Sri Lanka has hired a foreign consultant to prepare for regional scrutiny of its regime against the economic crime of money laundering and terrorism financing after repeated failures to fully comply with global standards. It has negotiated breathing space until next year for the purpose.

Dr. Gordon Hook, a barrister and the former Executive Secretary of the Asia/Pacific Group on Money Laundering (APG), has been hired as a consultant by the Central Bank of Sri Lanka (CBSL). He had visited Sri Lanka in September 2023 as a part of its delegation.

His fees and terms have not been disclosed by CBSL.

Dr. Hook will carry out a mock evaluation, including for licensed banks, from March 25 to identify gaps and prepare for the mutual evaluation in 2026, CBSL Governor Dr. Nandalal Weerasinghe said.

In the meantime, three pieces of legislation in the AML/CFT (Anti Money Laundering and Combating the Financing of Terrorism) regime will be amended—i.e., the Prevention of Money Laundering Act No. 5 of 2006, the Financial Transactions Reporting Act No. 6 of 2006, and the Convention of Suppression of Terrorism Financing Act No. 25 of 2005.

Noting that amendments will “further strengthen the AML/CFT legal framework in line with international standards,’’ Governor Weerasinghe said the “amendments are nearing completion.”

The Companies Act No. 7 of 2007 will also be amended as recommended by the IMF to include beneficial ownership requirements (clause 7 of the Bill). This will allow for a public beneficial ownership register in which companies disclose individuals who ultimately own or effectively control companies. But offshore and overseas companies are exempt (Section 130 A (10)).

An important piece of new legislation, the Proceeds of Crimes Bill, was presented to Parliament this month. The IMF asked that laws be enacted by April 2024. The legislation will enable seizure of suspected gains from crimes, freezing of proceeds judicially (High Court jurisdiction), and forfeiture. A panel considered US, Australian, UK, and South African laws and also got IMF legal experts’ advice. UN agencies gave technical support.

An evaluation by the Asia-Pacific Group on Money Laundering (APG) was scheduled for this month.

The Central Bank’s Financial Intelligence Unit must ensure technical compliance with 40 recommendations of the intergovernmental Financial Action Task Force and 11 immediate outcomes, including assessing risks, policy and coordination; international cooperation; effective anti-money laundering and combating the financing of terrorism (AML/CFT) supervision; financial intelligence; investigation and prosecution; and financial sanctions for proliferation financing.

The CBSL Governor told a compliance symposium late last month, “We took one more year, postponed to one year given the elections we had last year.’’

He reminded financial institutions of the adverse outcomes from non-compliance for Sri Lanka’s economy, risk to sovereign ratings, higher cost of borrowing, risks to correspondent banking relationships, and reputational damage. A ‘grey listing’ could mean increased due diligence on Sri Lankan customers.

“Sri Lanka is required now to showcase a strong performance based on a high level of technical compliance and effectiveness.’’

On two previous APG evaluations, strategic deficiencies were noted, and Sri Lanka was placed on the ‘grey list’, which identifies repeated failures to comply.

In the follow-up report of 2021, Sri Lanka was cited as not compliant on transparency and beneficial ownership of legal persons, partially compliant on regulation and supervision of financial institutions (CBSL is the regulator), and confiscation. Sri Lanka was compliant on only 7 of 40 technical requirements. Technical compliance assesses the legal and institutional framework and the authority and procedures of competent authorities.

Dr. Weerasinghe said the FIU did a national risk assessment in 2021-2022. Several gaps and deficiencies were identified. It was updated in 2024 and is to be further updated by June 2025.

The exercise used a tool provided by the World Bank.

The assessment report shows that Rs. 14.5 billion in illegal proceeds would have been generated by Sri Lanka’s foreign trade in the seven years to 2021. The involvement of banks is significant. But the magnitude is unknown.

A second national policy on AML/CFT was developed, and there is an institution-wise action plan “to rectify the remaining gaps’,” Dr. Weerasinghe said. All 24 stakeholders, including financial institutions, have been advised. A five-member task force was set up in December with higher-level representation. “This task force is empowered with overseeing the institution-wise action plan.’’

He also addressed beneficial ownership in banks, evolving risks from payment system infrastructure, the vulnerability of mobile payment applications, and financial crimes online.

(sundaytimes.lk)
(Except for the headline, this story, originally published by sundaytimes.lk has not been edited by SLM staff)