By Rusiripala Tennakoon –

Rusiripala Tennakoon

There were media reports circulating a statement issued by the CBSL announcing imposing of fines to 5 named Commercial Banks including State Owned Banks, “for non-compliance of the provisions of the Financial Transactions Reporting Act”. According to the published report, the Financial Intelligence Unit collected a sum of SL Rs. 10.7 million as a combined fine from these Banks. 

The question that arises is, can the slapping of a combined fine be considered as a sufficient and acceptable step for the failure to enforce compliance requirements by the involved Commercial Banks as pointed out? Or is it a kind of amnesty granting an official pardon to pass down serious lapses into oblivion? A closer examination of the reported reasons stated in the said statement of the CBSL invokes fresh thinking and insights for further investigative needs to determine whether these failures are culpable commissions or omissions, during the course of carrying out routine functions? Hence the events specified are revisited, as follows;

a) DFCC BANK PLC “directions issued by the FIU and non-compliance wit provisions of FTRA & Financial Institutions (customer due diligence) rules no 1 of 2016 (CDD rules)….”

b) PEOPLE’S BANK “failure to screen all existing business relationships to ensure that no business relationship is held by or linked to any of the entities or individuals included in the designated list as the bank had been maintaining business relationships with persons who are designated under United Nation’s regulations No.1 of 2012.”

c) BANK OF CEYLON “Same as in the case of the lapse shown for the PB….”

d) NATIONAL DEVELOPMENT BANK PLC “reason for the imposition of the penalty, failure to adhere to directions issued by the FIU and non compliance with provisions FTRA Sections 2,5(b), 6 & 14(1) (b) (iii)and Financial institutions (customer due diligence) rules, No 1 of 2016 (CDD rules)7,8,9,10 and 27(2)”

e) NATIONAL SAVINGS BANK “Failure to maintain all relevant United Nations Security Council Resolution (UNSCR) lists of designated persons issued under the United nations Regulations No 1 of 2012”

Let us examine some of the regulatory requirements under the quoted sections announced by the CBSL in their announcement.

The FIU-Sri Lanka was established in March 2006, in terms of the provisions of the Financial Transactions Reporting Act No. 06 of 2006 (FTRA) under the Ministry of Finance and Planning.

Certain guide lines and Circulars issued by the CBSL under FTRA includes matters like;

YEAR 2022

Circular 04/2022 – Authenticating customer identification details through the Department of Immigration and Emigration

Circular 03/2022 – Provision of Efficient Banking Services to Sri Lankan Expatriates

Circular 02/2022 – Further information requested on Suspicious Transaction Reports (STRs)

Circular 02-2021 issued by the CBSL contains the following Guide lines and Directions to CBCs;

Trends in Foreign Currency Outflows via ATMs: Cash withdrawals Overseas 

“Financial Intelligence Unit (FIU) observes an increasing trend of suspicious transactions related to the above-mentioned suspicion. Accordingly, you are advised to, perform Customer Due Diligence measures as required by the Financial Institutions (Customer Due Diligence) Rules, No. 1 of 2016 at the time of onboarding the customer and when conducting transactions. Further, your attention is drawn to Section 3 of the Financial Transactions Reporting Act (FTRA), No. 6 of 2006, which requires you not to proceed with transactions if satisfactory evidence of identity is not submitted as required in terms of the provisions of Section 2 of the FTRA. Accordingly, you may take appropriate measures to cancel the Electronic Fund Transfer Cards (EFTCs) issued under the reported accounts or any other account which will be identified in the future under the same suspicion where the person who is conducting the transaction has not been identified as required or where the transaction is carried out by an unauthorized, unidentified third party….”

The United Nations Regulations No. 01 of 2012

The United Nations Regulations No. 01 of 2012issued by the Minister of Foreign Affairs promulgating the United Nations Security Council Resolution 1373 (2001) designating individuals and entities related to terrorism and terrorist financing in national level. Accordingly, Institutions are obliged to have measures in place to identify and freeze funds, financial assets or economic resources of such designated persons and entities upon order by the Competent Authority.

Under the provisions of said regulations Secretary to the Ministry of Defense has been appointed as the Competent Authority for the implementation of UNSCR 1373 and its successor resolutions in Sri Lanka.

The United Nations Regulations No. 01 of 2012 issued by the Minister of Foreign Affairs promulgating the United Nations Security Council Resolution 1373 (2001) designating individuals and entities related to terrorism and terrorist financing in national level.

In the light of the above quoted regulations some of which are of a highly sensitive nature warranting various actions as promulgated under these, it becomes necessary to review the actions of the said CBCs in the context of the FIU finding fault with them for violating regulations and strictures.

It is normal for citizens in general, social activists and so called investigative media pakeers to examine this aspect with a special focus on the following areas;

1. What are those specific violations which caused the FIU to impose fines?

2. Who are the officials involved in such violations? This is highly relevant in the context of banks taking severe actions even for lesser offences such as taking a dud pawn article! It is reported even the pensions of employees held responsible for such offences are suspended or even denied.

3. We are facing a severe crisis about our foreign currency reserves. And the whole nation is awaiting action of reforms etc. which will finally make a reality of the panacea of IMF funding to mitigate our suffering due to these shortages. Therefore, naturally our attention is focused on the suspicious transactions that the FIU has identified to know whether they involve; Money laundering; Terrorist Financing; Drug Trafficking  etc. which factors even the UN is closely monitoring.

4. Can the involved incidents be categorized as routine errors or do they fall into willful contributions by errant officials?

5. The GOSL has from time to time issued gazette notifications with lists of names of individuals, entities and agencies identified for such offences.  

All these lead to one important area of concern. The various Digitalization programs introduced by CBCs with country wide ATM operations and issue of Credit cards enabling cash withdrawals for even the locals from any where in the world, require to be reexamined by an independent central authority to determine their, 

* Usefulness

* Effectiveness in monitoring regulatory requirements

* Centralization of information sharing by authorities to ensure compliance 

* Reduce waste of funds and other fraudulent operations as were revealed by the COPE

* Digital ware houses closed down by State Owned Banks after spending millions in dollars due to their system inadaptability

* Unnecessary wastage of funds and huge expenditure borne by each bank in establishing ATMs etc. under separate labels when the activity can be easily centralized

Let us learn to correct our mistakes with these experiences and put an end to Billions of Foreign Exchange drained under the guise of going digital which even the decision makers were not familiar or knowledgeable with, as ironically admitted, recently by some bank bosses at the COPE. 

It is accepted that the CBSL does not address policy decisions of this nature but  we believe, they are not prevented in advising the policy makers!