By Amrit Muttukumaru –

The greed for political power involving the selective recalling of democratic governance played out mainly as a Colombo phenomenon has papered over the hugely economically damaging year-long money laundering label affixed to Sri Lanka by the European Union (EU). The EU which considers Sri Lanka “high-risk” for money laundering issued the ‘blacklist’ subsequent to the ‘Financial Action Task Force’ (FATF) placing the country on its ‘grey list’ from November 2017. While Dr. Indrajit Coomaraswamy who has been Governor, Central Bank of Sri Lanka (CBSL) since 3 July 2016 for 16 months prior to this ruling must bear some responsibility, he must bear MAJOR RESPONSIBILITY for the country continuing to be on the blacklist. 

The EU stricture confirms what discerning persons have long suspected. Even before the EU blacklisting, the country was attracting questionable FDIs which include the non-existent Volkswagen AG assembly plant and the controversial tyre factory in Horana. There is also controversy surrounding the consortium investing in the EAP Group of Companies – ref. “Purchase of Edirisinghe Group: Investors in a labyrinth of multiple companies” – ‘The Sunday Times’ 3 June 2018. One wonders whether the CBSL has done the appropriate due diligence?

There is a mismatch on the one hand of a country with a weak economy, poor infrastructure and bad governance bending over backwards for FDIs and financial assistance and on the other the swanky high-rise apartments, office blocks, shopping malls and fancy restaurants dotting the city of Colombo with high-end vehicles which would do even a first world country proud. The large Chinese investments are mainly geo-political in nature connected to big power rivalry in the Indian Ocean with its own set of implications. No doubt these have not escaped the notice of the FATF and EU.

What follows below would suggest that Sri Lanka has done its utmost to earn this ignominy!

Bond Scam

The egregious Treasury Bond Scam is arguably the largest financial scam to have taken place in the post-independence history of Sri Lanka. It dominated the public discourse throughout last year after the submission of the report of the Presidential Commission of Inquiry (PCoI) in January 2018. The muted response of the opposition exemplifies the rot in the governance of this country.

For sheer impunity it is hard to beat. It involves a wide spectrum of politicians in collusion with influential sections of the corporate sector, bureaucracy and regulatory authorities. 

How long does it take for the CBSL to carry out its much vaunted forensic audit? The CBSL which is the issuing agency for Treasury Bonds has to date not even quantified the loss incurred by the State which is widely perceived to be huge. Even crucial issues of governance incidental to the bond scam thrown up by witnesses at the PCoI which include possible tax evasion, money laundering and PEPs (Politically Exposed Persons) being directors of banks are not even on the radar.

For example, there is no record in the public domain of the CBSL having taken any meaningful action after: 

i) Kaushitha Rathnaveera, a Senior Dealer of PTL (Perpetual Treasuries Limited) disclosed to the PCoI probing the Bond Scam that “millions” encashed by him were “several times” left on “PTL CEO Kasun Palisena’s chair”

ii) Nuwan Salgado, Chief Dealer of PTL disclosing to the PCoI that on the “instructions of PTL CEO Kasun Palisena” he maintained a record of payments to “informants” code named as ‘Charlie’, ‘Tango’ and others 

(iii) B.R. Sinniah, Chief Financial Officer of GTLPL said to be controlled by former Finance Minister (presently Minister of Power and Energy) Ravi Karunanayake’s family in his testimony to the PCoI disclosing:

“Chairman ‘Lakshmi Kanthan’ who resides in Britain had arrived at the Company on two occasions in February 2016 and 2017 and dumped cash amounting to Rs.145 million in the Chairman’s safe”

“it had not been supported by any documentation or receipt issued to Mr. Kanthan neither were there any entries in the GTLPL accounts books regarding these two cash inflows”

Panama Papers

It is now more than two years since the ‘International Consortium of Investigative Journalists’ in a worldwide exposé named persons in several countries including Sri Lanka allegedly linked to offshore companies in tax havens revealed in the ‘Panama Papers’.

While not suggesting or implying that the mere listing of names and entities in tax havens is indicative of wrongdoing, it must be appreciated that until the accounts are determined legitimate, they will remain suspect and the persons concerned ‘not fit and proper’ to hold any position of Trust involving the Public. Inaction on the part of CBSL’s Bank Supervision Department as is the case today does injustice to those who have legitimate accounts.

This seems to be of no concern to CBSL Governor Dr. Indrajit Coomaraswamy who has ignored this writer’s exhortations to him also in the public domain to address this issue. In this connection I refer to the questions posed to him in my e-mail of 30 August 2017 which include:

“Whether the Central Bank of Sri Lanka has investigated the legitimacy of the Sri Lankan accounts in the ‘Panama Papers’?”

A name included in the ‘Panama Papers’ is an erstwhile colleague of the CBSL Governor, Dr. Indrajit Coomaraswamy on the Director Board of arguably the country’s most diversified conglomerate with top tier market capitalization. This person from 1 January 2019 has assumed the position of Chairman of this conglomerate. Until this date he was Chairman of a Bank controlled by this conglomerate. 

There is speculation that ‘conflict of interest’ may have a role in the inaction of CBSL’s Bank Supervision Department. Dr. Coomaraswamy was Board Director of this conglomerate for more than 5 years from 7 February 2011 until his resignation on 3 July 2016 subsequent to his appointment as CBSL Governor. Now his sister Radhika Coomaraswamy has been appointed as an ‘Independent Non-Executive Director’ of this conglomerate with effect from 1 October 2018.

Illicit Drugs

If frequent detections of large quantities of illegally-trafficked drugs such as heroin is the  tip of the iceberg, Sri Lanka may well be on the way to becoming a regional hub for illicit drugs. There is wide perception of a nexus between drug dealers and politicians. Stories doing the rounds of widespread corruption in the customs establishment in the context of the alleged extravagant lifestyles of many customs officers does nothing to allay the fears one may have in the integrity of the proposed ‘Colombo International Financial City’.

These fears appear to be confirmed by regular news reports:

“Sri Lanka emerging as transit hub for cocaine smugglers” ‘Daily FT’ 1 September 2017

This news item inter alia reports: “Sri Lanka is becoming a hub for cocaine as it is a risk-free location with less legal restrictions,” a top police official who is aware of investigations into the smuggling told Reuters this week.

“Country’s second largest heroin haul detected” ‘The Island’ 7 December 2018

We have it on the authority of the Finance Minister himself (Mangala Samaraweera) under whom Sri Lanka Customs falls that Sri Lanka’s top dealers in illicit drugs are not those languishing in jail but some of those holding high posts in social service organizations such as some Presidents of Rotary Clubs, Lions Clubs and Buddhist organisations. He stridently made this allegation last year at a press conference claiming “PERSONAL KNOWLEDGE”. His back paddling a few days later: 

“Inadvertently, I also mentioned Rotarians and Lions Clubs, which I deeply regret.” does not hold up.

Readers can listen to his words in the link given below and decide for themselves whether there is any likelihood of any “inadvertence”? (3:27 onwards)

There was no “inadvertence” from the Finance Minister as far as ‘Buddhist organisations’ are concerned.

Casinos & Floating Armoury

Although not much is heard today of the proposed setting up of large casinos initiated during the Rajapaksa administration, the public are all at sea on the actual position under the current Yahapalana Government. The rate at which the Yahapalana administration is resurrecting Rajapaksa initiated projects which they condemned in the run-up to the elections, the country may also be on the verge of becoming a regional casino hub with all its likely implications for money laundering and mafia activities given the country’s “risk-free location with less legal restrictions”.

It is possible that the feasibility of some major property development investments in the heart of Colombo such as the $850 million JKH Waterfront project now renamed ‘Cinnamon Life’ are also  dependent on the establishment of large casinos. This writer is not stating that establishing casinos per se is all bad. In this day and age it can be argued it is inevitable particularly if tourism is going to be a major contributor to the economy. What needs to be flagged is that there must be appropriate laws and regulations which are enforced and zero tolerance of corrupt practices. Is this likely in the Sri Lanka of today? Will the Government and JKH shed clarity on this issue?

Controversy also surrounds the legality or otherwise of the activities of Avant-Garde Maritime Services Ltd. said to have operated a floating armoury on the high seas and alleged to be engaged in money laundering. The Yahapalana government claims it has led to the country incurring a loss in excess of Rs. 11 Billion. Confusion is worse confounded after two senior Cabinet ministers in the Yahapalana government allegedly defended Avant-Garde after which one of them resigned. It is now not clear whether the floating armoury is still operational.

This is the ground reality in a country that proposes to have an ‘International Financial City’ to function as an offshore international financial centre.

Conclusion

In the context of the foregoing – particularly the absence of the political will to enforce existing laws and regulations on a level playing field, it is downright dangerous to have in the statute book the recently enacted ‘Foreign Exchange Act, No. 12 of 2017’ which further liberalizes foreign exchange transactions which in effect is conducive for money laundering if people are so inclined.

The Act inter alia states “The Central Bank shall as the agent of the Government, be responsible for implementing the provisions of this Act”.

One would have expected CBSL Governor Dr. Coomaraswamy at the very least to have publicly cautioned the government against the enactment of such an Act.

In the context of little respect for the rule of law and regulatory agencies for the most part being indifferent or in some instances being active partners in wrongdoing, the proposed ‘Colombo International Financial City’ may well turn out to be a hub for money laundering.