Nepal

**Non-existent.** Since cryptocurrencies are prohibited, there is no legal basis or framework for issuing licenses to operate as a crypto custodian. Any entity attempting to provide such services would be operating outside the law.

**Segregation of Client Assets Rules:**

**Not applicable.** As no legal custody services are permitted, there are no rules requiring segregation of client assets.

**Not applicable.** With no regulated custodians, there are no requirements for insurance or bonding.

**Not applicable.** There are no mandates for cold storage or any other form of storage for digital assets, as their possession and transaction are prohibited.

**Non-existent.** There is no definition for a "qualified custodian" within Nepal's legal framework for digital assets because the concept of legal digital asset custody does not exist.

**No specific pending custody legislation.** While there might be ongoing discussions within government circles regarding financial technology and digital transformation, there is currently no public information or official announcements indicating any specific pending legislation aimed at regulating cryptocurrency custody. Any future legislation would first need to address the overarching prohibition of cryptocurrencies themselves.

**Nepal Rastra Bank (NRB) Notices/Circulars:**

The NRB has consistently issued circulars and public notices warning against the use and trading of cryptocurrencies like Bitcoin since as early as 2017. These notices typically cite the **Foreign Exchange (Regulation) Act, 2019 (B.S. 2076)** and its subsequent directives as the legal basis for prohibiting foreign exchange transactions (which cryptocurrencies are often categorized as for regulatory purposes) not authorized by the NRB.

**Key points from NRB notices often include:**

Cryptocurrencies are not recognized as legal tender in Nepal.

Engaging in buying, selling, mining, or facilitating transactions in cryptocurrencies is illegal.

Sending money abroad or receiving money from abroad for cryptocurrency transactions is prohibited.

Individuals found engaging in these activities may be prosecuted under existing laws, including the Foreign Exchange (Regulation) Act, 2019, or other relevant statutes, which can carry penalties such as fines, imprisonment, and confiscation of assets.

**Foreign Exchange (Regulation) Act, 2019 (B.S. 2076):**

This Act empowers the NRB to regulate foreign exchange transactions. The NRB's stance is that cryptocurrencies fall under the purview of "foreign exchange" or "foreign currency" if they involve cross-border transactions or are not recognized domestic currency, thus making them subject to NRB's regulatory oversight and prohibition if not explicitly permitted.

**Nepal Rastra Bank Official Website:** https://www.nrb.org.np/

**Key Legislation Names and Dates:**

**Foreign Exchange (Regulation) Act, 2019 (2076 BS):**

This is the foundational law that empowers the Nepal Rastra Bank to regulate foreign exchange transactions and prohibit unauthorized financial activities. Cryptocurrencies are generally treated as unauthorized foreign exchange or speculative assets that pose risks to financial stability and foreign exchange reserves.

**Date:** The current version (with amendments) is from 2019 (2076 BS). Earlier versions also provided NRB with similar powers.

**Reference (Nepal Law Commission - for the Act):** While a direct English translation of the 2019 act might be hard to find publicly linked, the Nepal Law Commission hosts Nepali legal documents. An older version (though similar in spirit) can sometimes be found. For the spirit of the law, the NRB acts under its mandate derived from this legislation.

*Note: Finding a direct, publicly accessible English translation of the exact 2019 Act with a stable URL can be challenging for Nepali laws. However, the authority it grants NRB is well-established.*

**General Nepal Law Commission Website:** https://www.lawcommission.gov.np/ (You would typically navigate or search here for the "Foreign Exchange (Regulation) Act" in Nepali).

NRB has issued several directives over the years explicitly banning cryptocurrency activities. The initial ban was formally issued in **September 2017 (Bhadra 29, 2074 BS)**, and has been reiterated and strengthened since. These directives cite concerns regarding:

The volatile nature of cryptocurrencies.

Their use in money laundering and terrorist financing.

Potential for fraud and investor protection issues.

Risk to the country's foreign exchange reserves and financial stability.

These directives are typically internal circulars issued by NRB to licensed financial institutions and the general public, warning against crypto involvement.

**Current Stance on Crypto Trading and Exchanges:**

**For Individuals:** It is illegal for individuals residing in Nepal to buy, sell, hold, mine, or use cryptocurrencies for any transaction. Engaging in such activities can lead to legal penalties, including fines, imprisonment, and confiscation of assets.

**For Businesses/Exchanges:** Operating any form of cryptocurrency exchange, trading platform, or service provider in Nepal is illegal. No licenses are issued, and any such operation would be considered unlawful.

**Foreign Exchange Violation:** The NRB views cryptocurrency transactions as unauthorized foreign exchange transactions, which are punishable under the Foreign Exchange (Regulation) Act.

**Nepal Rastra Bank (NRB) Notice, August 2021:** The NRB issued a notice stating that cryptocurrencies and schemes involving virtual currencies are illegal in Nepal. It warned the public against their use, citing the risk of fraud and financial instability.

**Legal Reference:** Nepal Rastra Bank, Foreign Exchange Management Department Notice dated Bhadra 6, 2078 (August 22, 2021), warning against virtual currencies and pyramid schemes. *(Official link directly to this specific notice can be hard to maintain as NRB periodically updates its site; however, it's widely reported and confirmed by NRB officials).*

**General Context:** The prohibition is rooted in the **Foreign Exchange (Regulation) Act, 2019 (1962 A.D.)** and the **Nepal Rastra Bank Act, 2058 (2002 A.D.)**. These acts grant the NRB the authority to regulate foreign exchange and financial stability, under which cryptocurrencies are deemed unauthorized foreign exchange instruments.

**Foreign Exchange (Regulation) Act, 2019 (1962 A.D.)**: https://nrb.org.np/contents/uploads/2020/09/Foreign-Exchange-Regulation-Act.pdf (See Section 3, regarding prohibition on foreign exchange transactions without permission).

**Nepal Rastra Bank Act, 2058 (2002 A.D.)**: https://nrb.org.np/contents/uploads/2020/09/Nepal-Rastra-Bank-Act.pdf (See Sections 5-7 on the functions, duties, and powers of the Bank).

**Compliance Requirement:** If cryptocurrency were legal or if Nepalese individuals were found to be holding crypto assets subject to a UN sanction, Nepal would be required to freeze those assets. This applies to *any* assets, including virtual assets.

**Sanctioned Entity Screening:** Nepal's financial institutions (in traditional finance) and relevant authorities are responsible for screening against the UN sanctions lists (e.g., ISIL (Da'esh) & Al-Qaida Sanctions List, DPRK Sanctions List, etc.). If crypto was legalized, VASPs would likewise be required to screen customers and transactions against these lists.

**Legal Reference:** United Nations Security Council Resolutions and the lists they generate.

Nepal's **Money Laundering Prevention Act, 2064 (2008 A.D.)** and its regulations provide the framework for implementing financial sanctions and combating financing of terrorism.

**Legal Reference:** https://www.fiu.gov.np/wp-content/uploads/2023/12/Money-Laundering-Prevention-Act-2008-English-Version-Updated-in-2023.pdf (See Section 11 on freezing assets, and general provisions related to CFT).

Are denominated in U.S. dollars and clear through the U.S. financial system.

Touch U.S. infrastructure or technology.

**Compliance Requirement:** While not directly binding on a purely Nepalese entity without a U.S. nexus, any international VASP dealing with Nepalese customers would be required to comply with OFAC sanctions. Therefore, a Nepalese individual engaging with a foreign VASP that processes USD or has a U.S. presence would indirectly be subject to OFAC screening.

**Sanctioned Entity Screening:** Foreign VASPs would screen Nepalese users against OFAC's Specially Designated Nationals (SDN) and Blocked Persons List and other relevant sanctions lists.

**OFAC's Guidance on Virtual Currency:** https://home.treasury.gov/system/files/126/virtual_currency_guidance_final.pdf

Entities incorporated or constituted under the law of an EU Member State.

Any person or entity carrying out activities within the territory of an EU Member State.

EU nationals, regardless of where they are.

**Compliance Requirement:** Similar to OFAC, if a Nepalese individual were to interact with an EU-based VASP, that VASP would be obligated to comply with EU sanctions.

**Sanctioned Entity Screening:** EU VASPs would screen Nepalese customers against the EU's Consolidated Financial Sanctions List.

**European Commission - Financial Sanctions:** https://finance.ec.europa.eu/financial-sanctions-policy_en

**For Nepal's Authorities (General):** Nepal's Financial Information Unit (FIU) and other financial regulatory bodies mandate screening for money laundering and terrorism financing purposes against UN sanctions lists for traditional financial transactions. If crypto were legalized, similar obligations would be extended to VASPs.

**For Foreign VASPs:** Any legitimate VASP operating globally, including those that might inadvertently or intentionally onboard Nepalese citizens (despite Nepal's ban), would have robust KYC/AML/CFT programs. These programs would include screening all customers and transactions against the UN, OFAC, and EU sanctions lists, as well as politically exposed persons (PEPs) lists and adverse media.

**Within Nepal:** The primary geographic restriction is that all cryptocurrency-related activities are banned nationwide.

**International:** Beyond Nepal's domestic ban, standard international geographic restrictions apply. This means that engaging in crypto transactions with individuals or entities located in, or associated with, countries under international sanctions (e.g., North Korea, Iran, Russia, specific regions) would be prohibited by the relevant sanctioning bodies (UN, OFAC, EU) if a nexus exists.

**Imprisonment:** Individuals can face jail terms.

**Asset Forfeiture:** Confiscation of assets involved in the illegal activity.

**Legal Reference:** The **Foreign Exchange (Regulation) Act, 2019 (1962 A.D.)** outlines penalties for unauthorized foreign exchange transactions. Section 12, for example, empowers the NRB to fine individuals/entities up to 300% of the disputed amount or imprison them for up to three years, or both. The **Money Laundering Prevention Act, 2064 (2008 A.D.)** also provides for penalties for predicate offenses related to illegal financial activities.

**OFAC:** Severe civil and criminal penalties, including massive fines (millions of dollars), imprisonment for individuals, and being cut off from the U.S. financial system.

**EU:** Fines and potential imprisonment, varying by Member State law, but generally aligned with the severity of the violation.

**UN:** While the UN itself doesn't directly impose penalties on individuals, member states (like Nepal) are obligated to enforce the sanctions, which would entail domestic legal action and penalties as per Nepalese law.

**Nepal does not have its own specific "crypto sanctions list."** This is primarily because all crypto activities are banned, so there's no framework for regulating or sanctioning specific crypto entities domestically.

However, Nepal is obligated to implement the **UN Security Council Consolidated List** and its related lists (e.g., ISIL (Da'esh) & Al-Qaida Sanctions List, Taliban Sanctions List, DPRK Sanctions List, etc.). These lists contain individuals and entities that may be involved in financing terrorism or proliferation through any means, including cryptocurrencies. Nepal's financial intelligence unit (FIU) and law enforcement would be responsible for identifying and freezing assets, including crypto, if discovered, belonging to such designated individuals or entities.

**Regulator Name:** Nepal Rastra Bank (NRB)

**Entity Targeted:** General Public, financial institutions, and any individuals or groups involved in cryptocurrency-related activities.

**Violation Type:** Engaging in, facilitating, or promoting illegal cryptocurrency activities (trading, mining, holding, investment), which are considered violations of foreign exchange regulations and potentially money laundering laws.

**Penalty Amount:** The NRB itself doesn't issue direct "penalties" in these warnings, but the legal framework invoked carries significant penalties. Under the **Foreign Exchange (Regulation) Act, 2019 (2076 BS)**, violations can lead to:

Confiscation of the disputed amount.

A fine of up to three times the disputed amount.

Imprisonment for up to three years.

Confiscation of assets used in the illegal activity.

Additionally, money laundering charges under the **Asset (Money) Laundering Prevention Act, 2008 (2064 BS)** can lead to heavier fines and longer prison sentences.

**Date:** Ongoing, with significant public warnings reiterated in **October 2021**, **January 2022**, and subsequent informal statements by officials.

**Outcome:** Crypto activities remain illegal in Nepal. These warnings serve as a deterrent and provide the legal grounds for law enforcement agencies (like Nepal Police) to initiate criminal investigations and arrests.

**The Kathmandu Post (Oct 2021):** Nepal Rastra Bank warns against trading cryptocurrencies

**The Himalayan Times (Jan 2022):** NRB reiterates ban on cryptocurrency and pyramid schemes

**OnlineKhabar (Nepali - Feb 2022):** क्रिप्टो कारोबार गरे नगर्न चेतावनी, गरे कारबाही गरिने राष्ट्र बैंकको भनाइ (NRB warns against crypto trading, says action will be taken if done)

**Regulator Name:** Nepal Police (specifically, the Central Investigation Bureau - CIB)

**Entity Targeted:** Multiple individuals involved in the illegal trading and mining of cryptocurrencies.

**Violation Type:** Illegal foreign exchange transactions, operating prohibited financial activities, potential money laundering. These charges are brought under the **Foreign Exchange (Regulation) Act, 2019 (2076 BS)**, and potentially the **Asset (Money) Laundering Prevention Act, 2008 (2064 BS)** and **Cyber Crime Act, 2063 BS**.

**Penalty Amount:** Varies by case, but as per the invoked laws, can include:

Confiscation of assets (including digital assets if traceable)

Fines up to three times the amount involved in the illegal transaction.

Imprisonment for up to three years (under Foreign Exchange Act), potentially longer if money laundering or cybercrime charges apply.

**Date:** A major crackdown occurred in **January 2022**, leading to multiple arrests. Sporadic arrests and investigations have continued since.

**Outcome:** Several individuals were arrested, investigated, and faced legal proceedings. These actions send a strong message that authorities are actively monitoring and prosecuting those involved in crypto activities. The outcome for individual cases can include pre-trial detention, asset seizure, and eventual conviction with fines and imprisonment.

**The Kathmandu Post (Jan 2022):** CIB arrests six people for trading cryptocurrency

**The Himalayan Times (Jan 2022):** Police nab six involved in crypto business

**Republica (Jan 2022):** CIB arrests six people for illegal cryptocurrency transactions

**OnlineKhabar (Nepali - Jan 2022):** क्रिप्टोकरेन्सी कारोबार गरेको आरोपमा ६ जना पक्राउ (6 arrested on charges of cryptocurrency trading)