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Lawyers warn new move violates money laundering laws
The Cabinet’s decision this week to suspend “all restrictions” on foreign currency inflows into Sri Lanka for three months will fall afoul of legislation governing suspicious monetary transactions that bind all financial institutions, lawyers have warned.
The no-questions-asked policy contravenes statutory provisions, particularly enshrined in the Financial Transactions Reporting Act (FTRA) which is the main legislative tool for detecting and investigating money laundering—the “brother Act” of the Prevention of Money Laundering Act.
The FTRA provides for the collection of data relating to suspicious financial transactions to facilitate the prevention, detection, investigation and prosecution of the offences of money laundering and financing of terrorism. It also requires certain institutions to undertake due diligence measures to combat money laundering and the financing of terrorism.
“Policy cannot override statutory provisions or obligations cast on financial institutions in terms of reporting of financial transactions,” said a senior lawyer practising in this area. “They can be flouting the law.”
“We guarantee that your foreign currency deposits into the Sri Lankan banking system will be accepted without any hindrance from the Government, the Central Bank or any other Government authority,” said a public appeal issued on a letterhead of Central Bank Governor W D Lakshman and signed jointly with Treasury Secretary S.R Attygalle. The remittances will be exempt from exchange control regulations and taxes and protection under banking secrecy provisions, they said.
Institutions are legally obligated to report to the Financial Intelligence Unit (FIU) “any transaction of an amount in cash exceeding such sum as shall be prescribed by the Minister by Order published in the Gazette, or its equivalent in any foreign currency (unless the recipient and the sender is a bank licensed by the Central Bank)”.
At present, this pertains by Gazette to every electronic fund transfer made at the request of a customer exceeding Rs 1mn or its equivalent in any foreign currency.
“I can understand the Government’s desire to attract foreign exchange,” the lawyer said. “I don’t know how they will, unless they impose a de facto moratorium on enforcement of the provisions of the Act. But for that, too, the Government has to be statutorily empowered,”he said.
What is left, therefore, is for the regulation to be changed so that the reporting threshold is higher.
Others opined that it was unlikely that persons with “black money” would make use of the Government’s invitation to funnel funds into Sri Lanka. The moment a digital transaction is carried out, you leave digital footprint that will be saved for a minimum of six years, as the law prescribes. And the foreign exchange exporting countries, too, have their own regimes.