Financial and non-financial institutions, entrepreneurs and professionals will have to obtain the identity details of any customer conducting unexpected foreign exchange transactions worth Rs100,000 or more, according to the new money laundering prevention regulation issued recently.

The directive has been published three years after the Money Laundering Prevention Act was amended. 

“Internationally, there is a practice of getting the identity details of customers who conduct unexpected foreign exchange transactions valued at more than $1,000. We followed the same rule while determining the amount,” said Binod Lamichhane, information officer at the Department of Money Laundering Investigation.

The regulation has stated the number of steps to be taken to conduct enhanced due diligence of transactions of high risk customers. 

As per the regulation, the concerned government agency or company should conduct a subtle check of the objective and background of those who conduct a transaction of a disproportionately high amount and confirm whether it is suspicious.

Such institutions should also obtain the approval of a higher authority whether to conduct transactions with a high-risk person or company based on a study of suspicious transactions.

Based on the study, the institution can also impose a limit on the amount of transactions of high risk customers, according to the regulation which was passed by the Cabinet recently.

“Customers identified as high risk should undergo enhanced due diligence during every phase of the financial transaction,” the regulation states. Politically exposed persons from the president to special class officials should undergo enhanced due diligence besides those who have been identified as high risk.

The president, vice-president, ministers, lawmakers, officials of constitutional bodies, bureaucrats holding secretary-level and higher posts, judges of appellate and higher courts, central committee members of political parties and those holding high positions in state-owned or partially state-owned enterprises have been defined as politically exposed persons as per the Money Laundering Prevention Act.

Since step by step measures have been given in the regulation to identify high risk customers, it will help institutions to collect information about their customers and provide details to the department, Lamichhane said.

According to the regulation, government and international institutions too need to undergo due diligence, not only private individuals and institutions.

“While conducting due diligence of government, inter-government and international institutions, their decision to conduct a transaction or open a bank account, authorization letter and personal details of the account holder should be taken,” the regulation states.

Nepal fulfils first of two DPC conditions

KATHMANDU: Nepal has fulfilled one of the two conditions set by the World Bank to qualify for its third phase of Development Policy Credit (DPC) worth $100 million by endorsing the money laundering prevention regulation.

The second condition placed by the World Bank to become eligible for the credit is promulgation of the Bank and Financial Institution Bill which is being discussed in Parliament.

Negotiations between Nepal and the World Bank on the third phase of DPC were supposed to begin five months ago. But they were postponed after Nepal failed to meet the two preconditions.

As efforts are being made to meet both conditions, the road has now been cleared to begin negotiations on DPC, said Lal Bahadur Khatri, under-secretary at the Finance Ministry.

DPC is interest-free credit the World Bank provides to the government as budgetary support. The government can use the loan amount in any area of need.

Nepal has already received $130 million, in tranches of $30 million and $100 million respectively in the first two phases of DPC.

The objective of DPC3 is to support the medium-term financial sector reform programme launched by the government to reduce the banking sector’s vulnerability and increase its transparency, according to the World Bank.