Trust accounts under scrutiny for money laundering
Sri Lanka’s banking regulator is flexing its muscles to combat money laundering risks and is considering going after ‘trust’ accounts which may be whitewashing dirty cash.
Extreme care has to be taken on trust, as they are one of the main channels via which money has been laundered in the past, senior Central Bank (CB) officials, who declined to be named, said. With a bank trust account, the bank serves as custodian and a trustee keeps legal control of assets in the account. These assets can include cash, savings bonds, stocks, bonds, mutual funds, real estate and other property and/or investments.
The CB and the banks in which trust accounts are operated need to monitor the trusts and identify the individuals, beneficiaries and the bona fides of the operation with special emphasis on the source of funds.
But most times it’s not easy as there are more than one question mark on the source of funds, why they came into the account, from where and also the ultimate beneficiary. This last one – the ultimate beneficiary or the ‘ownership’ is a bit hazy to ascertain in certain instances.
In order to better establish these and to beef up security and regulate financial institutions more tightly, the CB has requested authorities to amend the Trust Ordinance (TO) which deals with trust accounts, the sources said.
A CB source told the Business Times that now monies are laundered through trust accounts where they can’t establish the ultimate ownership and also on beneficiary ownership which centres on legal persons (i.e. a company) where ownership is not easy to establish in a ‘hurry’.
“We asked the Ministry of Justice to change this law because there are sections in it that needs to change in line with the current money laundering situation in the world,” the CB source told the Business Times.
This region is especially susceptible to money laundering with a major problem surfacing last year when hackers broke in the Bangladesh Bank’s US Treasury account and siphoned off millions of dollars. The CB source said that amendments to the TO are in its final stages and will clearly define ways to determine ownerships in future.
The source said that the proposal to amend this law came after a Mutual Evaluation Report (MER) done by peer countries on susceptibility to money laundering in the local financial system.
“This MER was done in 2014-15 by Australia, Bhutan, Singapore Malaysia, India and Hong Kong for us,” he said adding this report came as a result of the Financial Action Task Force’s (FATF – an inter-governmental body established by the G-7 Countries in Paris) recommendation.
“The laws aren’t enough, which is why the changes/amendments are needed.”