Image courtesy of www.icij.org.
Sri Lanka faces an elevated threat from money laundering linked to drug trafficking and a growing risk of terrorist financing in 2024/25, according to the National Risk Assessment (NRA) on Money Laundering, Terrorist Financing and Proliferation Financing released by the Financial Intelligence Unit (FIU) of the Central Bank of Sri Lanka.
The NRA 2024/25, the country’s third comprehensive national risk review, was compiled with the participation of 86 government institutions, regulators and private‑sector entities, drawing on the expertise of around 200 specialists. The assessment examined risks across 15 core areas, including financial institutions, designated non‑financial businesses, virtual assets, environmental crimes, tax offences and proliferation financing.
Drug trafficking now top money‑laundering threat
Under the money laundering (ML) threat assessment, drug trafficking was identified as the most serious predicate offence, with its threat level rising to “high” from the previous “medium‑high” rating, the Central Bank said.
Fraud and customs‑related offences, including Trade‑Based Money Laundering (TBML), were assessed as medium‑high threats, continuing to pose significant risks to the financial system.
The assessment found that Sri Lanka’s overall national money‑laundering risk remains at “medium”, unchanged from the previous review, after weighing both threat levels and national vulnerability.
Corruption threat shows improvement
In contrast, the threat level of bribery and corruption declined to “medium” from “medium‑high”. The FIU attributed this improvement to better performance indicators, including an increase in Sri Lanka’s Corruption Perceptions Index (CPI) score from 32 in 2024 to 35 in 2025.
Other predicate offences such as environmental and natural resource crimes, illegal fishing, human trafficking and tax offences were assessed as posing medium‑level money‑laundering threats, while counterfeiting of currency continued to reflect a low threat level, consistent with previous assessments.
Terrorist financing risk upgraded
The NRA recorded a worsening terrorist financing (TF) risk, which has increased to “medium‑high” from “medium” in the previous assessment.
According to the Central Bank, the rise was driven by evolving threats from extremist and separatist networks, potentially supported by diaspora funding, digital radicalisation, regional spillover risks, and the use of informal and emerging financial channels.
First national assessment of proliferation financing
For the first time, Sri Lanka also conducted a national risk assessment of proliferation financing (PF)—the funding of weapons of mass destruction programmes—which was rated “medium”, reflecting both global threat conditions and domestic vulnerabilities.
Evaluation pressure ahead of APG review
The release of the NRA comes just ahead of Sri Lanka’s third Mutual Evaluation by the Asia Pacific Group on Money Laundering (APG), a regional affiliate of the Financial Action Task Force (FATF), which is scheduled to commence in March 2026 after being delayed due to the 2024 elections.
The evaluation will subject Sri Lanka’s anti‑money laundering and counter‑terrorist financing (AML/CFT) framework to close scrutiny against FATF standards. Authorities are under pressure to demonstrate effective implementation to avoid a repeat of past setbacks, as Sri Lanka was previously placed on the FATF “Grey List” in 2011 and again in 2017.
The FIU said the findings of the NRA will guide future policy updates and risk‑based supervision, including revisions to the country’s national AML/CFT framework in the period ahead.