IMF, activist, ask for action after Sri Lanka placed on money laundering scrutiny

ECONOMYNEXT – The International Monetary Fund and a governance activist has urged action after Sri Lanka was placed under scrutiny for falling short of global rules on combatting money laundering and terrorist financing.

Sri Lanka was placed under ‘monitoring’ by a global body that promotes the inaction of anti-money laundering/combatting terrorist financing (AML/CFT),  late last year, for ‘strategic deficiencies," and classed among high risk and non-compliant countries.

However the country is among those that have a ‘high level political commitment’ to fix shortcomings, the agency said.

The central bank’s financial intelligence unit is the main body that is in charge of countering money laundering.


"While some progress has been made in improving the AML/CFT regime, significant deficiencies remain, and Sri Lanka was placed under the Financial Action Task Force (FATF) monitoring process in October," an IMF report on Sri Lanka said.

"Staff recommends that Sri Lanka enhance the effectiveness of the supervisory framework, enact FATFcompliant AML/CFT laws and regulations, and focus on the implementation of the International Cooperation Review Group (ICRG) action plan items."

Chandra Jayaratne, a governance activist has proposed a series of actions to combat serious frauds and recover criminal proceeds.

In a letter to the President Maithripala Sirisena, Jayaratne said a serious frauds office should be set up with an independence prosecutor.

"Frauds Office so created must absorb the present activities and progress all the pending investigations before the Financial Crimes Investigation Department of the Sri Lanka Police," he said.





Sri Lanka has already set up a bribery commission, but expected results have not come.

Broken Public Service

Analysts say Sri Lanka’s public service does not work because there are no permanent secretaries in ministries appointed by a public service commission who have tenure protection to do the right thing and survive in office.

In Sri Lanka permanent secretaries are changed on political whims, essentially treated like cabinet ministers, who can be changed on the whim of the President or Prime Minister, following the abolition of an independent public service commission in the 1971 constitution.

Critics say the ending of the institution of permanent secretaries made all state workers who were ‘public servants’ during British rule and the Soulbury Constitution, ‘rulers servants’ who were no longer able to serve the public and uphold rule of law after 1971.

The current ‘good governance’ administration has changed ministry secretaries wholesale twice since coming to power and made several individual changes in between.

A constitutional council to make senior appointments, which is expected to go partway to solve the problem, does not cover ministry secretaries as yet.

President Sirisena had asked for the Central Bank Governor to also be appointed by the Constitutional Council.

A commission of inquiry has asked for gains from a securities scam made under the tenor of the last governor to be recovered, if necessary through a new law.

Meanwhile Jayaratne asked for the enactment of a separate ‘Proceeds of Crimes’ law to recover criminal proceeds.

He also asked that state workers and "all persons contracting with or engaging in any economic or administrative transactions with the State to be bound to report to the relevant authorities all instances of non-compliance with laws and regulations they are aware of."

Monitored Country

The FATF said Sri Lanka has made a high-level political commitment to strengthen the AML/CFT regime.

These include;

1) enacting amendments to the MACMA (Mutual Assistance in Criminal Matters Act) to ensure that mutual legal assistance may be provided on the basis of reciprocity;

2) issuing the CDD Rule (customer due diligence) for DNFBPs (Designated Non-Financial Businesses and Professions) and issuing any necessary guidance, and ensuring implementation of this Rule has begun, by way of supervisory actions;

3) enhancing risk-based supervision and outreach to FIs (Financial Institutions), and high risk DNFBPs, including through prompt and dissuasive enforcement actions and sanctions, as appropriate;

4) providing case studies and statistics to demonstrate that competent authorities can obtain beneficial ownership information in relation to legal persons in a timely manner 5) issuing a revised Trust Ordinance and demonstrating that implementation has begun; and

6) establishing a TFS (Targeted Financial Sanctions) regime to implement the relevant UNSCRs (United Nations Security Council Resolutions) related to Iran, demonstrating that implementation has begun, and demonstrating that implementation has begun on the UN Regulation related to the DPRK.

Sri Lanka’s cabinet has already approved changes to the Trust Law, which requires beneficiaries to be named to the FIU, issued sanctions on North Korea.

This month a series of rules on customer due diligence and Designated Non-Financial Businesses and Professions have issued by gazette by the FIU. Some of the controls and restrictions placed on citizens have been issued without gaining parliamentary approval or public debate. (Colombo/Jan27/2018)

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