Nepal -- Travel Rule Implementation Regulatory Overview

Nepal has a unique and strict stance on virtual assets, which directly impacts the implementation of the FATF Travel Rule.

The primary status is that Nepal has NOT adopted the FATF Travel Rule, nor can it, because virtual assets and related activities (including operating as a VASP) are largely prohibited within the country.

Here's a breakdown of the situation:

1. Status of Adoption:

   • Not Adopted. The concept of the FATF Travel Rule, which requires VASPs to share originator and beneficiary information for virtual asset transactions, is not applicable in Nepal because the underlying virtual asset activities and the existence of regulated VASPs are prohibited.
   • The Nepal Rastra Bank (NRB), the central bank, has consistently issued circulars and warnings against the use, trading, mining, or investment in cryptocurrencies and other virtual assets, citing them as illegal.

2. Effective Date:

   • There is no effective date for the FATF Travel Rule implementation in Nepal, as it has not been adopted.
   • However, the prohibition on virtual assets has been in effect for several years, with the NRB first issuing warnings and directives in 2017, and reiterating them multiple times since then (e.g., in October 2021 and April 2022).

3. Threshold Amounts:

   • Not applicable. Since the Travel Rule is not adopted and virtual asset activities are banned, no threshold amounts for information sharing have been set.
   • (For reference, the FATF generally recommends thresholds of USD/EUR 1,000 for unhosted wallet transfers and USD/EUR 3,000 for VASP-to-VASP transfers, but these do not apply in Nepal).

4. Which VASPs are Covered:

   • None. There are no legally recognized or regulated Virtual Asset Service Providers (VASPs) in Nepal.
   • Any entity operating as a VASP (e.g., exchanges, custodians, wallet providers facilitating transfers) would be considered illegal and subject to penalties under existing laws.

5. Technical Implementation Requirements:

   • Not applicable. As virtual assets are banned, there are no technical implementation requirements for Travel Rule compliance.
   • (Globally, technical solutions like TRISA, OpenVASP, SYGNA, and Travel Rule Protocol (TRP) are used, but these are irrelevant in Nepal's current regulatory environment).

6. Penalties for Non-Compliance:

   • Penalties are NOT for non-compliance with the Travel Rule, but for engaging in prohibited virtual asset activities themselves.
   • Individuals or entities found to be involved in virtual asset transactions (buying, selling, holding, mining, operating platforms, etc.) are subject to severe penalties under existing Nepalese laws, primarily the Foreign Exchange (Regulation) Act, 2019 (2076 BS) and potentially the Banking and Financial Institutions Act, 2017 (2073 BS) and the Punishment for Money Laundering and Terrorist Financing Act, 2008 (2064 BS).
   • The penalties can include:
     • Confiscation of the involved virtual assets and any other assets derived from the illegal activity.
     • Fines up to three times the amount involved in the transaction.
     • Imprisonment for varying durations, depending on the severity and nature of the offense.
     • The Foreign Exchange (Regulation) Act typically prohibits transactions that are not sanctioned by the NRB, making crypto activities illegal.

Referenced Legislation or Guidance:

1. Nepal Rastra Bank (NRB) Directives/Circulars:

   • The NRB has consistently issued public notices and circulars warning against virtual currency transactions. While specific direct links to English versions of every circular might be hard to find instantly on the NRB's official site, their stance is widely reported.
   • Example (News Report referencing NRB's stance):
     • The Himalayan Times: Nepal Rastra Bank warns against trading cryptocurrencies (Often refers to directives from 2017, 2021, and 2022).
     • NRB's Official Website (for general information and search for official notices): https://www.nrb.org.np/ (You would need to search their news/press release section for specific anti-crypto notices, which might primarily be in Nepali).

2. Foreign Exchange (Regulation) Act, 2019 (2076 BS):

   • This is the primary legal instrument used to prohibit unauthorized foreign exchange transactions, which the NRB applies to virtual assets. Any transaction involving assets not recognized or sanctioned by the central bank falls under its purview.
   • Reference (Legal Database): An unofficial but widely referenced English version of the Act can often be found on legal information portals in Nepal.
     • Example (search for the act online, e.g., via Nepal Law Commission if available, or legal resource sites): Searching for "Foreign Exchange (Regulation) Act 2076 BS Nepal" will provide relevant documents.

3. Punishment for Money Laundering and Terrorist Financing Act, 2008 (2064 BS):

   • While not directly banning crypto, this act provides the framework for penalizing financial crimes. If crypto is used for illicit activities, this act would apply.
   • Reference (Legal Database): https://nrc.org.np/wp-content/uploads/2019/12/Punishment-for-Money-Laundering-and-Terrorist-Financing-Act-2064-BS.pdf (This is a PDF from an NGO, but provides the text of the act).

In summary, Nepal's strict prohibition on virtual assets means that the FATF Travel Rule is effectively a moot point. The country has chosen a path of outright ban rather than regulation and compliance for virtual assets.