The European Parliament has endorsed an update to the European Commission’s list of high-risk countries for money laundering and terrorist financing, which now includes Nepal.

As a result, the Himalayan nation will be subject to enhanced due diligence measures and increased scrutiny from EU-based financial institutions. This is important to protect the EU financial system, said the European Commission.

Earlier in June, the European Union’s executive body updated its list, adding Nepal and nine other countries Algeria, Angola, Ivory Coast , Kenya, Laos, Lebanon, Monaco, Namibia and  Venezuela to the blacklist.

However, this new list cannot enter into force without the approval of both the European Parliament and the Council which represents the 27 EU member states. The Council has yet to announce its decision.

Nepal's weak enforcement

The Commission said it has carefully considered the concerns expressed regarding its previous proposal and conducted a thorough technical assessment, based on specific

 criteria and a well‑defined methodology, incorporating information collected through the FATF, bilateral dialogues and on‑site visits to the jurisdictions in question.

The updated list aligns with the work of the Financial Action Task Force (FATF), the global watchdog for combating money laundering and financial support of terrorism. The European Commission argues that, as a founding member of the watchdog, its own classifications form a significant element of its commitment to monitoring the work of FATF-listed jurisdictions.

FATF has expressed concerns that certain non-governmental organizations (NGOs) operating in Nepal may be vulnerable to misuse for illicit financial activities that has grave implications for the region, particularly with India with which it shares an open border.

Analysts observe that while Nepal has taken legislative steps to address money laundering and terrorist financing, enacting laws aligned with international standards, the country continues to face significant challenges in implementing these measures effectively.

 Weak enforcement is largely attributed to limited institutional capacity, insufficient resources, and a lack of technical expertise within key regulatory and law enforcement bodies. This gap between legislation and enforcement raises concerns about the country's ability to detect, investigate, and prevent financial crimes in a timely and comprehensive manner.

EU trade deal in Gulf

At the same time the European Commission’s updated list  removed eight  countries Barbados, Gibraltar, Jamaica, Panama, the Philippines, Senegal, Uganda, and the United Arab Emirates from the list. However, their removal from the list marks progress, but restoring full investor confidence may take time.

EU Commissioner for  Financial Services Maria Luís Albuquerque noted that the UAE had made “tangible progress.” Last April  the EU and the UAE  officially commenced negotiations for a free trade agreement which  holds the potential to establish the first comprehensive EU trade deal in the Gulf region.

At the vote in the European Parliament on Wednesday (9 July), 369 lawmakers backed the updated  list, 264 voted to reject it, and 55 abstained.

(The author is an Indian journalist who is a long time resident in Brussels and covers the EU. Views expressed are personal. He can be reached nawabbk98@gmail.com )