Sri Lanka must strengthen measures against money laundering and terrorism financing to avoid being grey listed, Chairman of Seylan Bank, Buwaneka Aluwihare told a seminar organised by the National Issues Committee of the OPA recently.
Aluwihare said that many criminals, particularly those involved in narcotics, have built vast empires, often operating from overseas. He pointed out that their substantial financial gains empower them to run their operations with seeming impunity. “However, to spend their illicit earnings without raising suspicion, they rely on money laundering to disguise the origin of their criminal proceeds, making them appear legitimate.”
Aluwihare said that a crucial component of anti-money laundering legislation is asset recovery, which involves locating, freezing, and forfeiting the proceeds of crime. Depending on the asset, it may also need to be managed.
He explained two types of regimes for recovering criminal proceeds: conviction-based, where forfeiture depends on the criminal’s conviction, and non-conviction based, where ownership of assets must be justified by proof of income. “If an individual cannot justify their assets, the authorities have the power to seize them.”
Aluwihare said, as a part of IMF requirements, Sri Lanka is considering the introduction of these provisions to further combat money laundering. He asserted that stringent anti-money laundering measures would significantly reduce drug proliferation. He also highlighted the detrimental impacts of money laundering on the economy, including undermining financial stability, decreasing government revenue, distorting competition, increasing inequality, and hampering economic growth.
Director of the Financial Intelligence Unit of the Central Bank, Dr. Subhani Keerthiratne endorsing these sentiments said that inter-agency coordination and the highest level of political commitment are crucial to combat money laundering and terrorist financing, which pose significant risks to both domestic and global financial systems, peace, and development.
She highlighted international conventions, including the Vienna Convention of 1988, the Palermo Convention of 2000, the Merida Convention of 2003, and the Terrorist Financing Convention of 1999, which guide global initiatives against these illegal activities. Global action against money laundering, terrorist, and proliferation financing is led by the Financial Action Task Force (FATF), an intergovernmental body established by the G-7 countries. The FATF promotes effective measures and monitors country compliance based on 40 recommendations.
Dr. Keerthiratne said that terrorist financing was criminalised in Sri Lanka through the Convention on the Suppression of Terrorist Financing Act No. 25 of 2005, and money laundering was criminalised by the Prevention of Money Laundering Act No. 5 of 2006.
The Financial Transaction Reporting Act No. 6 of 2006 outlines the obligations of financial and non-financial institutions and the powers and functions of the Financial Intelligence Unit (FIU).
“The country must address remaining technical deficiencies and implement necessary changes to avoid being designated as a greylisted or blacklisted country.”
Dr. Keerthiratne said that while members are required to act only against blacklisted countries, being greylisted can also have severe repercussions. “For instance, the last time Sri Lanka was greylisted, it resulted in EU blacklisting, causing several EU banks to cease dealings with Sri Lankan institutions. This could lead to increased interest rates, low investor confidence, and potential downgrading by rating agencies.”
The IMF’s Technical Assistance report on Sri Lanka also highlighted several areas of concern in combating money laundering and terrorist financing, including the lack of skilled resource personnel, legal barriers, gaps in the legal framework, absence of clear strategy and technical coordination, and lack of transparency. – SS
