The US Department of State has expressed serious concern that terrorists may take advantage of Nepal’s informal money transfer services such as Hundi or Hawala.
The Department raised the issue in its annual report titled Country Reports on Terrorism 2015. Called Patterns of Global Terrorism until 2004, the Department produces the report every year for submission to the Congress.
A number of reasons including “government corruption” and a large informal economy makes Nepal ”vulnerable to money laundering and terrorism financing’, the report claimed. Although the Nepalese authorities claim that a majority of remittances flow through formal channels, at least 40 percent still flows through Hundi, the report pointed out.
On the other hand, Nepal’s Financial Intelligence Unit and the Department of Money Laundering Investigations do not have “access to relevant data that would detect nefarious activity in informal money transfer systems such as hundi and hawala, which are illegal in Nepal”. This lack of capacity heightens the risk of Hundi services being used by terrorists, the report suggested, because the Nepalese government does not have the capacity to ”determine whether the source of money ostensibly sent as remittances from abroad is licit or illicit”.
The State Department acknowledged that Nepal made some progress in 2015 in developing mechanism to counter money laundering and financing of terrorism but lamented that the young South Asian republic has miles to go before it develops a foolproof financial security.
“Government corruption, a large and open border with weak border enforcement, limited financial sector regulations, and a large informal economy continued to make the country vulnerable to money laundering and terrorism financing,” the report said.
Money laundering and financing of terrorism is not the only concern the US has vis-a-vis the Himalayan nation. It is equally concerned about the lack of modern security mechanism at Kathmandu’s Tribhuvan International Airport.
“Nepal’s open border with India and weak security controls at Kathmandu’s Tribhuvan International Airport continued to underpin concerns that international terrorist groups could use Nepal as a transit and possible staging point,” the very first paragraph of the report reads.
Simple pat-downs are used to screen passengers at the airport and staff have complete run throughout the airport’s sensitive security zones. The airport authority also does not carry out regular ‘background checks’ of the employees who have access to sensitive security areas, the report said.