-By A Special Correspondent
(Lanka-e-News -17.March.2025, 9.25 PM) To prepare for an upcoming regional evaluation of Sri Lanka’s anti-money laundering and counter-terrorism financing framework and to resolve existing challenges, the country has appointed Dr. Gordon Hook, former Executive Secretary of the Asia/Pacific Group on Money Laundering (APG), as an advisor. This step has been taken after Sri Lanka repeatedly failed to fully comply with global standards in these areas.
Starting from March 25, 2025, Dr. Hook will conduct an assessment to identify existing gaps in Sri Lanka’s compliance framework, particularly concerning licensed banks. The APG’s mutual evaluation has been postponed until 2026, providing Sri Lanka additional time to address its weaknesses.
To enhance the regulatory structure, three key laws will be amended:
Prevention of Money Laundering Act No. 5 of 2006
Financial Transactions Reporting Act No. 6 of 2006
Convention on the Suppression of Terrorist Financing Act No. 25 of 2005
Additionally, as recommended by the International Monetary Fund (IMF), the Companies Act No. 7 of 2007 will be amended to include beneficial ownership requirements. This amendment will establish a public registry disclosing the individuals who ultimately own or control companies, with exemptions for offshore and foreign companies.
A significant new law, the Proceeds of Crime Bill, was presented to Parliament in March 2025. Developed with international expertise and modeled after legal frameworks in the United States, Australia, the United Kingdom, and South Africa, this bill aims to:
Freeze suspected criminal proceeds
Legally seize crime-related income under High Court jurisdiction
Confiscate illicit assets
Due to strategic weaknesses in its anti-money laundering (AML) framework, Sri Lanka was previously placed on the Financial Action Task Force (FATF) "Grey List" following APG evaluations.
The 2021 post-evaluation report highlighted Sri Lanka’s deficiencies:
Non-compliance in legal entity transparency and beneficial ownership
Partial compliance in financial institution regulation and supervision
Full compliance with only 7 out of 40 technical requirements
The Governor of the Central Bank, Dr. Nandalal Weerasinghe, emphasized the severe consequences of continued non-compliance:
Negative impact on Sri Lanka’s economy
Risk to sovereign credit ratings
Higher borrowing costs
Potential disruptions in correspondent banking relationships
Reputational damage
Increased scrutiny of Sri Lankan transactions if grey-listed again
Between 2021-2022, Sri Lanka’s Financial Intelligence Unit (FIU) conducted a National Risk Assessment, which was updated in 2024 and will be further revised by June 2025. This assessment revealed that, over a seven-year period, approximately LKR 14.5 billion in illicit funds were generated through foreign trade. While banks were significantly involved, the full extent remains unclear.
A second National AML/CFT Strategy has been developed, alongside an Action Plan that assigns specific responsibilities to 24 key institutions, including financial sector stakeholders. In December 2024, a task force of five senior representatives was established to monitor implementation.
The Central Bank’s Financial Intelligence Unit is actively working to meet the FATF’s 40 recommendations and 11 immediate outcomes, focusing on:
Risk assessment
Policy coordination
International cooperation
Effective supervision
Financial intelligence
Investigations and prosecutions
Financial sanctions related to proliferation financing
This comprehensive effort reflects Sri Lanka’s commitment to addressing long-standing weaknesses in its AML/CFT framework before the next mutual evaluation in 2026.
Through these reforms, Sri Lanka aims to improve transparency, accountability, and regulatory compliance across its financial system. Strengthening its reputation in the international community, attracting foreign investment, and fostering closer ties with the global financial system are key expected benefits.
Ultimately, the success of these initiatives will be critical in ensuring economic stability and enhanced international financial relationships. Stakeholder cooperation is essential in achieving these goals.
-By A Special Correspondent
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by (2025-03-17 15:56:18)
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