New Regulation Mandates Cooperatives to Maintain Identification Details of Senior Officials
The government has enforced a new regulation requiring cooperative institutions to maintain mandatory identification details of their senior officials, alongside customer identification. The national risk assessment report indicates that the risk of money laundering in the cooperative sector ranges from medium to high. Following guidance from banks, the National Cooperative Authority has implemented necessary measures to prevent money laundering and terrorist financing through cooperatives.
September 11, Kathmandu – In response to the high risk of money laundering within cooperative institutions, the government has mandated the recording of senior officials’ details along with customer identification. According to the national risk assessment report, the risk level of money laundering in the cooperative sector is assessed as medium to high.
Since Nepal was placed on the Financial Action Task Force (FATF) grey list, the government has developed various action plans to exit this status. The recently prepared national risk assessment report is part of these efforts, focusing on reducing risks in the cooperative sector. During the recent ‘face-to-face’ discussions held in Malaysia, targeted measures to mitigate risks within the cooperative sector were also presented.
The report expresses concerns that proceeds from corruption and other illegal activities could be accumulated in many cooperative institutions. Consequently, in addition to banks and financial institutions, strict controls to prevent money laundering have been enforced within cooperatives. The National Cooperative Authority is rigorously issuing guidelines to control potential money laundering and terrorist financial activities through cooperatives.
According to the Authority’s guidance, cooperatives engaging with members conducting cash-based transactions are considered at high risk. Such transactions elevate money laundering risks, making it essential for cooperatives to enhance control measures, provide employee training, employ technological solutions, and improve capabilities to identify risks.
The Authority notes that many cooperatives still operate under the influence of legal and institutional entities, maintaining ongoing risks of money laundering. Therefore, guidelines have been issued directing cooperatives to address widespread financial activities, ensure transparency of politically exposed senior officials, prevent misuse of funds through legal violations, and strengthen the implementation and supervision of anti-money laundering measures.
The guidelines require cooperatives to adopt member due diligence procedures. Identification of members is mandatory when opening new accounts. Due diligence is also obligatory in transactions that are suspected to involve money laundering or terrorist financing, especially when dealing with high-risk transactions or members. For members listed on prohibited lists, cooperatives must freeze assets within 24 hours according to the United Nations website, without prior notice to the member, and report the freezing to the Authority or Cooperative Department within three days.
Cooperatives are also required to immediately report any suspicious transactions to the Financial Information Unit. Reporting is mandatory in cases of account opening attempts under false names, submission of false information, or transactions exceeding one crore Nepali rupees occurring at one time or repeatedly, as they are deemed suspicious.
Additional reporting obligations include instances of unjustified account openings, unusual changes in financial profiles or transaction patterns, suspected use of personal accounts for business purposes, complex transfers obscuring the source or purpose of funds, repeated deposits from asset sales, large cash withdrawals from inactive accounts, bounced checks, excessive activity in savings accounts, and suspicious transfers to personal accounts of management committee members.
Infractions such as irregularities in loan repayments and use of accounts for property transactions without proper registration are also considered suspicious money laundering activities that must be reported. Cooperatives failing to implement these guidelines may face sanctions ranging from suspension to deregistration imposed by the authority.