The Asia/Pacific Group on Money Laundering (APG) says the Nepalese authorities “should significantly enhance risk-based” supervision of the country’s non-financial businesses and professions, including casinos, regarding anti-money laundering (AML), and combatting the financing of terrorism (CFT).
Nepal is “exposed to foreign money laundering threats from neighbouring jurisdictions due to its porous border and its close economic and trade links” to other places, said the APG in its latest report on that jurisdiction. “Casinos, particularly in the border region, are a key vulnerability to the laundering of foreign proceeds,” it added.
The report produced by the APG, titled “Anti-money laundering and counter-terrorist financing measures – Nepal”, was published on Friday.
The APG is an intergovernmental organisation with 42 members in the Asia-Pacific region, as well as ties to organisations and observers from outside the region.
According to the report, there are 28 licensed casinos – including what the institution describes as “15 mini-casinos” – with physical venues in Nepal. Ten are in the capital, Kathmandu, “and the remainder in various locations close to the Indian border”, with an estimated annual turnover of NPR9 billion (circa US$67.5 million).
The country’s casino industry was classified as having “medium-high vulnerability” regarding money laundering risks, following a National Risk Assessment conducted in 2020 by the local authorities.
The ‘fit and proper’ person requirements for casinos there, “are derived from an unclear regulatory framework and are not sufficient to prevent criminal ownership or management,” noted the APG in its latest report on Nepal.
The Ministry of Culture, Tourism and Civil Aviation is designated as the AML/CFT supervisor for the country’s casino industry.
The APG noted that implementation of AML/CFT supervision of casinos by the ministry – as well as risk-based supervision – “has not commenced”.
“The assessment of vulnerabilities is reasonable”, with sectors such as banking and casinos “identified as the most vulnerable”.
The body also said that Nepal was only “partially compliant” regarding recommendations from Paris-based watchdog, the Financial Action Task Force (FATF), concerning oversight of the casino sector.
“Overall, competent authorities have a varied and developing understanding of money laundering risks and a limited understanding of terrorism financing risk,” it added.
Lack of mitigating measures
The APG noted that the local authorities approved licences to 19 new casinos in the last five years, “with none declined”.
“Limited information was provided regarding the steps taken when considering applications,” it stated.
The report also mentioned that casinos engaging in foreign exchange “must also be licensed” by the nation’s central bank, Nepal Rastra Bank (NRB).
“Despite all casinos in Nepal undertaking foreign exchange transactions, only six casino operators (covering 10 casinos) have obtained the required licence from NRB,” highlighted the report. “Of these, only two of the casinos have ever submitted a required monthly return to NRB for their foreign exchange transactions, which is a condition of the licence.”
The APG’s report also said that casino operators in Nepal were “not applying mitigating measures commensurate with their money laundering/terrorism financing risks … due to negligible understanding” of such risk and the related obligations, as well as due to a “lack of guidance and … supervision”.
“Casinos for example, only have measures to detect cheating and not suspicious activity that may trigger requirements to submit” a suspicious transaction or activity report, noted the report.
The AML watchdog said additionally that Nepal “is not actively preventing criminals” from holding or controlling some non-financial businesses, “including in the higher risk casino” sector.
Nepal should enhance oversight measures and risk-based supervision should be implemented in specific sectors, prioritising, among other things, the casino industry, stated the organisation.
“Casinos should also be sanctioned for engaging in illegal foreign currency or money or value transfer services transactions in violation” of the existing legal framework, it added.
