, particularly amid rising retail participation and transaction volumes.

Finance companies reported 355 suspicious transactions worth Rs 839.2 million, while payment service providers submitted 252 reports involving Rs 165.7 million. Insurance companies reported 244 suspicious transactions amounting to Rs 498.8 million, highlighting vulnerabilities in long-term savings and premium-based financial products.

Remittance companies, a critical pillar of Nepal’s external sector and foreign exchange inflows, reported 100 suspicious transactions worth Rs 285.6 million. Although the number appears relatively small compared to banks, regulators consider remittance channels inherently sensitive due to their cross-border nature and potential misuse for illicit fund flows.

The report also reveals that other sectors, though smaller in scale, are increasingly being brought under AML monitoring. Cooperatives reported 36 suspicious transactions worth Rs 65.6 million, while casinos reported two cases involving Rs 6.1 million. Hire purchase companies reported one suspicious transaction worth Rs 390,000, and microfinance institutions reported one transaction amounting to Rs 1.1 million. The inclusion of these sectors underscores a broader regulatory push to close gaps beyond traditional banking channels.

Beyond transaction monitoring, the FIU report details several policy and technical initiatives completed during fiscal year 2081/82. These include the preparation of guidelines on information security, confidentiality, and data usage. Existing guidelines related to suspicious transactions and threshold-based reporting were also updated to align with evolving risk patterns and international best practices.

Throughout the year, the FIU conducted capacity-building, orientation, and awareness programs targeting reporting institutions, regulatory bodies, law enforcement agencies, and other stakeholders. These programs were aimed at improving the quality of reporting, enhancing risk understanding, and strengthening coordination across institutions responsible for AML and CTF enforcement.

International cooperation remains a key component of Nepal’s financial intelligence strategy. During fiscal year 2081/82, the FIU exchanged information in 64 cases with foreign financial intelligence units. The report notes that this cooperation has helped strengthen Nepal’s response to cross-border financial risks, transnational crime networks, cyber fraud, and emerging forms of financial crime that transcend national boundaries.

The FIU has identified several priority areas for the coming years. These include adopting a more risk-based supervisory approach, expanding technology-driven financial analysis, improving inter-agency coordination, and ensuring reforms are aligned with international AML/CFT standards. Strengthening the quality of financial intelligence analysis and making both domestic and international cooperation more effective are highlighted as central to the FIU’s forward strategy.

As Nepal seeks to protect the integrity of its financial system and restore confidence among global partners, the sharp rise in suspicious transactions documented in the latest FIU report presents both a warning and a test. The data reflects improved detection and reporting mechanisms, but it also signals deeper structural vulnerabilities that regulators and policymakers will need to confront with sustained reforms, stricter enforcement, and coordinated action across the financial sector.