Sri Lanka Thumbs Its Nose At FATF
Amrit Muttukumaru
Frequent detections of large hauls of heroin, cocaine and other illicit drugs which most likely are the tip of the iceberg would suggest that Sri Lanka has become a regional hub for the trade in illicit drugs in the Asian region. Such an occurrence is only possible under ENABLING conditions which include lax laws which facilitate money laundering/smuggling and the nexus between sections of the political leadership and bureaucracy with key players in the trade in illicit drugs. The Reuters report “Sri Lanka is becoming a hub for cocaine as it is a risk-free location with less legal restrictions” CONFIRMS this position.
The link between money laundering, illicit drugs and funding of terrorism does not require elaboration.
The Financial Action Task Force (FATF) an inter-governmental body was established precisely to combat these evils which threaten the integrity of the international financial system. For this purpose FATF set standards on ‘Anti-Money Laundering and Countering the Financing of Terrorism’. FATF recommendations are “recognised as the global anti-money laundering (AML) and counter-terrorist financing (CFT) standard.”
This article is written in the best interest of Sri Lanka in the expectation that at least ‘outside’ pressure irrespective of their agenda will COMPEL our political leaders and public officials to meaningfully address the MENACE of money laundering, illicit drugs and corruption particularly in high places.
Thumbs its nose at FATF – Timeline
1) In October 2016 the FATF put Sri Lanka on notice that the country will be assessed on the effectiveness of measures put in place to combat money laundering.
2) In October 2017 at the FATF Plenary held in Argentina, Sri Lanka was listed as a country with ‘strategic AML/CFT deficiencies’. Although Sri Lanka had a whole year to prove the effectiveness of measures taken to combat money laundering, it had failed to convince FATF.
3) On 20 November 2017 in CALLOUS DISREGARD of this FATF determination, Sri Lanka made its contentious Foreign Exchange Act, No. 12 of 2017 further liberalizing capital inflows EFFECTIVE. On this date the Exchange Control Act, No. 24 of 1953 was repealed.
4) It has been plausibly argued that the new Act (i) does not have appropriate penal sanctions to discourage money laundering (ii) does not strictly demand declaring the ‘source’ of the monies brought into the country (iii) dilutes oversight by Parliament and unduly empowers the minister responsible for the ‘Central Bank’.
5) To no surprise in November 2017, FATF placed Sri Lanka on its ‘GREY LIST’ which prompted the European Union (EU) considering the country “high-risk” for money laundering issuing the ‘BLACKLIST’.
6) While Dr. Indrajit Coomaraswamy who has been Governor, Central Bank of Sri Lanka (CBSL) since 3 July 2016 for 16 months PRIOR to this ruling (November 2017) must bear some responsibility (together with former Governors Messrs. Cabraal and Mahendran), he must bear MAJOR RESPONSIBILITY for the country CONTINUING to be on the ‘Blacklist’ for well over a year.
7) In the context of there being NO POLITICAL WILL to enforce even existing laws and regulations, is it not downright dangerous to have in the statute book the ‘Foreign Exchange Act, No. 12 of 2017’ which further liberalizes foreign exchange transactions?
8) The Act stipulates that “The Central Bank shall as the agent of the Government, be responsible for implementing the provisions of this Act”
9) Not only has the CBSL not cautioned the government against the enactment of such an Act, but more reprehensibly it has cited this ill advised Act to JUSTIFY INACTION in regard to Sri Lankan names in the ‘Panama Papers’ by stating:
“The time period prescribed by the Foreign Exchange Act No. 12 of 2017 to conclude investigations under ECA expired on 19.05.2018 as stipulated in the Foreign Exchange Act No 12 of 2017. These investigations also lapsed on that date.” (emphasis added)
10) To further justify CBSL inaction in regard to Sri Lankan names in the ‘Panama Papers’, Governor Coomaraswamy has even gone to the extent of casting ASPERSIONS on the CREDIBILTY of the ‘International Consortium of Investigative Journalists’ (ICIJ) by stating:
“After conducting the investigation, no information was revealed on investments as published by ICIJ.”
11) A name included in the ‘Panama Papers’ is an erstwhile colleague of CBSL Governor, Coomaraswamy on the Director Board of arguably the country’s most diversified conglomerate with top tier market capitalization.
Bond Scam & Money Laundering
The Treasury Bond Scam is arguably the largest financial scam to have taken place in the post-independence history of Sri Lanka. It dominated the public discourse throughout last year after the submission of the report of the Presidential Commission of Inquiry. The report was available in the public domain from 3 January 2018.
In the context of the CBSL being the issuing agency for Treasury Bonds, a key recommendation of the Presidential Commission was the FORENSIC AUDIT to be carried out by the CBSL. Even after the lapse of more than a year, the CBSL has still not carried out this task. In response to my article: “Governor Indrajit: Where Is Promised “Press Notice” on Bond Scam “Forensic Audit”?” the CBSL has merely trotted out a mundane recital of administrative arrangements for the ‘selection of audit firms’ by February 2019 to carry out the forensic audit. If the mere selection of audit firms takes the CBSL more than a year, how long will it take CBSL to complete the forensic audit?
IMPUNITY is so endemic in Sri Lanka that even crucial issues incidental to the bond scam related to possible money laundering thrown up by witnesses at the Presidential Commission which include possible tax evasion and PEPs (Politically Exposed Persons) being directors of banks do not appear even on the radar.
