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Wednesday, May 22, 2024

Sri Lanka Finance Ministry Violates the Money Laundering Act

(Press Release:TISL Perturbed by the Finance Minister’s “No Questions” Policy)

Transparency International Sri Lanka (TISL) is perturbed by the recent moves of the Minister of Finance, encouraging inward remittances in to Sri Lanka from investors (local, foreign and even ’mystery’ investors) on a “No Questions” asked basis, as a first step in creating a “Financial Centre” in Sri Lanka. He invited investors to “park” their deposits, including funds presently in Switzerland and other tax/investment havens, in Sri Lanka as “special deposits” and offered a premium investment return of 2% per annum, with “no locked in investment period”. He has subsequently declared that a single “mystery” Belgian national working with a Sri Lankan partner had already remitted USD 500 million under this scheme and the balance of the promised total transfer of USD one billion will follow soon. Officials have separately announced that remittances under this scheme have topped USD 1.5 billion.

In announcing the modalities of the deposit scheme, it has been stated that the remitting banks overseas would have already cleared the customer and associated due diligence; and hence there is no requirement for “Know Your Customer” (KYC) and associated validation processes to be repeated in Sri Lanka, though so required under international conventions to be carried out by the recipient Banks. Bank officials, who appear not to have received specific guidelines in connection with this scheme, believe that the scheme is akin to an “amnesty” being declared, exempting the receiving Banks from requirements under local statutory provisions and international guidelines.

This move is contrary to the Prevention of Money Laundering Act requirements.

Accepted regulatory frameworks could be exploited to ‘park’ in Sri Lanka “Black Money” and funds gained through trading in narcotics, dangerous substances and illegal arms, as well as funds associated with serious financial crimes, bribery and corruption and terrorism. It is well recognized that investors of such funds seek new havens to launder their money; and such investors could be attracted by the scheme on offer, which in addition have the attractions of a “No Questions” policy, and provides them with attractive investment returns with no lock-in period stipulations.

These funds can very easily move back/out to other destinations whenever thought fit by the investors, especially after serving the objectives of laundering the money by the using the temporary “parking option”. Such actions could result in very serious macro economic and financial stability consequences for Sri Lanka in the future.

Sri Lanka is a signatory to international standards on Combating Money Laundering and Financing of Terrorism Proliferation (FATF Recommendations), and this move by the Minister of Finance could lead to Sri Lanka being internationally penalized. Such a situation will deter serious and honest foreign investments, which can add significant and sustainable value to Sri Lanka and its people, from coming into the island.

The FATF recommendations stipulate compliance procedures to be in place to ensure customer due diligence, ranging from record keeping and reporting suspicious transactions to strict regulation and supervision of financial institutions. In terms of the US Foreign Account Tax Compliance Act (FATCA), Sri Lankan Banks operating within the framework of this new “No Questions” scheme may risk being barred from the US banking system.

The scheme now introduced without transparency and public discussion, will regrettably create an investment framework operating outside acceptable and desirable best practices, and is likely to leave the country, its business sector and citizens exposed to dangers of penal international sanctions.


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