| June 22, 2018

Suspicious transaction reports double in four years

Suspicious transaction reports double in four years
Total funds involved in reports forwared for probe put at Rs 3.6 billion
KATHMANDU, April 8: The number of suspicious transaction reports (STRs) that Nepal Rastra Bank (NRB) receives from various financial institutions has been rising sharply in recent years, indicating that a huge amount of dirty money has been flowing through Nepal's financial system.

According to an annual report obtained by Republica, the Financial Information Unit (FIU) - Nepal, which is under NRB, received a total of 517 suspicious transaction reports in the last fiscal year, 2014/15, or nearly double the number received four years ago.
FIU-Nepal, the national agency responsible for receiving, processing, analyzing and disseminating financial information and intelligence on suspect money, had received a total of 256 such reports in fiscal year 2010/11. The annual report shows that the number of suspicious transactions through banks and financial institutions, securities and futures dealers and money services, among other entities, is on a rising trend.

According to the Guidelines for Detecting Suspicious Transactions, many different types of finance-related entities including BFIs, remittance companies, insurance companies and casinos, are obliged to report any suspicious transactions to FIU within three days.

Suspicious activities include people trying to wire money out of the country without identification and someone with no job starting to deposit large amounts of cash in an account. Similarly, transactions having unclear economic and business targets, transactions conducted with relatively large amounts of cash and/or conducted repeatedly and unnaturally, and transactions conducted in a different way than usual or by someone other than the normal customer are among those that NRB counts as suspicious transactions.

Officials at NRB, however, contend that the rise in suspicious transactions does not necessarily mean the illicit flow of money is also increasing.

"It's not that the money involved in all these suspicious transaction reports is illicit. However, such transactions are what financial entities are likely to consider with suspicion. We analyze the report and forward it to the respective investigation authority for further action," said Rishikesh Bhatta, the head of FIU.

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Bankers feel that the increasing scrutiny of the abuse of the financial system by money launderers is one of the major reasons behind the rising number of reports on suspicious transactions. "Earlier, the suspicious transaction reports would not come to the anti-money laundering screening system. The improvement of the screening system has helped filter the transactions and report them to FIU," said Shovan Dev Pant, chairman of the National Banking Institute.

Stakeholders say that most of the transactions that finance-related entities flag are related to evasion of tax, fund transfers to and from high-risk offshore financial centers under the disguise of foreign direct investment, and illegal sources of cash earning such as corruption, drug trafficking and other kinds of crime.

The number of suspicious reports forwarded by FIU to the Department of Revenue Investigation (DRI) and the Department of Money Laundering Investigation (DoMLI) corroborates this observation. According to data from FIU, it forwarded 56 such suspicious transaction reports to DRI last fiscal year out of 133 reports which it concluded smacked of illicit funds. And 38 cases were forwarded to DoMLI.

Though FIU would not spedify the amounts involved in the transactions that the finance-related entities have flagged as suspicious, an official at NRB privy to the screening system estimates that the total funds in the reports it has forwarded for investigation stands at around Rs 3.6 billion.

According to the US-based research and advocacy organization Global Financial Integrity (GFI), Nepal's Average Annual Illicit Financial Outflows (during 2004-2013) stands at $567 million.

Many BFIs have also become sensitive toward protecting themselves against dirty money.

"The rising number of suspicious transaction reports also suggest that the finance-related industries are growing wary of the possibility that dirty money could flow through their systems, and of the ensuing legal implications, and this is prompting them to report if they notice anything suspicious," Maha Prasad Adhikari, former deputy governor of NRB, told Republica.
Sagar Ghimire

Ghimire is associated with Republica, English National Daily, since November 2013. He reports and writes on banking, financial, cooperatives, labor and foreign employment issues.


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