Massive money laundering bust in Nepal: Billion-rupee scam exposed

KATHMANDU: In a sweeping crackdown that has stunned Nepal’s financial and law enforcement circles, the Central Investigation Bureau (CIB) of Nepal Police arrested 21 individuals from 11 districts for their alleged involvement in one of the largest illegal financial operations in the country’s history. The accused are linked to customs evasion, illegal gold trading, large-scale tax fraud, and the misuse of digital wallets to launder nearly NPR 17.86 billion — a staggering amount in Nepal’s fragile economy.

The arrests, made over a coordinated week-long operation, expose the deep vulnerabilities in Nepal’s financial system, especially the booming digital payments sector, and raise serious questions about regulatory oversight. The case comes at a particularly sensitive time for the country, as Nepal has just been placed on the Grey List of the Financial Action Task Force (FATF), the global watchdog against money laundering and terrorist financing. The development has heightened international scrutiny over Nepal’s financial practices and made the stakes of this bust even higher.

Sophisticated web

According to CIB officials, the syndicate operated a complex scheme that intertwined traditional black-market activities with new-age digital payment platforms. The criminals used individuals known as “money mules” to deposit illegally earned cash into accounts opened under the names of seemingly legitimate digital wallet companies such as Sajilo Pay and Paywell Nepal Pvt. Ltd. Once placed inside the financial system, the money was laundered under the guise of remittance payments — cash ostensibly sent home by Nepali migrant workers from countries like Malaysia, Qatar, Saudi Arabia, and the UAE.

But unlike genuine remittance transactions, which are tightly regulated and monitored through authorized money transfer agencies, these operations were completely outside the legal banking framework. Investigators found that the “remitted” money was not sent from abroad at all. Instead, large sums of illicitly obtained cash were digitally “recycled” within Nepal and paid out to local recipients, falsely recorded as overseas inflows.

“This is financial crime at a highly evolved stage,” said a senior CIB officer, speaking on condition of anonymity. “They were using modern technology to replicate legitimate remittance behavior while, in reality, facilitating customs evasion, gold smuggling, and large-scale tax avoidance. Without detection, such practices severely undermine the financial system’s credibility and distort real economic activity.”

Traders, remitters, and money movers

The individuals arrested come from diverse backgrounds, but most are linked either to trading companies, informal money transfer agencies, or travel businesses — all sectors that are particularly vulnerable to misuse.

Among the major figures arrested are Birendra Sah and Dipendra Sah of DS Traders and Remittance, accused of laundering NPR 2.82 billion. Shrawan Kumar Sah of Deepjyoti Traders in Mahottari is implicated in the laundering of NPR 1.51 billion. Similarly, Taralal Yadav of Riya Traders in Saptari is linked to NPR 1.39 billion, while Hareram Mahato of Ananda Traders in Sarlahi and Niroj Kumar Mahato of New Sandhya Traders in Dhanusha are accused of laundering NPR 1.02 billion and NPR 840.7 million, respectively.

In many instances, the suspects had formally registered their businesses with Nepal’s Office of Company Registrar but failed to comply with tax obligations, audit standards, and transaction reporting requirements. Some were running licensed travel agencies, officially involved in visa processing and overseas employment services, but clandestinely funneling illicit cash into Nepal’s economy.

“The blend of legal cover and illegal activities is what made these operations so difficult to detect for so long,” said a CIB investigator. “They appeared legitimate on paper but acted as conduits for large volumes of dirty money.”

Digital wallets in crosshairs

The role of digital wallets such as Sajilo Pay and Paywell Nepal is a central focus of the ongoing investigation. The CIB alleges that these companies either directly facilitated suspicious activities or displayed gross negligence in monitoring unusually large volumes of transactions.

Under Nepal Rastra Bank (NRB) regulations, digital wallets are classified as “payment system operators” and are obligated to comply with Anti-Money Laundering (AML) guidelines, which require the flagging of suspicious transactions, particularly those exceeding NPR 1 million. However, in this case, no such alerts were raised.

An NRB official, speaking anonymously, admitted that oversight of the digital financial ecosystem has been woefully inadequate. “We’ve focused heavily on traditional banks and neglected the fast-growing digital payments sector,” the official confessed. “This gap has now been exploited, and the consequences are here for all to see.”

With Nepal now on the FATF Grey List, such lapses could have serious consequences, including reduced investor confidence, higher costs of cross-border banking, and strained diplomatic relations.

Informal black economy

This case is not merely about digital fraud — it taps into the much larger and chronic problem of Nepal’s informal black economy.

Investigators believe that much of the illicit cash laundered through the wallets originated from customs evasion. Goods, especially gold, smartphones, and other high-value electronics, are routinely smuggled into Nepal through porous borders, avoiding duties and taxes. The smuggling of gold has become particularly rampant, with several recent high-profile busts revealing sophisticated concealment methods, from hiding gold in electric heaters to camouflaging it inside construction materials.

Once sold in Nepal’s booming grey markets, the proceeds needed to be legitimized — and the seized syndicate’s laundering network provided the perfect channel. With the illicit cash deposited into digital wallets and disguised as foreign remittance, the money could seamlessly re-enter the formal economy.

The arrest operation suggests that smuggling and digital laundering were parts of a coordinated value chain, pointing to a degree of organization previously underestimated by authorities.

End-use of laundered money

One of the most troubling aspects of this operation is the end-use of the laundered money. Sources indicate that a significant portion was invested into land and real estate, inflating prices in Kathmandu and several provincial capitals. The sudden, unexplained surge in land prices in cities like Birgunj, Janakpur, and Biratnagar over the past three years now appears less mysterious.

Moreover, experts suspect that the laundered funds also found their way into legitimate-looking ventures such as hotels, schools, and trading companies. There is even concern that some of the black money was funneled into political donations, especially during elections, thereby creating a vicious cycle where illicit financial flows could influence governance and policymaking.

“There’s a chain reaction,” said a financial analyst. “When dirty money becomes clean through fake transactions, it competes unfairly against honest businesses, inflates asset bubbles, and corrupts political systems. Left unchecked, it can destabilize the entire economy.”

Informal remittance networks

This case shines a spotlight on the growing threat of informal remittance channels, widely known as hundi systems. Although illegal, hundi remains popular among migrant workers due to its low cost and speed compared to formal banking systems.

Estimates suggest that informal channels account for 30–40% of Nepal’s total remittance flows — meaning billions of rupees every year escape official scrutiny. What’s new — and particularly alarming — is that digital wallets and mobile payment systems have now been absorbed into the hundi network, supercharging its ability to move large sums invisibly.

With Nepal’s economy so heavily dependent on remittances — which account for about 23% of the country’s GDP — the integrity of remittance flows is critical. If informal channels dominate, not only does the state lose revenue, but it also becomes vulnerable to money laundering, terror financing, and organized crime.

In this context, Nepal’s Grey Listing by FATF serves as a stark warning that time is running out to regulate these vulnerabilities.

Nepal’s grey listing

In February, 2025, the Financial Action Task Force officially placed Nepal on its Grey List after an extensive mutual evaluation. The watchdog cited Nepal’s failure to adequately enforce anti-money laundering standards, weak supervision of financial institutions, and poor investigation and prosecution of financial crimes.

The Grey Listing has serious implications. Countries on the list face increased monitoring, potential barriers to international financial transactions, and reputational damage that can scare away foreign investors and development partners.

Experts say the CIB’s recent bust illustrates exactly the kind of systemic weaknesses FATF warned about. “It’s a textbook case of what happens when a country neglects financial surveillance in the digital era,” said a financial law expert. “The Nepal Police deserve credit for this operation, but it’s a Band-Aid on a much larger wound. Structural reforms are urgent.”

Nepal must now demonstrate progress to FATF by tightening its laws, improving regulatory oversight, prosecuting financial criminals, and making digital finance transparent and accountable.

Legal road ahead

The 21 individuals arrested now face charges under the Nepal Rastra Bank Act 2058 B.S., the Money Laundering Prevention Act 2064 B.S., and the Revenue Leakage (Investigation and Control) Act 2052 B.S. If convicted, they could receive jail terms of up to 10 years, heavy fines equivalent to the amount laundered, and seizure of properties believed to have been bought with illicit funds.

Beyond criminal trials, Nepal’s authorities are under pressure to act against corporate enablers. CIB has recommended the investigation of digital wallet company directors and senior managers who may have facilitated or turned a blind eye to the transactions.

Parallel inquiries by the Department of Money Laundering Investigation (DMLI) and Financial Information Unit (FIU) are ongoing. International cooperation with agencies such as INTERPOL and FIUs in countries where Nepali migrants work is also being sought.

Nepal’s financial future

This high-profile bust is both a crisis and an opportunity. Nepal’s financial regulators — including the NRB, Securities Board of Nepal (SEBON), and Ministry of Finance — must act decisively to rebuild trust. New regulations specifically targeting fintech companies, digital wallets, and informal remittance networks are urgently needed.

Failure to act could deepen Nepal’s Grey List troubles, jeopardize remittance inflows, and damage the country’s international credibility.

Financial inclusion and technological innovation are critical to Nepal’s future, but they must be anchored in strong safeguards against abuse. Otherwise, as experts warn, “Nepal risks becoming a regional hub for financial crime.”

A test of resolve

The story of 21 arrests and NPR 17.86 billion is not just about criminals. It is about the resilience of Nepal’s institutions and whether they can adapt fast enough to protect the financial system.

In the coming months, as FATF monitors Nepal’s actions closely, the country faces a crucial test: to prove that it can learn, reform, and emerge stronger — or sink deeper into financial isolation.

For now, the public watches as the wheels of justice turn, and as Nepal grapples with the realization that safeguarding its financial future requires more than arrests — it demands a transformation.