The adoption of children from Nepal should be suspended, the international body that governs adoption between countries has recommended.
An investigation found children from remote areas were falsely declared to be orphans and put up for adoption without their parents' knowledge.
A draft report by The Hague Conference on Private International Law urges Nepal to take steps to prevent abuses.
Nepal temporarily suspended international adoptions in 2007.
It introduced new rules in 2008 and international adoptions were resumed.
But the report from the Hague Conference says that abuses are still rife. Its investigation found that documents which declared children as orphans were often faked.
Children who were put up for overseas adoption had been taken from their families to care homes in the capital, Kathmandu, under the pretext of receiving education.
The probe found evidence of "false statements" about the child's origin, age and status; lack of transparency and accountability for the money coming into Nepal from international adoptions; and an absence of a policy on such adoptions.
It said Nepal had failed to prevent the abduction, sale and traffic of children and recommended the government suspend international adoptions to allow new laws and procedures to be implemented.
The report follows a probe by Unicef, and other NGOs. The Swiss-funded charity, Terre des hommes, said it found that more than 60% of children in orphanages had parents who could take care of them.
"The Hague report makes a very strong finding which is that there is evidence of abuse in terms of paperwork. Paperwork is created to declare the child an orphan whereas the child... could be supported in the family," Terre des hommes Nepal country director, Joseph Aguettant, told the BBC's Joanna Jolly in Kathmandu.
Unicef and Terre des hommes have previously reported that it is common for Nepalese children to be abducted, trafficked and, in effect, sold.
Nepal's adopted children mainly go to Spain, France, Germany, Italy and the US.
Our correspondent says that the report has been welcomed by those working in child protection in Nepal who say the proper safeguards need to be in place before children are offered for international adoption.