The Exchange Control Act makes it mandatory for purchasers of property from non residents to obtain permission from the Controller of Exchange(COE) to make payments to a non-resident.
The execution of a deed of sale or transfer of such property with the consent of the COE is a violation of the Exchange Control Act and all parties to it including the attesting attorneys-at-law are answerable to the COE. The funds realized from such sales to have to be deposited in 'blocked accounts' with commercial banks in Sri Lanka.
According to the Exchange Control law, proceeds of sale of property in Sri Lanka by non residents must go to blocked accounts. Prior to a sale taking place permission from the COE must be obtained. Among other documents a valuation from a Chartered Valuer is necessary. Should the funds go into "blocked accounts" they could be used for development purposes.
However over the past few years many sales of property have taken place where the sellers are non-residents and the sales proceeds taken out of the country though various unofficial channels. At the same time the actual value of the transaction is not put on the deed and less stamp duty is paid.
The norm appears to be to put about 50% of the actual amount. From the entire sales proceeds, only Rs.1 million can be remitted outside the country.
The attorneys-at-law often collaborate with the two parties by not asking for the COE's approval despite knowing that the sellers are long time non-residents. They take cover by mentioning NIC numbers issued over 35 years ago as a form of identity as well as the address of the property as their current address. However, there have been some cases where the parties have done transaction through Powers of Attorney (which shows the seller not present in Sri Lanka) and the deeds have been duly attested.
What I am trying to highlight is that the state is being deprived of funds which could be used for development if they remain in the country including large scale defrauding of stamp duty which is also much needed revenue. It is sad that some attorneys-at-law are bringing their profession into disrepute by aiding and abetting this fraud.
The Central Bank's Financial Investigation branch should set up units at the District Land Registries and monitor deeds of sale, especially in the Western, Southern and Eastern Provinces. Similarly the Inland Revenue should also set up units.
Dave Labrooy,
Southport PR9 7BZ,
UK.
(The writer is a regular visitor to Sri Lanka who says he decided to pen these thoughts after reading an artcile in the Sunday Times on whistle blowing. )
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