Aml CFT

AML CFT
Coursebook
DECEMBER 4, 2019
Kathmandu Nepal
Contents
Introduction: General .....................................................................................................................................................3
Introduction: Roles ........................................................................................................................................................3
Introduction: Institutions ...............................................................................................................................................3
Expected Results............................................................................................................................................................3
Objectives of AML/CFT Regime ..................................................................................................................................3
financial Action Task Force (FATF) and other International Initiatives .......................................................................4
The Asia/Pacific Group on Money Laundering (APG) .................................................................................................4
Money Laundering ........................................................................................................................................................4
Methods for Money Laundering ....................................................................................................................................5
Terrorist Financing ........................................................................................................................................................6
Legal Framework of AML/CFT in Nepal ......................................................................................................................6
Foreign Account Tax Compliance Act (FATCA) .........................................................................................................7
Asset (Money) Laundering Prevention Act, 2008 .........................................................................................................7
AML/CFT Related Authorities in Nepal .......................................................................................................................7
Predicate Offence/s ........................................................................................................................................................8
Fundamental Roles of Reporting Entities ......................................................................................................................9
Customer Education/ Employee’s Training and Hiring .................................................................................................9
Know Your Customer .................................................................................................................................................. 10
Definition of Customer ................................................................................................................................................ 10
Type of Customers....................................................................................................................................................... 10
Four Key Elements of KYC Policy ............................................................................................................................. 10
New Customer Acceptance.......................................................................................................................................... 11
Maintenance of Customer Information on an Ongoing Basis ...................................................................................... 12
Screening ..................................................................................................................................................................... 12
Understanding Beneficial Ownership .......................................................................................................................... 12
Key Differences between Money Laundering and Terrorist Financing ....................................................................... 13
Name Screening........................................................................................................................................................... 13
Politically Exposed Persons (PEP) .............................................................................................................................. 13
Customer Due Diligence (CDD) ................................................................................................................................. 14
Enhanced CDD for Higher Risk Customers ................................................................................................................ 14
Simplified CDD for Lower Risk Customers ................................................................................................................ 15
Transaction Monitoring ............................................................................................................................................... 15
Record-Keeping and Retention .................................................................................................................................... 15
Financial Information Unit (FIU) ................................................................................................................................ 16
Reporting to FIU-NEPAL............................................................................................................................................ 16
Suspicious Transactions .............................................................................................................................................. 17
No “Tipping Off”......................................................................................................................................................... 17
Wire Transfers ............................................................................................................................................................. 17
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Money Mules ............................................................................................................................................................... 18
Virtual Currencies........................................................................................................................................................ 18
Risks Associated with Virtual Currencies ................................................................................................................... 19
Human Trafficking ...................................................................................................................................................... 19
Indicative Alerts .......................................................................................................................................................... 19
Indicative Alerts Specific to Insurance and Mutual Fund............................................................................................ 20
Additional Indicative Alerts- Money Transfer or Remittance ..................................................................................... 21
Nepalese Sanction Regime: Regulatory ...................................................................................................................... 21
Nepalese Sanction Regime: Criminal .......................................................................................................................... 21
Case Studies................................................................................................................................................................. 23
Banking Case Study 1.................................................................................................................................................. 23
Case Resolution ........................................................................................................................................................... 26
Case Resolution ........................................................................................................................................................... 27
Case Resolution ........................................................................................................................................................... 28
Case Resolution ........................................................................................................................................................... 28
Insurance Case Study 1................................................................................................................................................ 29
Case Resolution ........................................................................................................................................................... 29
Case Resolution ........................................................................................................................................................... 30
Case Resolution ........................................................................................................................................................... 31
Case Resolution ........................................................................................................................................................... 31
Assessment Homepage ................................................................................................................................................ 32
Question Bank Nepal ................................................................................................................................................... 32
You've completed the course! ...................................................................................................................................... 34
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Introduction: General
• Criminals, money launderers and terrorist financiers succeed in their illegal activities because they are able
to sanitize, move and conceal illegitimate funds. For this, they use financial institutions, designated non-
financial businesses and professions DNFBPs) and other trade or charity-based channels
• Weak AML/CFT policies and procedures assist such criminals to expand their activities
• Such environment helps them to abuse the system and adds further to their engagements in tax evasion,
corruption, drug trafficking, exploitation and illicit trafficking of human beings, smuggling, arms trafficking,
terrorism, etc.
• Money laundering and financing of terrorism can occur in any country. Such activities have adverse
economic and social consequences to all the countries and the impact is severe for developing countries.
Introduction: Roles
• With the financial cost of non-compliance on AML/CFT going up substantially in recent times, combined
with the loss of reputation, this is a very critical area which cannot be neglected any more.
• Compliance on risk based approach, as expected by the international standards and domestic laws, requires
in-depth knowledge, skill and instruments systematized within an institution.
• Employees working in financial institutions and designated non-financial businesses and
professions(DNFBPs) play a critical role in identifying, monitoring and detecting such illegal activities by
staying informed, vigilant and reporting suspicious activities or transactions to the related government
authority.
• So, it is critical to ensure that you and your team understand the facts and spirit behind AML/CFT regulations
and how it should influence day-to-day behaviour at the workplace.
• Hence, the Fintelekt Course and Certification in AML/CFT provides the essential knowledge from an
educational, regulatory and ethical perspective, and includes an assessment to determine if the officials of
the Reporting Entities(REs) have indeed understood the key aspects of AML/CFT regime.
Introduction: Institutions
Following financial and non-financial institutions are required to implement AML/CFT preventative measures in a
robust manner. Effective training is the cornerstone for such successful implementation
• Banks, money remitters, exchange houses, institutions providing services of financial leasing, lending,
financial commitment or guarantee;
• Institutions issuing and managing different means of payment;
• Institutions trading in different types of financial or money market instruments or services;
• Institutions engaged in insurance services, securities related industries like mutual funds, commodities,
brokering, portfolio managers;
• Institutions like designated non-financial businesses and professions (DNFBPs) such as casinos, independent
legal and accounting professionals, real estate agents, precious metal and stones dealers, trust and company
service providers, and
• Non-Profit Organizations (NPOs) and others as applicable.
These institutions are normally classified as Reporting Entities (RE) in this regime.
Expected Results
By the end of the course, you will be able to:
• Gain knowledge on the fundamentals of AML/CFT regime.
• Understand AML/CFT compliance modalities and risk-based approach.
• Comprehend the instruments to detect and report Suspicious Transactions.
Objectives of AML/CFT Regime
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The objectives of AML/CFT Regime are as follows:
• Protecting the financial system.
• Preventing criminals from enjoying the proceeds of crimes.
• Preventing criminals to build formidable economic powers and
challenge the stability.
financial Action Task Force (FATF) and

other International Initiatives
• Over the years, many international efforts have been made to combat the threat of money laundering and
terrorist financing. These initiatives include the efforts of UNO and other regional organizations, World
Bank, IMF, ADB, OECD, Egmont Group of FIUs and FATF and FATF Style Regional Bodies (FSRBs)
(Currently 8 FSRBs are working globally).
• The Financial Action Task Force (FATF) was established at the G-7 Summit in Paris in 1989, as an inter-
governmental body to develop a co-ordinated international response to the threats of Money Laundering
(ML)/Terrorist Financing (TF)/Proliferation Financing (PF). It is basically the standard setting and
compliance monitoring body. It had issued 40+9 Recommendations on ML/TF in 1990 and 2001, which now
have been combined and revised as the FATF Standards of ML/TF/PF 2012. FATF has 37 members and
numbers of international and regional observers.
The Asia/Pacific Group on Money Laundering (APG)
• APG is an autonomous FSRB founded in 1997 in Bangkok, Thailand and now consists 41 members and
numbers of international and regional organizations as observers. Some of the key international observer
organizations include Financial Action Task Force, International Monetary Fund, World Bank, OECD,
United Nations Office on Drugs and Crime, Asian Development Bank, etc.
• APG members and observers are committed to the effective implementation and enforcement of AML/CFT
international standards, in particular the Revised FATF Recommendations. All SAARC countries are
members of the APG.
Money Laundering
• “Money Laundering” is the process by which illegal funds and assets are converted into legitimate funds and
assets.
• Every year, huge amount of funds are generated from illegal activities. These funds are mostly in the form
of cash.
• Criminals who generate these funds need to bring them into the legitimate financial system.
• Illegal, or “dirty money” is put through a cycle or series of transactions or “washed”, to convert the money
to “clean” or “legal” money.
• Thus the dirty money has to pass through different stages before it gets clean.
• The different stages of money laundering are:
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1. Placement: Illegal funds or assets are first brought into the financial system. This placement makes the funds
more liquid. Money launderers place illegal funds using a variety of techniques like, depositing cash into
bank accounts or purchasing insurance products and using cash to purchase assets.
2. Layering: To conceal the illegal origin of the placed funds and thus make them more useful, the funds have
to be moved, dispersed and disguised. This activity is known as “layering”. At this stage, money launderers
use many different techniques to layer the funds like, using multiple banks and accounts, having professionals
act as intermediaries and transacting through corporations and trusts. This helps the launderers to disguise
the origin of the funds.
3. Integration: The last stage of the money laundering process is called “integration”. The “cleaned” funds can
now be made available for investment in legitimate or illegitimate businesses. Thus, the original “dirty”
money has achieved the appearance of legitimacy.
Methods for Money Laundering
• Shell Company: A “shell company” is an entity that does not have any active business and usually exists
only on paper. Such companies have no dedicated office or employees, and do not manufacture any products.
They are usually formed to create transactional layers between other companies or individuals through false
invoicing so as to make the money trail more complicated.
• Shell Bank: Legitimate banks are prone to money laundering risks posed by “shell banks” in correspondent
banking transactions. A shell bank is generally defined as ‘a foreign bank without a physical presence in any
country’.
• Offshore Bank: These are banks that are usually located in low-tax or no-tax offshore financial centres and
conduct their business with non-residents. Although these banks are legally established, due to low regulatory
controls and high secrecy in offshore financial centres, they are commonly used as a channel for money
laundering.
• Front Company: A “front company” is a business that is a front for organized crime or other illegal
activities. Such companies are usually engaged in selling products or services in large volumes in cash, such
as casinos or restaurants. Due to the cash nature of business, such front companies are used to launder money
gained from illegal activities by mixing dirty money into its normal trading transactions.
• Structuring or Smurfing: Structuring, also known as smurfing, is the practice of executing multiple
transactions (such as bank deposits) below a specific threshold or cut-off limit to avoid the generation and
reporting of transactions by the bank or financial institution to the
regulator. Smurfing usually involves numerous apparently
unconnected depositors who make cash deposits in different bank
accounts below the threshold reporting limits and then the money
is routed to other account/s from which it is normally withdrawn
immediately in cash or immediately transferred to another
account.
• Hawala System: In the “hawala system”, money is transferred via
a network of brokers. This alternative banking system is primarily
trust-based and operates outside the control of the regulators and
leaves no paper trail. In this system, the transfer of money takes
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place from one jurisdiction to another without money actually moving across jurisdictions(authorities).
• Currency Exchanges: Currency exchange is an effective method in which money can be smuggled to
another jurisdiction to minimize risk of detection. This method exploits low reporting requirements on
currency exchange houses.
• Valuable Commodities: This is a technique where purchasing valuable commodities such as gems and
precious metals can conceal ownership and illegal funds can be moved to another jurisdiction without
detection.
• Valuable Assets: Illegal funds can be used to purchase high value assets, such as houses and vehicles to take
advantage of reduced reporting requirements and to obscure the source of proceeds of crime.
• Gaming Activities: Gaming activities like gambling and casinos can be used to launder illegal money by
buying winning tickets from legitimate players, using casino chips as currency for criminal transactions and
using online gambling to obscure the source of criminal proceeds.
• Non-Profit Organizations: Non-profit organizations face numerous risks relating to money laundering and
terrorist financing. Non-profit organization’s and charities are identified as potentially significant
contributors to money laundering and terrorism financing.
• Nominees: Use of family members, friends or third parties to hide the identity of the person controlling
illegal money is another way to launder money
• Gatekeepers: Use of professionals such as lawyers, notaries, real estate agents, accountant, auditors etc who
assist money launderers in transactions involving movements of illegal funds and hide the identity of
beneficiaries and the source of such funds.
Terrorist Financing
Terrorist financing means providing financial support to terrorists or terrorist organizations to enable them to carry
out terrorist acts. Terrorist funding or assisting terrorist is one of the predicate offences of money laundering.
• Key features of terrorist financing are
• Remittances to and from unrelated parties from high risk geographies, followed by withdrawal or transfer to
different parties in small values
• Withdrawal in cash or through cards in small values at high risk centers and merchant establishments.
• Support to terrorist organization, individual or group for their initiatives, acts and preparations
• Undue use of Non-Profit Organizations (NPOs or charities.
•
•
Legal Framework of AML/CFT in Nepal

• Asset (Money) Laundering Prevention Act, 2008
• Asset (Money) Laundering Prevention Rules, 2009
• Asset (Money) Laundering Prevention (Listing, Seizing, Freezing) Rules, 2013
• Regulatory Directives such as from Nepal Rastra Bank, Insurance Board, Securities Board and other
Regulators
• FIU Directives on STR and TTR
• Other laws relating to the business of the REs and investigations, etc.
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Foreign Account Tax Compliance Act
(FATCA)
FATCA was enacted in March 2010 to target non-compliance by
U.S. taxpayers using foreign accounts. The Act requires foreign
financial institutions (FFIs) to report to the U.S. Internal Revenue
Service (IRS) information about financial accounts held by U.S.
taxpayers, or by foreign entities in which U.S. taxpayers hold a
substantial ownership interest. FATCA regulations require tax
authorities to obtain detailed account information for US taxpayers
on an annual basis. FATCA and the Common Reporting Standard
(CRS) present significant structural changes in governments’ efforts
to improve global tax compliance •
FATCA is intended to increase transparency for the IRS with respect to US persons that may be investing and earning
income through non-US institutions. While the primary goal is to gain information about US persons, FATCA imposes
tax withholding where the applicable documentation and reporting requirements are not met.
Unless the US exempts them from FATCA reporting, FATCA

includes foreign financial institutions such as:
• banks
• insurance companies
• custodial institutions
• hedge funds
• mutual funds
• superannuation funds
• private equity firms
Asset (Money) Laundering Prevention
Act, 2008
• Objective: to provide for prevention of money laundering
and terrorist financing
• Enactment : 14 Magh, 2064 (28 January, 2008)
• First amendment: 2011
• Second amendment as an Ordinance in 2013 and as an Act
in 2014 (Nepali Year 2070)
• Jurisdiction: Nepal and may extend globally if the proceeds
or person has connection.
AML/CFT Related Authorities in Nepal
Policy and Coordination Mechanisms:
• National Coordination Committee (Chaired by the Secretary, Ministry of Finance)
• Implementation Committee (Chaired by the Deputy Governor)
• Legal, Supervisory, Investigation, International Cooperation, Technical Sub-Committees
Regulatory Bodies:
• The Nepal Rastra Bank (NRB)
• The Securities Board of Nepal (SEBON)
• Insurance Board
• Department of Cooperatives
• Regulators for other FIs or DNFBPs
Law Enforcement and other Competent Authorities
• Financial Information Unit (FIU)
• Department of Money Laundering Investigation (DMLI)
• Commission for the Investigation of the Abuse of Authority (CIAA)
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• Nepal Police
• Revenue Investigation Department (RID)
• Tax, Customs and Immigrations authorities
• Prosecutors and the Courts
• MLA Central Authority
• Assets Recovery Authority
•
Predicate Offence/s
Offences that are committed to illegally earn/generate money or income or property are predicate offences.
FATF has listed the designated categories of predicate offences.
Different countries have different practices such as threshold- or list-based or blanket approaches, but they include at
least all FATF designated offences.
Nepal has adopted a list-based approach, which includes:
1. Any offence under the prevailing laws:
• Participation in an organized criminal group and racketeering,
• Disruptive (terrorist) act and terrorism,
• Trafficking in human being and migrant smuggling in any form,
• Any kinds of sexual exploitation including the children,
• Illicit trafficking in narcotic drugs and psychotropic substances,
• Illicit trafficking in arms and ammunition,
• Illicit trafficking in stolen and other goods,
• Corruption and bribery,
• Fraud,
• Forgery,
• Counterfeiting of coin and currency,
• Counterfeiting and piracy of products, or imitation, illegal copy or theft of products,
• Environmental crime,
• Murder, grievous bodily injury,
• Kidnapping, illegal restraint or hostage-taking,
• Theft or robbery,
• Smuggling (including custom, excise and revenue),
• Tax (including direct and indirect),
• Extortion,
• Piracy,
• Insider Dealing and Market Manipulation in securities and commodities,
• Ancient monument conservation,
• Forest, National park and wild animals,
• Money, banking, finance, foreign exchange, negotiable instruments, insurance, cooperatives,
• Black marketing, consumer protection, competition, supply,
• Election,
• Communication, broadcasting, advertising,
• Transportation, education, health, medicine, foreign employment,
• Firm, partnership, company, association,
• Real estate and property,
• Lottery, gambling, donation,
• Citizenship, immigration and passport.
2. Offence of terrorist financing pursuant to section 4,
3. Any other offence as designated by the Government of Nepal by publishing a notice in the Nepal Gazette, or
4. An offence under a law of a foreign State, in relation to act or omission under paragraph (1), (2) or (3), which,
had they occurred in Nepal, would have constituted an offence.
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Fundamental Roles of Reporting Entities
Here are the roles that have to be fulfilled by the Reporting Entities(REs).
• Customer Due Diligence
• Compliance and Risk based approach
• Monitoring
• Reporting
• Systematic development
Customer Education/ Employee’s Training and
Hiring
Every RE must abide by the AML/CFT policies, and it becomes necessary for the institutions to educate their
customers and train their employees about their objectives of the AML/CFT programme.
Customer Education:
REs must prepare specific literature and pamphlets to educate customers about the objectives of the AML/CFT
programme.
Employees Training:
REs must have an ongoing employee training programme to adequately
train its staff and to have different focuses for front-line staff, compliance
staff and staff dealing with new customers.
Hiring of Employees
REs should have an adequate screening mechanism in place as an integral
part of the personnel recruitment or hiring process to ensure that criminals
are not allowed to misuse financial institutions.
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Know Your Customer
Definition of Customer
A customer is generally defined as a person or entity:
• Who maintains an account and/or has a business relationship with the REs.
• On whose behalf the account is maintained (i.e. the beneficial owner).
• Beneficiaries of transactions conducted by professional
intermediaries, such as stock brokers, chartered accountants,
solicitors etc. as permitted under the law.
• Connected with the RE and who can pose significant reputation or
other risks, for example, while making a wire transfer or issuing a
high value demand draft.
• Who attempts to establish a business relationship or conduct a
transaction.
• Who receives services or requests for services from RE
Type of Customers
• Natural Persons
• Legal Persons as follows:
Four Key Elements of KYC Policy

Know Your Customer (KYC) is the process used by the REs to verify the identity of their clients. It allows the
institutions to know and understand their customers and their transactions better, which in turn allows the institutions
to intercept any fraudulent dealing.
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The KYC process normally has four key elements.
Customer Acceptance Policy

• No anonymous/ fictitious accounts
• Risk assessment and categorization of customer into Low, Medium or High risk
• Not to open an A/C and close an existing A/C where the bank is unable to apply appropriate Customer Due
Diligence(CDD) measures
• Name screening against negative lists
Identification Procedure:
• Identification and verification of customer
• Verification of customers from original and other reference documents
• Periodic updates of customer identification data
Transaction Monitoring
• Threshold based monitoring : mix of automated and manual triggers
• Special attention to all complex, unusually large transactions and all unusual pattern, with no apparent
economic or visible lawful purpose
• Attention to large transactions inconsistent with normal & expected patterns
• Review of AML risk categorization
• Ongoing monitoring of high risk customers and Enhanced
Customer Due Diligence(ECDD)
Risk Management
• Assessment of Risks
• Board approved AML/CFT Policy
• Management oversight on policy implementation
• Independent internal audit and compliance function for
evaluating and ensuring adherence to the AML/CFT Policies and
procedures
New Customer Acceptance
When entering into a relationship with new customers, it is mandatory to procure the proof of identity and address
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REs should not accept as customers those persons whose identity and beneficial
owner(s), as required in the Acts, Rules and regulatory Directives, cannot be verified
/assured or for whom sufficient information to form a customer risk profile cannot
be gathered. In such cases REs should consider to file a suspicious transaction report
if necessary.
Maintenance of Customer Information on an
Ongoing Basis
REs must gather and maintain customer information on an ongoing basis. Documents, data, or information collected
under the CDD process should be kept up to date and relevant by undertaking reviews of existing records at appropriate
times.
Screening
• REs should screen the names of customers and beneficiaries against the negative list.
• UN and some other domestic and international organizations maintain a list of designated terrorist or terrorist
organizations.
• REs are required to go through the list, search for similar names and freeze the fund if so found.
• The Office of Foreign Assets Control (OFAC) of the US Department of the Treasury administers and enforces
certain economic and trade sanctions based on US foreign policy. If RE has a branch or headquarters or any
business existence or presence (including ADR listing) in the United States, it should be aware that doing
business with any OFAC sanctions target country (including government agencies) is strictly prohibited,
unless the activity is otherwise authorized by OFAC under general or specific license.
• The purpose is to prevent economic support to terrorist and protecting national and international security
interests.
• Economic sanctions are affected through blocked assets controls, trade embargoes, travel bans and other
commercial and financial restrictions.
• OFAC is not applicable to institutions and entities that have no direct or indirect US relationship; these may
be guided by their local regulatory norms.
Understanding Beneficial Ownership
Beneficial Owner means the natural person/s who ultimately own or control a customer and/or the person on whose
behalf a transaction is being conducted. It also incorporates those persons who exercise ultimate effective control over
a legal person, entity or arrangement.
The term Beneficial Owner is important to understand because a person in whose name an account is opened with an
institution may not necessarily be the person who ultimately controls or is entitled to the funds or investments. The
distinction is important because the focus of anti-money laundering guidelines is on the person who has the ultimate
level of control or entitlement.
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Key Differences between Money Laundering and Terrorist Financing
Name Screening
Name Screening is the process of determining whether any existing or potential customers are part of any domestic or
international blacklist or negative watch list.
Name Screening is also used to identify individuals who pose a relatively higher risk to the bank or financial
institution, such as Politically Exposed Persons or persons residing in high risk locations.
Name Screening is usually performed for the following types of transactions:
- Opening of new customer accounts
- During the re-KYC process or while conducting periodic due
diligence on existing customers, especially high risk customers
- Before recruitment of new employees, vendors and contract staff
- During cross border transactions with counter parties such as
remitters, beneficiaries, intermediary banks, or during any
international trade transactions.
Politically Exposed Persons (PEP)
Politically exposed persons are individuals, who are or have been entrusted
with prominent public functions in a foreign country e.g., Heads of States
or of Governments, senior politicians, senior government/ judicial/ military
officers, senior executives of state-owned corporations or important
political party officials.
Reporting institutions should gather sufficient information about any
prospective customer of this category before establishing a relationship and check all the
information available about the person in the public domain. The identity of the person
should be verified and information about the sources of funds should be known before
accepting the PEP as a customer.
The decision to open an account for a person suspected to be PEP should be taken at a
senior level as per the institution’s Customer Acceptance Policy.
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Customer Due Diligence (CDD)
Conducting CDD by all REs includes:

• Identifying customers, including beneficial owners;
• Gathering information on customers and beneficial owners and creating a customer risk profile;
• Applying established customer acceptance policies to new customers;
• Maintaining customer and beneficial owner
information on an ongoing basis; and
• Monitoring customer’s transactions and relationship
with the customer on an ongoing basis.
CDD should be applied on risk basis, which must include

enhanced CDD for higher risk customers and may include
simplified CDD for lower risk customers.
Enhanced CDD for Higher Risk Customers
Reporting institutions shall apply enhanced CDD for customers that are likely to pose a higher risk of money
laundering or terrorist financing (“enhanced CDD") including for “politically
exposed persons” (PEPs) and “non-face-to-face” customers. Enhanced CDD
should include reasonable measures to establish the source of wealth, source
of funds of customers and monitor the background and purpose of the
relationship and transactions.
Enhanced CDD should be applied to higher risk customers at each stage of
the CDD process.
No higher risk customer should be accepted as a customer unless a senior
member or institution's management has formally accepted the relationship
with this type of customer.
Relevant factors in determining if a customer is of high risk include instances where the person (natural or
legal) is:
• establishing customer relationship other than “face to face”;
• a non-resident, or if the nationality, current residency, and previous residency of the person suggests greater
risk of money laundering or terrorist financing;
• connected with jurisdictions that lack proper standards in the prevention of money laundering or terrorist
financing;
• a politically exposed person ("PEP") or linked to a PEP;
• a high net worth individual, especially if the potential customer is a private banking customer or the source
of funds or source of wealth is unclear;
• engaged in a business that is particularly susceptible to money laundering or terrorism financing;
• a legal person or arrangement that is a personal asset holding vehicle;
• a legal person or arrangement whose ownership structure is complex with no visible economic or lawful
purpose;
• a company with nominee shareholders or shares in bearer form;
• higher risk for other reasons based on relevant information such as jurisdictions identified as having high
levels of corruption; and
• jurisdictions involved in cash intensive business activities.
Non face-to-face transactions referred to in Sub-clause (4) of this Clause include but are not limited to:
• business relationships concluded over the Internet or by other means such as through the post;
• services and transactions over the Internet;
• use of ATM machines;
• telephone banking;
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• transmission of instructions or applications via facsimile or similar means; and
• making payments and receiving cash withdrawals as part of electronic point of sale transaction using prepaid
or re-loadable or account-linked value cards.
Enhanced CDD procedures for non-face to face transactions may include:
• certification of documents presented by a notary or other reliable person;
• requisition of additional documents to complement those that are required for face to face customers;
• development of independent verification measures
and/or contact with the customer.
Procedures for determining who is a PEP may include:
• seeking relevant information from the potential
customer;
• referring to publicly available information; and
• making access to commercial electronic databases of
PEPs, if available.
Simplified CDD for Lower Risk Customers
Reporting institutions may apply simplified customer due diligence procedures upon undertaking a documented risk
assessment of the customer relationships. They shall make the documents of the procedures and the risk assessment
available to Regulators and other competent authorities upon request.
The general rule is that customers must be subject to the full range of customer due diligence measures as provided in
the laws. In certain circumstances where the risk of money laundering or terrorist financing is lower, as determined
by a risk assessment undertaken by the institutions, where information on the identity of the customer and the
beneficial owner of a customer is publicly available, or where adequate checks and controls exist elsewhere in national
systems, simplified measures may be employed.
Non-resident and foreign entities may only
qualify for reduced CDD if they are located in
a jurisdiction that is implementing effectively
the international standards on AML/CFT. In
determining this, institutions should take into
account the information available on whether
these countries adequately apply the
international standards on AML/CFT,
including by examining the reports,
assessments and reviews published by FATF,
FSRBs such as APG, International Monetary
Fund, World Bank or regulators.
Transaction Monitoring
Monitoring of Transaction means having an understanding of
the normal and reasonable activity of the customer, so as to
have the means of identifying transactions that fall outside the
regular pattern of activity.
While a customer approaches a financial institution to open a
new account, the institution must monitor both the account and
the account holder.
Record-Keeping and Retention

Reporting entities must ensure that all records of transactions or business relationships, both domestic and
international, are retained for at least five years following completion of the transaction or end of the business
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relationship (or longer if requested by a competent authority in specific cases and upon proper authority). This
requirement applies regardless of whether the account or business relationship is
ongoing or has been terminated.
Transaction records should be sufficient to permit reconstruction of individual
transactions so as to provide, if necessary, evidence for prosecution of criminal
activity. Necessary components of transaction records include, but not limited to:
• Customer (and beneficiary’s) name, address (or other identifying
information normally recorded by the intermediary):
• The nature and date of the transaction;
• The type and amount of currency involved; and
• The type and identifying number of any account involved in the
transaction.
Financial Information Unit (FIU)

The Financial Information Unit (FIU) is Nepal's financial intelligence unit. It is a central, national agency responsible
for receiving, processing, analyzing and disseminating financial information and intelligence on suspected money
laundering, terrorist financing and related crimes to the Investigation Agencies like DMLI, CIAA, Nepal Police, RID
and other competent authorities including foreign FIUs.
The FIU was established on 21 April, 2008 under the section 9 of the Assets (Money) Laundering Prevention Act,
2008 with the Nepal Rastra Bank (the central bank) as an independent unit.
The FIU is also assigned to function as the secretariat of the National Coordination Committee constituted as a
standing committee under the coordination of Secretary of Ministry of Finance including the Secretaries from
Ministries from Law and Justice, Home Affairs, Foreign Affairs, Office of the Prime Minister and Council of
Ministers, Secretary from the Commission for the Investigation of the Abuse of Authority, Deputy Attorney General
from the Office of the Attorney General, Deputy Governor from Nepal Rastra Bank, Inspector General of Nepal
Police, Chief of DMLI as members. The Chief of FIU works as the Secretary of the committee.
Reporting to FIU-NEPAL
1. Threshold or Cash Transactions within 15 days of such transactions.
2. Suspicious Transaction Reports within 3 days of arriving at a conclusion that the transaction is suspicious.
Threshold or Cash Transactions includes:
• Banks, FIs, money remitters and exchange houses are required to submit the report of the following transactions:
o Credit and debit transaction of NPR 1 million or more in the account of any person or entity particularly
of cooperative, private company, NGOs either by single or multiple transactions through any mode in a
day.
o Payment of remittance of NPR 1 million or more by any person or entity to any person or entity through
single or multiple transactions in a day.
o Exchange transactions of NPR 5,00,000 or more provided to any person or entity through single or
multiple transactions in a day.
• Securities business persons or the Office of the Company Registrar are required to submit threshold transaction
report of the transaction of NPR 1 million or more of any person either by single or multiple transactions through
any mode in a day.
• Insurance business persons are required to submit threshold transaction report of premium payment of more
than NPR 1,00,000 in life insurance and NPR 3,00,000 in non-life insurance in a year.
• Cooperatives are required to submit credit and debit transaction of NPR 1 million or more in the account of any
person.
• Casinos are required to submit threshold transaction report of NPR 2,00,000 or more of any person either by
single or multiple transactions through any mode in a day.
• Precious metal and stones business persons are required to submit threshold transaction report of NPR 1 million
or more of any person either by single or multiple transactions through any mode in a day.
• Land Revenue Offices of the Government are required to submit real estate transactions of NPR 10 million or
more in a day by any person.
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• Accountants, Auditors and Notary Public are required to submit threshold transaction report of NPR 1 million or
more on behalf of client in one or more transactions in a day.
Suspicious Transactions
A “Suspicious Transaction” means a transaction or attempt:
• That gives rise to a reasonable ground of suspicion that
it may involve proceeds of an offence, regardless of the
value involved
• Appears to be made in circumstances of unusual or
unjustified complexity
• Appears to have no economic or legal rationale or
bonafide purpose.
• Gives rise to a reasonable ground of suspicion that it
may involve financing of activities relating to
terrorism.
No “Tipping Off”
When an institution identifies a suspicious transaction, the customer should not be “tipped off” or informed
that:
• His account is being monitored
• Disclosure has been made to designate authority
• There is an element of suspicion on the
account/transaction
• In this process, no internal mail should be
forwarded to the customer that might give him an
indication that his account is under surveillance.
The customer should not know which particular employee
has identified the suspicious transaction or undertaken any
action on the account.
Also, the customer should not be informed that discreet
enquiries for transactions have been triggered from the AML unit.
Wire Transfers
Wire transfers offer a quick way to transfer money from one party to another. Hence, financial institutions need to
exercise great caution while effecting wire transfers.
Banks and financial institutions must ensure that for all wire transfers, they obtain and maintain full originator
information and verify that the information is accurate and meaningful.
Full originator information includes:
• Name of the originator,
• Account number of the originator or in the absence of it, a unique reference number,
• Originator’s address or, in the absence of the address, the citizenship or national identity number or customer
identification number or date and place of birth,
• Name of beneficiary and account number or in the absence of an account number, a unique reference number.
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For cross-border wire transfers including batch transfers and transactions using a credit or debit card to effect a
funds transfer), the ordering bank or financial should be required to include full originator information in the message
or payment form accompanying the wire transfer, except in the circumstances provided for batch transfers.
For domestic wire transfers, the ordering institution must include either:
• full originator information in the message or payment form accompanying the wire transfer; or
• the originator’s account number, where no account number exists, a unique identifier, within the message or
payment form.
For wire transfers including transactions using a credit or debit card as a payment system to effect a money
transfer or using any kind of cards, banks and financial institutions shall obtain the full information of such card
holders.
If a cross-border wire transfer is contained within a batch transfer it should be treated as wire transfer.
Banks and financial institutions should ensure that non-routine transactions are not batched where this would increase
the risk of money laundering or terrorist financing.
Beneficiary banks or financial institutions must identify and handle wire transfers that are not accompanied by
complete originator information on the basis of perceived risk of money laundering and terrorist financing. If the wire
transfer is deemed to be suspicious, then it should be reported to the FIU.
Money Mules
In money laundering, “Money Mules” could be used by criminals to launder the proceeds of the fraudulent schemes
(e.g. phishing and identity theft). Such criminals gain illegal access to deposit accounts
by recruiting third parties to act as “money mules”. In some cases, these third parties
may be innocent, while in others they may be working in connivance with the
criminals.
In a money mule transaction, an individual holding a bank account is recruited to
receive cheque deposits or wire transfers and then transfer these funds to accounts held
on behalf of another person or to other individuals, minus a commission payment.
Financial institutions are, therefore, advised to strictly adhere to the guidelines on
KYC/CFT, periodical updation of customer identification data and monitoring of
transaction in order to protect themselves and their customers from misuse by such fraudsters.
Virtual Currencies
Virtual currencies are digital currencies or electronic money. They do not exist physically as coins or notes. They are
similar to money but are not legal tender.
These currencies can either be earned or purchased. They are not issued by a central bank or government and no
financial institution is involved in a transaction of these currencies.
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Bitcoin is the best known virtual currency. It takes the lion’s share within virtual currencies domain.
Bitcoin uses peer-to-peer technology to operate. There are no physical bitcoins. Balances are kept on a public ledger
in the cloud using public and private keys. Public key is like an account
number of a bank, which can be shared with others and to which others
may send bitcoins. Private key is like an ATM PIN number, which is
meant to be kept a secret. Individuals and companies who transact in
bitcoin (known as miners) receive rewards and pay transaction fees in
bitcoin.
Risks Associated with Virtual Currencies

There are various risks associated with investing in virtual currencies.
1. Volatility risk: The value of this currency is determined by public’s interest in it. Thus, its value is volatile.
2. Less safeguards: The platforms where such currencies are exchanged are generally not regulated.
3. Liquidity Risk: It can be difficult to trade virtual currency for real money.
4. Theft: Virtual currency may be exposed to hacking or theft. There is no protection against unauthorised
debits.
5. Criminal activities: The relatively anonymous nature of virtual currencies makes them attractive to criminals
who may use them for money laundering and other illegal activities.
6. Tax risk: There are no tax benefits of investing in these types of currencies.
Human Trafficking
Human Trafficking is modern-day slavery and involves the use of force, fraud or coercion to control victims for the
purpose of engaging in commercial sex acts or labour services against a victim’s will. It is a highly-organized and
lucrative business. The most significant number of victims of human trafficking are said to come from Asia and the
Pacific region.
Human Trafficking is a market-driven criminal industry that is based on supply and demand. Many factors make
humans vulnerable to human trafficking. But these factors alone are not the
reason why human trafficking exists. Instead, human trafficking is fuelled by a
demand for cheap labour, services, and for commercial sex. This industry thrives
because human traffickers perceive there to be little risk or deterrence to affect
their criminal operations as well as the profits associated with this industry are
extremely high.
Human trafficking has a direct effect on physical and mental well-being of
victims. Victims are forced to live in unsanitary and stressful conditions, their
movement is restricted and most experience significant physical, emotional,
sexual and psychological violence. If rescued, victims find it difficult to integrate
back into the society because of shame and trauma experienced.
Indicative Alerts
There are numerous indicators that may act as “red flags” for institutions to identify potential money laundering or
terrorist financing activity.
Some of these are listed here:
• Customer did not open account or buy a financial product after being informed about KYC requirement.
• Customer provides information that seems minimal, possibly false or inconsistent.
• Customer gives false identification documents or documents that appear to be counterfeited, altered or
inaccurate.
• Identity documents presented are not verifiable, e.g. foreign documents.
• Address provided by the customer found to be non-existent.
• Customer is not staying at the address provided during account opening.
• Customer is being investigated for offences related to criminal activities or terrorist financing.
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• Customer name matches in media reports related to criminal activities or terrorist financing.
• Customer receives unapproved foreign remittance in Non-Profit Organization (NPO) account.
• Customer uses complex structures where it is difficult to identify the beneficial owner.
• Customer is hurried or nervous.
• Customer is over cautious in explaining genuineness of the transaction.
• Customer tries to convince you to avoid reporting anything about him to the authorities.
• Customer could not explain source of funds satisfactorily.
• Customer changes the information provided after more detailed information is requested.
• Customer seems to be acting on behalf of the third party and does not know about the exact amount of money
involved in the transaction.
• Customer is taking instructions from someone else for conducting transactions.
• Customer is accompanied by unrelated individuals.
• Multiple customers arrive together, but pretend to ignore each other.
• Customer avoids making transactions at branches near his stated address.
• Transaction is unnecessarily complex for its stated purpose.
• Transaction has no economic rationale i.e. the amounts or frequency or the stated reason of the transaction
does not make sense for that particular customer.
• Transaction involves movement of funds which is inconsistent with the customer’s business.
• Customer offers different identifications on different occasions with an apparent attempt to avoid linkage of
multiple transactions.
• Complaint received from any member of the public for abuse of account for committing fraud.
• Alert raised by agents, intermediaries, other institutions, subsidiaries or business associates, including cross-
border referral.
• Business transactions are conducted through personal accounts.
Indicative Alerts Specific to Insurance and Mutual Fund
Persons who sell insurance products or mutual funds should be aware of these indicative alerts which depict potential
suspicious behaviour.
• Customer whose identify matches with any person whose name figures in the list of banned persons or entities
released by the regulator.
• Customer wants to pay premium or invest often via cash or cash in large amount.
• Customer wants to pay premium or invest via multiple demand drafts or with numbers of cash transactions.
• Customer submits multiple Free Look cancellation/redemption requests within a month.
• Customer requests for assignment of insurance policy or investment to an unrelated person or entity.
• Customer applies for insurance policies/investments beyond his apparent need or economic profile.
• Customer opts for termination of policies and refunds under unusual circumstances.
• Customer submits frequent requests for change in addresses.
• Customer wants to know whether he can immediately take a loan against the insurance policy/investment.
• Early claim is received for no substantial reasons.
• Customer wishes to overpay premium via cash or demand draft and then request for a refund of the excess
amount through an instrument or transfer.
• Customer insists on anonymity and is reluctant to provide identifying information, or provides minimal,
seemingly fictitious information.
• It is established that one customer has submitted different KYC documents and taken different
policies/investments in different versions of names to avoid clubbing of policies/investments in a single
name.
• An adverse media report appears in a newspaper or television or radio or any other media about an existing
policy holder/investor.
• A notice of enquiry is received from an enforcement authority, calling for information about any policy
holder/ investor.
• A request for issuance of marine transit export policy is received by the same insured under cost-plus-freight
basis where the premium is paid by cash or a combination of cash and demand drafts on three or more
occasions in a financial year.
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• Requests for re-assignment of marine transit insurance policies are received in favour of exporter.
Additional Indicative Alerts- Money Transfer or Remittance

Here are now the additional red alert indicators for person undertaking money transfer or remittance.
• Customer wishes to send money transfer on behalf of another person or entity.
• Customer wants to send money to a charity or trust.
• Customer hesitates to disclose details about the payee.
• Customer is receiving money transfers from unrelated parties often and for no apparent reason.
Nepalese Sanction Regime: Regulatory
Regulators are empowered:
• to issue directives
• to make institutional risk profile
• to adopt strategic supervision and inspection instrument
Regulators are mandated to take the following regulatory actions against REs for non-compliance:
• to fine from NPR 1 million to NPR 50 million for FIs and NPR 1,00,000 to NPR 10 million for other REs
• to impose full or partial restriction on the business
• to suspend or cancel registration/permission/license
• to impose other appropriate sanctions.
FIU is authorised to fine up to NPR 1 million for failure to report identified Suspicious Transaction
Reports(STR)/Threshold Transaction Reports(TTR).
Nepalese Sanction Regime: Criminal

Natural Person
Money Laundering:2 to 10 years imprisonment, and
• Confiscation of proceeds or corresponding value, and
• Mandatory fines (two times of the proceeds)
Terrorist Financing:3 to 20 years imprisonment, and
• Confiscation of proceeds or corresponding value, and
• Fines five times of the proceeds
Corporate Criminal Liability (legal persons)
Money Laundering:Confiscation of proceeds or corresponding value, and
• Fines up to 10 times of the proceeds
Terrorist Financing:Confiscation of proceeds or corresponding value, and
• Fines up to 25 times of the proceeds
• Compensation or recovery of loss
• License revocation, other barriers and liquidation.
Key Takeaways
Let’s have a recap of the key takeaways of this course.
• AML Guidelines prevent REs from being abused by criminal elements for money laundering or terrorist
financing or other illigal activities.
• KYC procedures enable REs to know and understand their customers and their financial dealings better.
In line with regulatory guidelines, the four key elements of KYC are:
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• Customer Acceptance Policy-No fictitious, benami account to be opened. Customers must be categorized
into low, medium and high risk based on AML risk and client names should be screened against negative
lists.
• Customer Identification Procedure-Include client identification verification on a risk-based approach.
• Monitoring of Transactions- The institution must have a system in place for the detection of transactions
inconsistent with expected activity.
• Risk Management- Includes governance by the Board of Directors and ongoing internal audits.
Financial Institutions are required to:
• Implement the AML and CFT program.
• Implement procedures to identify and verify a customer’s identity before offering a product or service to the
customer.
• Conduct ongoing customer due diligence to monitor customers and their transactions.
• Report all suspicious profiles and transactions to the FIU.
• Prepare specific literature and pamphlets to educate customers about the objectives of KYC program.
• Provide AML/CFT training to staff.
• Have an adequate screening mechanism as an integral part of recruitment and hiring process of personnel to
ensure that criminals are not allowed to misuse financial channels.
• Retain all customer records (identity records for a period of five years after the relationship has ended;
transaction records for a period of five years after the transaction has been executed.
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Case Studies
Banking Case Study 1

Jill purchased a property in 2010 for NPR 1 million. She sold this property to John in 2013 for NPR 3.5 million. The
notary asked for details of payments between Jill and John before notarising the sale. The evidence that was provided
showed that funds were deposited over the last four months, with all of the deposits under the reporting threshold
amount. The notary further investigated the case and found out that John had been a prime suspect in one of the recent
automobile fraud case. The notary filed a STR and both Jill and John were taken in for questioning.
What were the red flag indicators in this case?
Case Resolution
The red flag indicators in this case were:
• The increase in price of the property was significant when compared to the normal market changes over the
same period.
• One of the parties was known to be involved in a recent fraud case.
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A customer, Hector, visited your bank branch with a request to transfer all the money in his savings account into an
offshore account of a different bank.
Hector provided all the necessary documents for this transaction. You notice that the primary identity proof submitted
by Hector looks different from the one in your bank’s system.
As the amount to be transferred was huge, you asked him to answer a few personal questions, to which he hesitated.
What was happening in this account?
Case Resolution
This is a case of identity theft.
Upon investigating the case further, it was found that this fraudster had conducted many such identity thefts all around
the globe.
He then laundered the funds thus collected with the help of offshore accounts.
Jane has a student account with your bank.
In the last 4 months, her account had been credited by small amounts from all around the country. Although the
amounts were small, the credits came in regularly.
Jane withdrew the amounts in cash or transferred them to accounts in different banks.
You approach her to know the reason behind these transactions, and she informs you that her relatives from all over
the country have been sending her gifts.
Is there anything suspicious in this case?
24 | P a g e
Case Resolution
Yes, the case seems suspicious.
Credits have been coming from all around the country at a regular rate. As she is a student, it seems suspicious that
she is being paid.
Upon further investigation, it was found out that Jane had a friend who used to steal jewellery and other luxury goods
from various shops and Jane used to sell them online at half the price using a commercial website that she created for
this sole purpose.
By transferring the money to other accounts, they were laundering the proceeds of their crime.
pYou have a customer, Charles, who makes monthly cash deposits with your bank branch. When you
asked Charles about the source of this money, he informed you that he delivers packages and goods for cash as a
part time income source. You ask him if this income reflects in his income tax returns and he said no.
What should you do?
25 | P a g e
Case Resolution
Charles has committed a criminal offence by failing to notify the tax authorities about income from his part-time
business. It is hard to establish if the money was generated through legal sources, or was returns of illegal businesses.
You must report it to the AML team.
Hannah visited your bank branch to apply for a personal loan. She submitted all necessary documents for the same.
While analyzing her bank account statements, you notice that Hannah had been receiving large amounts of money
under rental income, which were not declared in her income tax filings.
When questioned about it, she denied to answer and withdrew her loan request.
What should you do?
Case Resolution
26 | P a g e
You must report this case to the AML team with whatever information you were able to collect about Hannah.
An organization plans to export a shipment of scrap metal weighing several hundred tons. Payment for this transaction
has already been received in their bank account in your bank. Commercial invoices, bills of lading and other shipping
documents are presented to support the transaction.
When cargo is loaded on ship, a customs officer notices that the hull of the ship is still well above the water line. This
was inconsistent with the reported weight of the shipment of scrap metal.
The officer examined the shipment and noticed a huge difference between invoiced weight and actual weight.
What was happening in this case?
Case Resolution
This is a case of trade based money laundering.
The organization had intended to over-invoice a foreign importer (who was most likely a colluder) by misrepresenting
weight of goods sold.
This way, the organization would have been able to transfer illegal funds back into the country which would have
looked like a genuine transaction as goods were shipped against the invoice.
Amy, in country A, regularly purchases gold bars from Arnold, in country B. Amy then sells these gold bars in open
market and proceeds of sale are sent to Arnold.
All the documents look authentic.
One such shipment was noticed by a customs officer. He noticed that instead of gold bars, there were lead bars in the
shipment.
The custom officer immediately reported the case to relevant authorities.
What is happening in this case?
27 | P a g e
Case Resolution
This is a case of trade based money laundering.
Every time Amy placed an order for gold bars, lead bars were ship instead from country B.
Meanwhile in country A, Amy bought scrap gold which was melted down and recast as gold bars.
When the shipment was received by Amy, she destroyed the lead bars and replaced them with gold bars, which were
then sold in open market.
In this way, Amy managed to transfer illegal funds to Arnold, who was in a different country, but made it look like a
legal transaction. This way she reduced the risk of detection.
Ana has been a customer with your bank for five years.
She has been receiving salary every month in her
account, but there are very few other credits. She has
been investing in mutual funds and shares.
There is a sudden deposit of NPR 95 lac in her account,
which is followed by a debit of NPR 90 lac. When you
inquire Ana about these transactions, she informs you
that she sold her old house and bought a new one.
Is this case suspicious?
Case Resolution
This case is not suspicious.
You may satisfy your doubts by asking her for documents of purchase and sale of her houses.
28 | P a g e
Edward opened a savings account with your bank three months back. In recent days, he has been receiving large value
inward remittances from high risk locations/countries. This is followed by immediate transfers to various accounts,
leaving small or nil balances in the account.
What is happening in the account and what should you do?
This is a case of possible remittance-based money laundering.

You should report this case to the AML team.
Insurance Case Study 1
The manager of an insurance company sold health and personal injury policies to his friends and relatives. This policy
insured them against the liability from accidents and ailments.
Subsequently claims were received from almost all the policies issued
by this manager. The claims for damages were considerable. Thus, an
investigator was sent by the insurance company to check the validity
of these claims. It was found out that the insured individuals were not
even aware of any such insurance policies.
What happened in this case and what could have been done to avoid
it?
Case Resolution
The manager had attempted to launder money through insurance
transactions by selling policies to dummy persons. Premium for these
policies were paid by the manager himself, through cash or demand
drafts. He fabricated documents in the names of his friends and
29 | P a g e
relatives during policy issuance. He supported the fake claims by false documentation and medical certificates.
This could have been avoided if the insurance company had interacted with the customers before issuing the policy.
A life insurance policy with a very high single premium included
a clause for partial withdrawal. A customer, Sara, took the
policy, but at the end of each year, she withdrew money via
partial withdrawal. The company queried about the reason for
the same. Sara claimed that she withdrew money to repay the
interest on a loan with a duration of 10 years. She refused to
name the bank where she had taken up the loan.
What course of action should the company take in this case?
Case Resolution
The company should report this case to the relevant authorities
as it seems suspicious.
Upon further investigation, it was found out that Sara was known
to have committed financial fraud and was using money thus
earned to pay premiums for the policy. This way she was
laundering money.
You are approached by a customer who wishes to buy a single premium policy of large value.
As proof of income, the customer has submitted his bank account statement showing large cash deposits and
subsequent withdrawals made for investment purposes. The account was used for the sole purpose of making
investments and all deposits are in cash, the origin of which was unknown.
Should you issue the policy?
30 | P a g e
Case Resolution
This looks like a suspicious case as all the deposits are made in cash. You should ask for the source of income.
This case needs to be reported as it is very suspicious that the account is only used to make investments and there is
no other activity in the account.
Adam, a fifty year old government employee has applied for a life insurance policy for a term of 10 years. The nominee
in the policy is his father, even though he has a wife and two children.
Is there anything suspicious in this case?
Case Resolution
There is nothing suspicious in this case. This case can be underwritten.
To clarify doubts, if any, you may take a declaration from Adam as to why he nominated his father for the policy
instead of his wife or children.
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Assessment Homepage
You have come to the end of the course. Now you need to appear for the assessment. The assessment consists of 15
questions, out of which you need to answer 12 correctly to pass. You will get 20 minutes to attempt the assessment
and you will be given 2 attempts to clear it. To take the assessment, click the “NEXT” tab. All the best!
Question Bank Nepal
Q1. Banks are supposed to report credit or debit transactions of NPR 10 million or more in the account of any person
or entity particularly of cooperative, private company, NGOs either by single or multiple transactions through any
mode in a day. True or false?
• True
• False, transaction of NPR 5 Million or above must be reported
• False, transaction of NPR 1 Million or above must be reported
Q2. Money Laundering
• Only happens in countries designated as high risk jurisdictions
• Can happen in any country and may involve any financial institution
• Happens in financial institutions, which are controlled by criminal organizations
• Usually involves only small or local financial institutions
Q3. The norms applied to a politically exposed person must also be applied to the family members and close relatives
of this person. True or False?
• True, any family member or relative of a politically exposed person has to be treated as an equally high risk
customer.
• False, these norms are only applicable to politically exposed persons. Any other relative or family member
must be treated as a low risk customer.
• Depends on the individual.
Q4. To conceal the illegal origin of the funds and thus make them more useful, the funds have to be moved, dispersed
and disguised. This activity is known as ____.
• Placement
• Layering
• Integration
• Money Laundering
Q5. Which of the following best describes a “Money Mule”
• A criminal trading in stolen or illegally acquired goods.
• A person used by a criminal to launder the proceeds of the fraudulent schemes.
• A person carrying goods from one place to another.
• A criminal involved in money laundering, with the help of a third party.
Q6. A customer approaches your bank with a request to invest in mutual funds. His bank account statement shows
regular cash deposits and subsequent withdrawals for investment purposes. There are no other transactions. What
should you do?
• Report the case to AML team, as all the deposits are made in cash and the account is only used to make
investments.
• Process the request as there is nothing suspicious in this case.
• Ask for additional documents to support investment.
Q7. An entity that does not have any active business and usually exists only on paper, has no dedicated office or
employees, and does not manufacture any products is known as _____.
• Shell Bank
• Front Company
• Shell Company
32 | P a g e
• Offshore company
Q8. Which of the following statements is false in regards to Foreign Account Tax Compliance Act?
• FATCA requires foreign financial institutions to report to the U.S. Internal Revenue Service information
about financial accounts held by U.S. taxpayers.
• The Act was enacted in March 2010.
• FATCA includes foreign financial institutions like banks, insurance companies and mutual funds, but
superannuation funds and private equity firms are exempted.
• FATCA imposes tax withholding where the applicable documentation and reporting requirements are not
met.
Q9. Do you need to know the specific criminal activity that generated the funds in an account before you can file a
suspicious activity report or suspicious transaction report?
• Yes, the criminal activity must be described in the report.
• No, a report must only be filled when law enforcement authorities notify.
• No, specific knowledge of the criminal activity that generated the funds deposited to an account is not
necessary; suspicion is sufficient.
Q10. The term Beneficial Owner is important to understand because a person in whose name an account is opened
with an institution may not necessarily be the person who ultimately controls or is entitled to the funds or investments.
True or False?
• True
• False
• Depend on case to case basis
Q11. What is the criminal sanction for money laundering done by a natural person?
• 10 years imprisonment
• 2 to 10 year imprisonment and 2 times fines
• Imprisonment up to 10 years and 2 times fines
• 10 times fines.
Q12. In case of wire transfers, full originator information includes:

• Name of the originator
• Account number of the originator or other unique reference no.
• Originator’s address
• Name of beneficiary
• All of the above
Q13. Investing in virtual currencies can fetch tax benefits. True or false?
• True
• False
Q14. If a suspicious transaction is identified, your institution is required to file a ‘suspicious transaction report’ with
Financial Information Unit Nepal as per the law:
• Within 7 days of arriving at a conclusion that the transaction was suspicious
• Within 3 days of arriving at a conclusion that the transaction was suspicious
• After client has waived confidentiality and authorizes such a report to be filed
• Only after senior management has confirmed the true nature of the transaction
• None of the above
Q15. What does OFAC stand for?
• Official Foreign Asset Counting
33 | P a g e
• Office of Freight Advisory Committee
• Office of Foreign Assets Control
• Office of Financial Administrative Control
Your Score is 47%
You've completed the course!
Thank you for taking the course.
If you have scored 80% or more, you have passed the assessment. If not, you have one more attempt to clear the
assessment. (However, if this was your second attempt, you will not be able to undergo the assessment again.)
For any query, kindly send an email to our AML/CFT Department mailto:aml.cft@nbi.com.np
Copyright: Fintelekt Advisory Services Pvt Ltd
34 | P a g e

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AML CFT

Objectives of AML/CFT Regime

financial Action Task Force (FATF) and

Legal Framework of AML/CFT in Nepal

Unless the US exempts them from FATCA reporting, FATCA

Four Key Elements of KYC Policy

Customer Acceptance Policy

Conducting CDD by all REs includes:

CDD should be applied on risk basis, which must include

Record-Keeping and Retention

Financial Information Unit (FIU)

Risks Associated with Virtual Currencies

Additional Indicative Alerts- Money Transfer or Remittance

Nepalese Sanction Regime: Criminal

Banking Case Study 1

What is happening in the account and what should you do?

This is a case of possible remittance-based money laundering.

Q12. In case of wire transfers, full originator information includes:

Copyright: Fintelekt Advisory Services Pvt Ltd

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