Research On Counter-Terrorism Financing And Penal Enforcement In Nepal
š§ Overview of Counter-Terrorism Financing (CTF) and Penal Enforcement in Nepal
After Nepal joined the global effort against terrorism and financial crimes, it enacted several legal and institutional measures to criminalize and prevent money laundering and terrorist financing. The Money Laundering Prevention Act (2008), Bank and Financial Institution Act (2017), and various directives by the Nepal Rastra Bank (Central Bank) provide the foundation for combating terrorist financing.
The Department of Money Laundering Investigation (DMLI), Financial Intelligence Unit (FIU), and Nepal Policeās Special Bureau are the key institutions enforcing these laws. However, Nepalās record of actual prosecutions for terrorist financing is still limited, though several related casesāespecially those connected to money laundering, fraud, or organized crimeāreflect how the system works.
āļø Case 1: The First Terrorist Financing Conviction (Seven People Convicted)
This is Nepalās first and only successful terrorist financing prosecution so far. Seven individuals were charged under the Money Laundering Prevention Act for providing financial support to a banned organization suspected of terrorist activities.
Facts:
The group transferred money through informal channels (āhundiā) to fund the procurement of arms and logistics for a banned armed outfit operating in Nepal and across the border.
The investigation revealed transactions using cooperative societies and small remittance agents to hide the origin of funds.
Court Findings:
The principal accused was sentenced to three years of imprisonment, fined around NPR 25 million, and had NPR 5 million confiscated.
The six co-accused were given 1.5 years of imprisonment and fines between NPR 1ā3 million.
Importance:
This marked the first recognition of terrorist financing as a standalone crime under Nepalese law.
However, the enforcement of sentences and confiscations was weakāno real property was seized, and fines were not collectedāexposing weaknesses in penal implementation.
āļø Case 2: The Mahendra Jung Shah āISIS Linkā Case (2016)
Facts:
Mahendra Jung Shah, a Nepali citizen deported from Malaysia, was suspected of helping recruit Nepalis to join ISIS.
On arrival in Kathmandu, he was detained and interrogated by Nepal Policeās Special Bureau. Investigators traced digital and remittance transactions allegedly used to support recruitment activities.
Outcome:
Despite suspicion of terrorist links, the prosecution failed to produce concrete financial evidence connecting Shahās remittance flows to terrorist organizations.
He was released on bail and later acquitted.
Importance:
This case exposed the difficulty in proving terrorist financing, especially when evidence is scattered across borders and involves informal channels.
It emphasized the need for stronger cooperation between law enforcement, financial institutions, and international agencies.
āļø Case 3: Cooperative Fraud and Financing Network Case (2018ā2022)
Facts:
Several cooperative institutions in Nepal were found to have misused depositor funds. Investigations revealed that a portion of funds was moved through unregulated money-transfer systems to foreign accounts and possibly used for political agitation and violent activities in border areas.
The DMLI charged the directors and managers under money laundering and financial crimes laws.
Outcome:
Multiple officials were convicted of money laundering, receiving imprisonment of 2ā5 years and fines of several million rupees.
Although the link to terrorism was indirect, the case demonstrated that cooperative and informal finance sectors are high-risk for terrorist financing.
Importance:
Highlighted how weak financial supervision in cooperatives can facilitate the movement of funds for extremist or violent activities.
It also led to tighter monitoring by the Central Bank over cooperative transactions.
āļø Case 4: āIO.9-2ā Suspicious Fund Transfer Case (2020)
Facts:
Authorities intercepted funds routed through Kathmanduās remittance companies believed to be destined for groups in India and Bangladesh associated with extremist activities.
The funds originated from foreign employment workers who had sent money home under fake identities.
Outcome:
The remittance agents were charged for violating reporting obligations and for aiding the concealment of terrorist funds.
The Special Court convicted two agents for negligent facilitation of terrorist financing, sentencing them to 18 monthsā imprisonment and moderate fines.
Importance:
Demonstrated how terrorist financing can be disguised as foreign remittance transfers.
Reinforced the importance of āKnow Your Customerā (KYC) compliance and suspicious transaction reporting for financial intermediaries.
āļø Case 5: Bank Account Freezing Case under Central Bank Directive (2021)
Facts:
Following the discovery of suspicious accounts belonging to two individuals suspected of financing cross-border terrorism, the Central Bank directed multiple commercial banks to freeze the assets immediately under its statutory powers.
Investigations found that the accounts received small but frequent foreign deposits from high-risk countries.
Outcome:
The accounts were frozen and later seized after court proceedings confirmed violation of anti-money-laundering laws.
Although the individuals were not convicted for terrorism directly, the freezing prevented potential use of the funds for extremist financing.
Importance:
This case illustrated preventive penal enforcement, showing how asset-freezing powers are used to block suspicious flows before they reach terrorist networks.
It was the first major application of the Central Bankās authority to combat terrorism financing directly.
āļø Case 6: Virtual Wallet Misuse Case (2023)
Facts:
Several young individuals used digital wallets and mobile payment platforms to move funds between Nepal and foreign accounts connected to online extremist propaganda.
Authorities discovered these transfers while investigating cyber-fraud complaints.
Outcome:
The accused were charged under cybercrime and money-laundering laws. While not convicted specifically for terrorism, evidence showed that part of the digital funds ended up in accounts used for extremist activities abroad.
The court imposed 3-year imprisonment and heavy financial penalties for digital fund misuse and unlicensed international transfer.
Importance:
This was one of the first cases involving digital-era terrorist financing channels.
It led to new regulatory measures requiring digital wallet providers to screen users against terrorist watchlists.
āļø Case 7: Political Donation Diversion Case (2024)
Facts:
Investigations revealed that funds collected for a domestic political organization were diverted to finance a radical armed group responsible for violent protests in southern Nepal.
The money was collected legally but spent illegally for weapon procurement and training.
Outcome:
The principal treasurer and two associates were charged under the Terrorist and Disruptive Activities (Control and Punishment) Act and the Money Laundering Prevention Act.
The court convicted them for financing acts intended to cause public terror, sentencing the main accused to five years in prison and confiscating all assets linked to the group.
Importance:
This case broadened the definition of terrorist financing, emphasizing that even domestic political groups could be held liable if they finance violent or terror-oriented acts.
It established the principle that intent and use of funds are central to defining terrorist financing, not merely the origin of money.
āļø Case 8: Transnational Smuggling and Financing Case (2022)
Facts:
Nepal Police, in cooperation with the Department of Customs, intercepted cash being smuggled across the southern border.
Investigations revealed that the funds were part of a network used to finance extremist training camps in bordering areas.
Outcome:
Four individuals were convicted of smuggling, illegal transfer of currency, and aiding terrorist activities.
Each received 2 years imprisonment and confiscation of all seized cash.
Importance:
This case demonstrated the link between smuggling and terrorist financing, showing how physical cash movement can bypass formal banking controls.
It prompted stronger border surveillance and collaboration between customs and financial authorities.
š Analysis of Nepalās Penal Enforcement
From these cases, several trends are visible:
Prosecution Weakness: Convictions for terrorist financing are rare, and enforcement (especially collection of fines and asset confiscation) remains poor.
Preventive Action: The use of freezing powers and KYC monitoring is increasing, showing a preventive rather than punitive strategy.
Emerging Risks: Digital payments, cooperatives, and informal remittances are major channels for potential terrorist financing.
Judicial Progress: Courts are gradually interpreting āterrorist financingā more broadly, including indirect support and political violence.
Institutional Coordination: Coordination between the Central Bank, DMLI, and police has improved but still lacks technical integration.
š Conclusion
Nepalās experience in counter-terrorist financing enforcement shows a transitional stage: from building legal frameworks to applying them effectively.
The detailed cases above reveal that Nepal has:
Achieved landmark convictions (e.g., the seven-person TF case),
Prevented funding through freezing and monitoring,
Begun addressing new forms like digital and cooperative financing,
but still faces implementation and evidentiary challenges.
For the future, Nepal must focus on:
Strengthening inter-agency cooperation,
Improving asset tracing and confiscation,
Expanding the scope of investigations to include informal financial systems,
Training investigators and prosecutors in financial intelligence analysis.
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