By Amrit Muttukumaru –

Dr. Indrajit Coomaraswamy was appointed Governor, Central Bank of Sri Lanka (CBSL) with great expectations to ‘clean up’ and give it credibility after its ignominious conduct in recent times where the egregious Bond Scam (prior to him assuming office) figures prominently. One wonders whether the CBSL has learnt anything from the Bond Scam and other misdemeanors going by the example of the European Union designating Sri Lanka as a ‘high risk country for money laundering’ subsequent to the ‘Financial Action Task Force’ (FATF) placing the country on its ‘grey list’ reportedly from NOVEMBER 2017 for which Dr. Coomaraswamy who assumed office as Governor from 3 JULY 2016 must bear some responsibility.

The EU stricture confirms what discerning persons long suspected. Even before the stricture, the country was attracting questionable FDIs which include the non-existent Volkswagen AG assembly plant and the controversial tyre factory in Horana. The large Chinese investments are mainly geo-political in nature connected to big power rivalry in the Indian Ocean which could haunt us in the future.
It is shameful that even after two weeks the CBSL has failed to respond to my article published in the ‘Colombo Telegraph’ on 4 March and subsequently in the print media:

‘Money Laundering’ Label Disastrous For Country; CBSL Wake-Up!

The issues being avoided include:

1) Money Laundering/Tax Evasion?

What action has CBSL taken in relation to:

i) Kaushitha Rathnaveera, a Senior Dealer of PTL (Perpetual Treasuries Limited) disclosing to the Presidential Commission of Inquiry (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 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”

How can the CBSL ignore this?

2) PEPs as Bank Directors 

i) In the context of Politically Exposed Persons (PEPs) being at the centre of the worldwide efforts for the prevention of money laundering, the CBSL continues to ignore ‘directors’ of banks who are obvious PEPs as per its own definition.

It begs the question when even the mere “Opening of accounts” in banks by PEPs is under scrutiny in Sri Lanka, how the Director of Bank Supervision could advise me there is “no restriction for appointments of PEPs as Board members of licensed banks”?

ii) The situation is so HOPELESS in Sri Lanka that it was revealed at the PCoI that B.R. Sinniah (said to be CFO in Karunanayake’s family company) was “appointed to the Board of Directors of the BoC” by Minister Karunanayake.

Although B.R. Sinniah had presumably ceased being a bank director when Dr. Coomaraswamy assumed the position of CBSL governor, the fact of the matter is that under his watch too there are PEPs who are bank directors.

iii) During the tenure of former CBSL Governor – Nivard Cabraal, his sister Siromi Wickramasinghe – clearly a PEP was a bank ‘director’ which included being Chairman of ‘State owned’ entity HDFC Bank (Housing Development Finance Corporation).

It must be flagged that although all PEPs are not involved in money laundering or unlawful activities, the high risk they pose cannot be ignored. Should not laws and guidelines which are there for a purpose be adhered to?

3) Bank Malpractice?

i) A gaping hole in the PCoI report is the ‘pussyfooting’ on the Bank of Ceylon giving PTL access to Billions of Rupees almost instantly which enabled PTL with the aid of “inside information” to make a ‘killing’ in the secondary Bond market at the further expense of state institutions which include the hard earned savings of workers in the EPF.

It is inaction by the CBSL that encourages such conduct by a largely politically appointed board of directors.

ii) The PCoI report states that at a meeting “convened” on 28 March 2016 by Ravi Karunanayake then Minister of Finance “three State Banks had been instructed to place Bids within a specified range of Yield Rates at the Treasury Bond Auction to be held on 29th March 2016 and that, the three State Banks had been given an assurance that, Bids at higher Yield Rates would not be accepted at this Auction.”

The state banks concerned – Bank of Ceylon, People’s Bank and National Savings Bank adhering to these ‘instructions’ had significantly benefited PTL financially and resulted in an ‘opportunity loss’ to the state banks.

iii) Although it was the EPF that by far suffered the major loss due to purchases of Treasury Bonds in the secondary market from PTL, another non-bank financial institution that reportedly took a substantial hit was the Sri Lanka Insurance Corporation (SLIC).

Should these not be of interest to CBSL’s ‘Bank Supervision’ and ‘Non-Bank Supervision’ Departments?

4) Alleged HNB Tax Evasion

After the damning allegations in a website of an alleged tax evasion at HNB Bank was brought to the attention of CBSL Governor, Dr. Indrajit Coomaraswamy on 25 September 2017, it took the CBSL 42 days to advise me (i)“CBSL has not carried out any investigations” (ii) “the statements” in the article “are factually incorrect” (iii) “The matter is being brought to the attention of the Inland Revenue Department.”

It begs the questions:

i) How “the statements” contained in the article could be “factually incorrect” if “CBSL has not carried out any investigations”?

ii) Why it has taken CBSL 42 days (from my initial e-mail of 25 September) to belatedly state “The matter is being brought to the attention of the Inland Revenue Department.”?

iii) Has CBSL brought it “to the attention of the Inland Revenue Department” even now? If not why?

The allegations include:

i) Some portion of the “evaded tax” was “divided between the tax advising company and the officers at the Inland Revenue Department involved”

ii) “The current chairman of the bank Rani Jayamaha has also been able to identify the wrongdoing through an internal probe” (since then there is another chairman)
To establish the truth or otherwise of this alleged scam has the Central Bank at least  inquired from “Rani Jayamaha” former Deputy Governor of CBSL whether she was “able to identify the wrongdoing” through “an internal probe” when she was Chairman of the bank concerned? If not why?

5) ‘Panama Papers’

Dr. Coomaraswamy has also failed to respond to the questions posed to him in my e-mail of 30 August 2017 in regard to Sri Lankan citizens allegedly linked to offshore companies in tax havens revealed in the ‘Panama Papers’.

One of the persons named – a prominent corporate personality who is also Chairman of a Bank was a colleague of Dr. Coomaraswamy until he was appointed CBSL Governor.

The writer is not suggesting or implying that the mere listing of names and entities in tax havens is indicative of wrongdoing. Nevertheless it is incumbent on the CBSL to ascertain legitimacy. Tardiness on the part of CBSL does injustice to those who have legitimate accounts.
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 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 ‘sleeping at the wheel’, the proposed ‘Colombo International Financial City’ may well turn out to be a hub for money laundering.

Much was expected from CBSL Governor Dr. Coomaraswamy who has been in the saddle for more than 20 months.