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Tuesday May 17th, 2022

Sri Lanka unleashes money laundering unit, police, on unofficial remittances

ECONOMYNEXT – Sri Lanka has deployed money laundering tracking software and the police find and prosecute persons who are sending or receiving remittances through unofficial channels, Central Bank Governor Nivard Cabraal said as remittances were diverted out of banks amid money printing.

“We can track unusual patterns of money from accounts and have already found suspicious transactions,” Governor Cabraal told reporters Saturday.

“The Financial Intelligence Unit with the help of the police are working on it.”

The central bank is cracking down on unofficial remittances after money coming from official channels plunged as parallel exchange rate premiums widened.

The official non-credible peg with the US dollar is at 199/203 but kerb market and Hawala rates are around 240 to the US dollar.


More Sri Lankans switch to Hawala as money printing drive parallel exchange rates

Hawala is a cross-border net settlement system used in countries with exchange controls and money printing or very high protectionism.

Traditionally however Hawala payments were made physically.

If the last mile delivery is made through bank accounts it amounts to money laundering as the depositors or the recipients may not be able to explain the source of the funds, Governor Cabraal said.

Even otherwise the money could be tainted, Cabraal said.

He said about 300 million dollars were lost to unofficial channels in recent months. Sri Lanka used to get around 600 to 700 million dollars a month from remittances.

“This is about 72 billion rupees,” he said. “Who has that amount of money?”

He said the money may be used to pay for drugs.

“If drugs are involved there could be problems,” he said. “Even if the transactions are not found immediately they can be found the next month or even later.

“This is a risk. We are genuinely saying (sath bar-wa-yen) not to get involved in such activities”

The central bank is also giving 10 rupees extra in December 2021 for dollars converted through official banks, in a “carrot and stick approach”.

“From January more benefits (prathilaber) will be given,” he said. “Extra duty free allowances and pension schemes are planned.”

Governor Cabraal said he hoped the incentives will bring remittances would come back to normal levels.

The parallel exchange rates have widened after money printing undermined the credibility of the Sri Lanka rupee’s soft-peg with the US dollar.

Exchange controls were tightened and banks rationed dollars raising the price importers are willing to pay for dollars in unofficial channels. (Colombo/Dec03/2021)

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