New Civil Society Report on Nepal: weak implementation of preventive matters impedes strengthening of anti-money laundering system

17 March 2023 –

A new civil society report commissioned by Transparency International Nepal uncovers Nepal’s weak compliance with the United Nations Convention against Corruption (UNCAC). The legal framework does not meet the requirements of the Articles of Chapter II (Preventive Measures), and Chapter V (Asset Recovery), and lacks implementation in practice. This research finds that although an attempt to counter money laundering through its new ‘goAML system’ is underway, huge gaps persist in asset recovery where inter-agency coordination and cooperation resulted in little implementation and no effective monitoring oversight. There are no political financing regulations or whistleblower protection laws in place. The asset disclosure systems is merely cosmetic because it is ineffective in practice. The civil society report is intended to contribute to the UNCAC implementation review process in its second cycle, with technical and financial support from the UNCAC Coalition.

Although the Government of Nepal’s anti-corruption agenda is reflected in several plans and policies, the situation has changed in recent years. Notable examples of their legislative framework to combat corruption include the Fifteenth Plan (2019/20-2023/24), the Plan and Programmes of Fiscal Year 2020/21 and a draft National Integrity Policy. Nevertheless, the government and other institutions have been marred by high-level corruption cases frequently reported by the media. Despite promises by various governments and political parties, corruption control has not been a national priority. No real punitive action has been taken by relevant government agencies or the anti-corruption body recently. The Commission for the Investigation of Abuse of Authority (CIAA) has not investigated any high-level corruption cases but has focused more on prosecuting low-ranking civil servants. The conviction rate in corruption cases has been at a record low during the fiscal year 2021-22.

Significant delays have affected UNCAC implementation and reporting over recent years. As of November 2022, the government is still in the process of updating the National Strategy and Action Plan on Implementation of the UNCAC from 2012. Updating the national strategy and action plan is in a preliminary phase and discussions among key ministries are ongoing. The second cycle UNCAC review process in Nepal was scheduled to begin in 2017. The country visit with peer reviewers from Lebanon and El Salvador took place on 25-27 January 2022 with limited involvement of TI Nepal and other civil society organizations. The executive summary of Nepal’s UNCAC review is available on Nepal’s UNODC country profile page.

For all the detailed findings, read the full civil society report in English. A translated Nepali language version of the report is forthcoming.

Main findings

The following are some of the main findings according to topic:

Public sector employment

The Public Service Commission, the body in charge of administering the civil service in Nepal, enjoys independent constitutional status. The Civil Service Act and the Civil Service Rules provide the necessary authority for the civil service administration. The government has tried its best to make the civil service as attractive as possible by reviewing salaries over the span of three years and providing civil servants with benefits, such as a pension, medical insurance, education, and child care allowances, among others. Although Nepal has continuously experimented with anti-corruption reforms within the civil service, it remains marred by inefficiencies, political patronage, and nepotism, which diminish its capacity to contribute effectively to economic development.

Political financing

There is no specific law on political party financing in Nepal. In practice, political party finances and election integrity have always been questionable in the country. The Election Commission makes it mandatory for all political parties to disclose their financing, but most of the parties do not comply with this provision. The integrity of the disclosed information is generally questionable as there is no validating mechanism in place. The Election Commission rarely takes any action in cases where a political party does not disclose its election-related expenses.

Codes of conduct, conflicts of interest and asset declarations

Several codes of conduct exist for employees working in courts, government employees and attorneys, employees of certain ministries, and judges. All emphasize high ethical standards such as neutrality, transparency, integrity, and professionalism and aim to make the concerned officials more ethical, independent, impartial, competent, and diligent. However, codes of conduct are not strictly adhered to in practice, and there are low instances of follow-up in the event of breaches. There is no law in place in Nepal regulating conflicts of interest. All three branches, the executive, legislature, and judiciary, are obliged to file asset disclosures. However, the Nepalese asset disclosure system is merely cosmetic because it is ineffective in practice. There is no real monitoring or a national database for asset declarations in place, and the declarations are confidential and not accessible to the public.

Whistleblower protection

There is no specific whistleblower or witness protection mechanism or policy in place, and there is no enabling environment for whistleblowing in Nepal. However, some legal provisions scattered through different acts, regulations, directives, and practices provide for confidentiality of the identity of the whistleblower, immunity from prosecution, and remedy and compensation in case of harm or loss suffered. However, in practice, there is no guarantee that the whistleblowers will not face retaliation for reporting corruption or misconduct.

Public procurement

 Nepal’s Public Procurement Monitoring Office is a key oversight agency with functions such as formulating policies and recommending measures of implementation, monitoring, coordinating foreign technical assistance, and developing human resources related to public procurement. Nepal has created an e-procurement platform with the objective of ensuring transparency. Corruption is pervasive in Nepal’s public procurement sector and there are frequent reports of the embezzlement of public money. The Public Procurement Monitoring Office blacklists bidders, proponents, consultants, service providers, suppliers, construction entrepreneurs or other persons, firms, organizations or companies for one to three years on the basis of the seriousness of their act or misconduct. However, political influences exist, and blacklisting alone may not solve the problem of collusion and impunity relating to public procurement.

Public finances

The Financial Procedure and Fiscal Accountability Act 2019 and the Financial Procedure and Fiscal Accountability Rules 2021 were created to make the fiscal management system responsible, transparent, results-oriented, and accountable. They aim to maintain overall fiscal stability by providing a blueprint for the regulation and management of financial procedures at the federal, provincial, and local levels. An independent constitutional body, the Office of the Auditor General, carries out the national audit. The Public Audit Committee acts as an oversight agency and is mandated to examine the irregularities reported in the Office of the Auditor General’s annual report. Likewise, the Finance Committee of the parliament also provides oversight of public funds. However, there is a growing tendency to bypass the set procedures per the convenience of the parties in power by issuing ordinances instead of obtaining approval in parliament.

Access to information and participation of society

The Nepalese government has not been very accountable to citizens in terms of providing information that is of national importance. The information, particularly that which is politically sensitive, is often delayed and may even be withheld without assigning any reasons whatsoever. Regarding the participation of society in public matters, civil society organizations may be consulted for “matters of public concern” pursuant to laws that deal with good governance. It should be noted that the prevention of corruption has not been directly defined as a matter of public concern but that the participation of civil society organizations may be sought for that purpose, albeit not mandated. Moreover, there are other statutory requirements whereby civil society organizations may have a chance to participate, for instance in public hearings.

Judicial and Constitutional Council

The Judicial Council takes action against judges on various grounds including incompetence, misconduct, failure to perform his or her duties honestly, performance of business in bad faith or serious violation of the required code of conduct. Likewise, the Constitutional Council can oversee the Commission for the Investigation of Abuse of Authority (CIAA). The chief commissioner or commissioner can be removed from the post by the President upon recommendation of the Constitutional Council on grounds of his or her inability to hold office and discharge the functions due to physical or mental illness. Nevertheless, it should be noted that despite serious corruption allegations involving them, in practice, impeaching or removing the chief commissioner or commissioner of the CIAA has been a rare phenomenon.

Private Sector transparency

The Good Governance (Management and Operation) Act from 2008 does not allow ex-civil servants to assume the management role in the private sector, which helps to protect transparency and integrity of the private sector. However, the private sector code of conduct does not suffice, nor has it proven to be effective, to do away with potential undue nexus with the law enforcement agencies and there is no transparency of beneficial owners of companies.

Anti-money laundering

The Government of Nepal recognizes the anti-money laundering and countering the financing of terrorism (AML/CFT) system as a strategic tool to control financial crimes and intends to make its electronic monitoring system ‘goAML’ fully operational. The existing AML/CFT legal, policy, and institutional frameworks provide relatively comprehensive provisions in line with the standards and good practices of the Financial Action Task Force. The Financial Intelligence Unit has assisted other agencies in developing their AML/CFT instruments and has provided resource persons for AML/CFT training and capacity building programs, as well as preparing policies and guidelines.

Asset recovery

Nepal is a member of the Asia-Pacific Group on Money Laundering, Egmont Group of Financial Intelligence Units, Asset Recovery Interagency Network-Asia Pacific (ARIN-AP), and INTERPOL since 1967, and is committed to providing cooperation internationally. However, there is a huge gap in inter-agency coordination and cooperation in policy and at an operational level. There is no system in place for the verification of the ultimate owners of reporting entities, and consequently, there is no monitoring. Moreover, there is no specific law or policy regulating designated non-financial businesses and professions which leaves much leeway for money laundering and corruption.

The Assets (Money) Laundering Prevention Act from 2008 provides the Department of Money Laundering Investigation or its investigating officer the power to give orders for freezing assets during the course of an investigation. Fines are imposed if orders are not complied with. Domestic bank accounts can be withheld and requests for freezing foreign bank accounts can be made through diplomatic channels. Despite reports such as Nepal-leaks 2019: Illegal Wealth watch, no investigation has been initiated by the government, neither was any action taken to stop illegal investments.

Key recommendations

In its report, Transparency International – Nepal makes several key recommendations for priority actions to be taken to ensure the full implementation of the UNCAC in Nepal, for example:

  1. Involve civil society organizations, the private sector, and the media in combating corruption in general, and interact with them in the UNCAC review process by inviting them to meaningful consultations, as it is a national obligation that is not merely confined to the government.
  2. Formulate and implement special laws in line with international standards, especially in areas requiring full compliance with the UNCAC, namely conflict of interests and party financing. Secure full abidance of existing laws, mitigating all anomalies and intricacies involved, as most of the prevalent laws need immediate amendments.
  3. Ensure that institutions are endowed with adequate human and financial resources and an enabling environment so that they function independently and effectively, as well as in an efficient and sustainable manner.
  4. Demonstrate strong political will to do away with growing impunity by prosecuting even the Politically Exposed Persons involved in corruption.
  5. Allow the Public Procurement Monitoring Office to monitor the assets, income, and spending habits of the procurement officers, as it is the sole monitoring agency for procurement purposes.
  6. Ensure broad participation of civil society organizations, the private sector, and ordinary citizens in formulating and implementing anti-corruption policies and action plans.
  7. Restructure the various anti-corruption agencies so as to avoid duplication of work and coordination problems.
  8. Formulate and implement a code of conduct for the Members of Parliament.
  9. Enact laws that promote cooperation between the private sector and law enforcement agencies to ensure private sector transparency.
  10. Investigate all financial irregularities reported – the Department of Money Laundering Investigation and other agencies concerned must be more proactive.
  11. Strengthen the Law Enforcement Agency’s intelligence capacity.
  12. Create a register of timely and verified beneficial ownership information and make it available to the public to ensure transparency of the beneficial owners of companies in Nepal.



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