The Asia/Pacific Group on Money Laundering (APG) has issued a stern warning to Nepalese authorities, calling for significant improvements in risk-based supervision of non-financial businesses and professions, particularly the casino sector, to combat money laundering and terrorist financing.
Vulnerabilities in the Casino Industry
Nepal is exposed to money laundering threats from neighboring jurisdictions due to its porous borders and strong economic ties. The APG’s report identifies casinos, especially those near the border, as a key vulnerability for laundering foreign proceeds.
Casino Landscape in Nepal
The report reveals that Nepal hosts 28 licensed casinos, including 15 mini-casinos, with a majority situated near the Indian border. The estimated annual turnover for these casinos is NPR9 billion (approximately US$67.5 million).
Medium-High Vulnerability Rating
Nepal’s casino industry was categorized as having a “medium-high vulnerability” to money laundering risks following a National Risk Assessment conducted in 2020. The APG highlights the inadequacy of the ‘fit and proper’ person requirements for casinos, as they stem from an unclear regulatory framework.
Regulatory Oversight and Compliance
The Ministry of Culture, Tourism and Civil Aviation is responsible for supervising anti-money laundering (AML) and counter-terrorist financing (CFT) measures in the casino industry. However, the APG notes that the implementation of AML/CFT supervision, including risk-based supervision, has not yet begun.
Compliance with FATF Recommendations
Nepal has only achieved “partial compliance” with the recommendations of the Financial Action Task Force (FATF) regarding the oversight of the casino sector. The APG expresses concerns about authorities’ limited understanding of money laundering and terrorism financing risks.
Licensing Practices
The report highlights that 19 new casino licenses were approved by local authorities over the past five years, with none being declined. The APG criticizes the lack of transparency in the licensing process and insufficient information provided regarding application assessments.
Foreign Exchange Transactions
Casinos engaging in foreign exchange transactions must obtain licenses from Nepal Rastra Bank (NRB), the central bank. However, only a small number of casino operators have obtained the necessary licenses, and even fewer have submitted required monthly returns for foreign exchange transactions.
Lack of Mitigating Measures
The APG underscores that casino operators in Nepal are not applying adequate mitigating measures proportional to their money laundering and terrorism financing risks. There is a dearth of guidance, supervision, and understanding of related obligations.
Criminal Involvement
The watchdog points out that Nepal is not actively preventing criminals from holding or controlling some non-financial businesses, including casinos. This poses significant risks to the integrity of the casino industry.
Urgent Recommendations
The APG urges Nepal to enhance oversight measures and prioritize risk-based supervision, with a specific focus on the casino sector. Sanctions should be applied to casinos engaging in illegal foreign currency or money transfer transactions, and comprehensive anti-money laundering and counter-terrorist financing measures should be implemented promptly.
The APG’s report underscores the pressing need for Nepal to strengthen its regulatory framework and enforcement efforts to safeguard against money laundering and terrorist financing risks in its casino industry.