According to a report by Nepal Rastra Bank, such suspicious transactions have increased from only 13 in 2021 to 252 in 2024, and most of them involve students and salaried employees.
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In the last five years, there has been an increase in virtual assets and suspicious transactions related to them in Nepal. While 13 such risks were detected in 2021, this number has increased to 252 by 2024, according to the ‘Strategic Analysis Report on Virtual Assets’ released by the Financial Information Unit of Nepal Rastra Bank on Thursday.
The report points out that 29 percent of those involved in such suspicious activities are students and 21 percent are salaried employees. This data shows that the young generation, accustomed to technology, is at high risk of being tempted by online fraud and get-rich-quick schemes, and that they lack financial literacy.
Vasudev Bhattarai, Director and Head of the Financial Information Unit, wrote in the ‘Role’ of the report that virtual assets and virtual asset service providers have been emerging rapidly in recent years, and although this technology is modern and useful, the current laws and mechanisms are finding it very difficult to prevent fraud and illegal activities caused by it.
All activities related to virtual assets are legally prohibited in Nepal. However, the report shows that such assets are being used in illegal activities such as hundi transactions, online financial fraud, online gambling and money laundering. ‘This report has made it clear that investigation, freezing/seizure and prosecution processes may be initiated against individuals or organizations directly or indirectly involved in such activities,’ the NRB statement said.
The NRB has mentioned the role of commercial banks in such activities. ‘Of the suspicious reports received, 91.19 percent were sent by commercial banks,’ the report said. ‘It has been found that virtual assets are mainly used in Nepal for illegal foreign exchange, hundi, online fraud, cryptocurrency and to hide illegal earnings.’ The report said that criminals use bank accounts of family members and relatives as ‘money mules’, conduct crypto transactions under the cover of legitimate businesses and misuse dollar cards.
The NRB has stated that the technical complexity, cross-border jurisdictional issues, and extreme fluctuations in the price of such assets pose major challenges in investigating and controlling virtual assets. The NRB has also given various suggestions to the concerned bodies to address the risks related to virtual assets. It has asked them not to engage in any transactions related to it, to conduct detailed checks on the identity of the customer and the source of funds, and to immediately submit a report to the Financial Intelligence Unit if suspicious activity is observed.
Even if a complete ban is implemented, the report concludes that since such transactions are taking place in the informal economy, prohibition alone is not enough to control it, but rather technical capacity building and widespread public awareness are needed.
What is a virtual asset?
According to the report, a virtual asset is a digital form of currency. In some countries, it can be traded through virtual assets and used for payment or investment purposes. Virtual assets include cryptocurrencies such as Bitcoin and Ethereum, digital art, non-fungible tokens (NFTs) such as digital photos and videos, security tokens, and stablecoins.
They do not have a physical existence but have financial value. They can be bought and sold over the internet, sent from one place to another, or used for payments. These assets are managed using distributed ledger technology (DLT), or blockchain technology. Since no central intermediary such as a bank or financial institution is required, such assets are not easily regulated.
In the context of Nepal, according to Section 262 (a) of the Criminal Code, virtual currency means information, code, code number, token, cryptocurrency or similar property that is created or produced electronically by cryptography or any other means, has value or utility in commercial activities, and can be stored or represented in terms of value or unit of account. In Nepal, the production, sale, trading, storage or transfer of such property is legally prohibited.
