Loophole for money launderers in Foreign Exchange Act
A gaping loophole in the 6-year-old Foreign Exchange Act is damaging Sri Lanka’s fight against money laundering.
This was enacted in 2017 after repealing the 1953 Exchange Control Act. Experts say the new Act does not have provisions to regularise foreign exchange transfers in the country.
“In the earlier Act section 23 regularised the foreign exchange transfers. According to this section, it is a violation not to receive goods after sending foreign currency abroad,” an exchange control expert explained to the Business Times on Wednesday. Funnily enough, provisions to make these types of transaction violations are not stipulated in the Foreign Exchange Act. “Also the agency or the authority to apprehend such transactions and bring offenders to justice is not stipulated in this Act. Basically, it is not an offence according to the new law,” the expert added.
A bit more digging by the Business Times revealed that about three years ago, such a transaction where money was transferred to Singapore, but goods were not received, was detected by the Department of Customs.
They apprehended the person who sent the money and filed a case. When the case was ongoing, it was established by the courts that such type of transaction is not offensive. “This was a revelation to all of us,” the expert further said. Finally, the case was handed over to the Financial Investigations Unit (FIU) of the Central Bank (CB).
The Customs, on the other hand, had prepared certain suggestions to overcome this situation during the past three budgets. Evidently, nothing happened.
When inquired, Finance Ministry officials said that the Customs had made a request to reintroduce section 23 of the old Exchange Control Act, which regularise these foreign exchange transfers. “These proposals were submitted by the Customs to the sectoral Oversight Committee, in response to the revenue proposals requested by them,” officials said.
Meanwhile, the Customs and the FIU discussed recently an appropriate action plan to fight money launderers.
Anti Money Laundering experts pointed out that Sri Lanka has a history of Trade-based money laundering (TBML). TBML is the manipulation of trade transactions, such as invoicing, to disguise the true source of funds and make them appear legitimate. TBML can take various forms, such as over-invoicing or under-invoicing goods, misclassifying goods to avoid customs duties, and using false shipping documents.
The Customs filed TBML cases with the Criminal Investigations Department. However, officials lament that this is not an adequate deterrent as it is easy for the offenders to pay a fine and continue doing as they do. “The action plan with the FIU is more on information sharing and improving detections,” an official said.
A CB official confirmed this, noting that with the action plan, the two agencies will share information on the people who are doing this regularly. “We will share information on repeat offenders and have a database.”
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