By Amrit Muttukumaru –

Frequent detections of large hauls of heroin, cocaine and other illicit drugs which most likely are the tip of the iceberg would suggest that Sri Lanka has become a regional hub for the trade in illicit drugs in the Asian region. Such an occurrence is only possible under ENABLING conditions which include lax laws which facilitate money laundering/smuggling and the nexus between sections of the political leadership and bureaucracy with key players in the trade in illicit drugs. The Reuters report “Sri Lanka is becoming a hub for cocaine as it is a risk-free location with less legal restrictions” CONFIRMS this position.

The link between money laundering, illicit drugs and funding of terrorism does not require elaboration.  

The Financial Action Task Force (FATF) an inter-governmental body was established precisely to combat these evils which threaten the integrity of the international financial system. For this purpose FATF set standards on ‘Anti-Money Laundering and Countering the Financing of Terrorism’. FATF recommendations are “recognised as the global anti-money laundering (AML) and counter-terrorist financing (CFT) standard.” 

This article is written in the best interest of Sri Lanka in the expectation that at least ‘outside’ pressure irrespective of their agenda will COMPEL our political leaders and public officials to meaningfully address the MENACE of money laundering, illicit drugs and corruption particularly in high places.

Thumbs its nose at FATF – Timeline

1) In October 2016 the FATF put Sri Lanka on notice that the country will be assessed on the effectiveness of measures put in place to combat money laundering. 

2) In October 2017 at the FATF Plenary held in Argentina, Sri Lanka was listed as a country with ‘strategic AML/CFT deficiencies’.  Although Sri Lanka had a whole year to prove the effectiveness of measures taken to combat money laundering, it had failed to convince FATF.

3) On 20 November 2017 in CALLOUS DISREGARD of this FATF determination, Sri Lanka made its contentious Foreign Exchange Act, No. 12 of 2017 further liberalizing capital inflows EFFECTIVE. On this date the Exchange Control Act, No. 24 of 1953 was repealed.

4) It has been plausibly argued that the new Act (i) does not have appropriate penal sanctions to discourage money laundering (ii) does not strictly demand declaring the ‘source’ of the monies brought into the country (iii) dilutes oversight by Parliament and unduly empowers the minister responsible for the ‘Central Bank’.

5) To no surprise in November 2017, FATF placed Sri Lanka on its ‘GREY LIST’ which prompted the European Union (EU) considering the country “high-risk” for money laundering issuing the ‘BLACKLIST’.

6) 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 (November 2017) must bear some responsibility (together with former Governors Messrs. Cabraal and Mahendran), he must bear MAJOR RESPONSIBILITY for the country CONTINUING to be on the ‘Blacklist’ for well over a year. 

7)  In the context of there being NO POLITICAL WILL to enforce even existing laws and regulations, is it not downright dangerous to have in the statute book the ‘Foreign Exchange Act, No. 12 of 2017’ which further liberalizes foreign exchange transactions?

8) The Act stipulates that “The Central Bank shall as the agent of the Government, be responsible for implementing the provisions of this Act”

9) Not only has the CBSL not cautioned the government against the enactment of such an Act, but more reprehensibly it has cited this ill advised Act to JUSTIFY INACTION in regard to Sri Lankan names in the ‘Panama Papers’ by stating:

“The time period prescribed by the Foreign Exchange Act No. 12 of 2017 to conclude investigations under ECA expired on 19.05.2018 as stipulated in the Foreign Exchange Act No 12 of 2017. These investigations also lapsed on that date.” (emphasis added)

10) To further justify CBSL inaction in regard to Sri Lankan names in the ‘Panama Papers’, Governor Coomaraswamy has even gone to the extent of casting ASPERSIONS on the CREDIBILTY of the  ‘International Consortium of Investigative Journalists’ (ICIJ) by stating:

“After conducting the investigation, no information was revealed on investments as published by ICIJ.” 

11) A name included in the ‘Panama Papers’ is an erstwhile colleague of  CBSL Governor, Coomaraswamy on the Director Board of arguably the country’s most diversified conglomerate with top tier market capitalization.

Bond Scam & Money Laundering

The 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. The report was available in the public domain from 3 January 2018.  

In the context of the CBSL being the issuing agency for Treasury Bonds, a key recommendation of the Presidential Commission was the FORENSIC AUDIT to be carried out by the CBSL. Even after the lapse of more than a year, the CBSL has still not carried out this task. In response to my article: “Governor Indrajit: Where Is Promised “Press Notice” on Bond Scam “Forensic Audit”?” the CBSL has merely trotted out a mundane recital of administrative arrangements for the ‘selection of audit firms’ by February 2019 to carry out the forensic audit. If the mere selection of audit firms takes the CBSL more than a year, how long will it take CBSL to complete the forensic audit? 

IMPUNITY is so endemic in Sri Lanka that even crucial issues incidental to the bond scam related to possible money laundering thrown up by witnesses at the Presidential Commission  which include possible tax evasion and PEPs (Politically Exposed Persons) being directors of banks do not appear even on the radar.

Forensic Audit & Money Laundering 

One wonders whether the CBSL in its forensic audit will even consider addressing possible money laundering in relation to: 

(i) Kaushitha Rathnaveera, a Senior Dealer of PTL (Perpetual Treasuries Limited) disclosing to the Presidential Commission (PCoI) 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 (Global Transportation and Logistics Pvt Ltd) 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”

Let us see how CBSL addresses the alleged (i) “millions” encashed “several times” being left on “PTL CEO Kasun Palisena’s chair” (ii) “cash amounting to Rs.145 million” being “dumped” without being “supported by any documentation or receipt”

This is an acid test for the CREDIBILITY of the CBSL and indeed the country.

Politically Exposed Persons

In the context of Politically Exposed Persons (PEPs) being at the centre of the worldwide efforts for the prevention of money laundering, CBSL’s long meandering on PEPs in its response is nothing but a fig leaf to cover-up its blatant inaction on this front. It’s rare response is a crude master class on PREVARICATION.

Why is the CBSL tolerating directors of banks who as per its own definition are clearly PEPs? To put it another way, when even the mere “Opening of accounts” in banks by PEPs is under SCRUTINY, is it not RIDICULOUS for the CBSL to state “there is no legal restriction for the politically exposed persons (PEPs) to be appointed as directors of banks.”? 

The PEPs we are talking about include (i) A former Chief Justice soon after retirement appointed as a Director of a leading bank (ii) A former CBSL Senior Deputy Governor soon after retirement appointed as a Director of a leading bank. He is presently its Chairman (iii) An individual known to be very close to the incumbent Prime Minister, holding crucial state office and son-in-law of a senior cabinet minister who  previously was Chairman of a leading bank, currently being Chairman of a competitor bank. By no definition are these persons run-of-the-mill PEPs!

I pointedly ask where else in the world would (i) a Senior Deputy Governor of the Central Bank soon after retirement be appointed a Director of a leading bank? (ii) a Chief Justice of the Supreme Court soon after retirement be appointed  a Director of a leading bank? (iii) a highly connected PEP previously Chairman of a leading bank be currently Chairman of a COMPETITOR bank?

EAP Group Sale

The CBSL has failed to disclose whether its claimed ‘DUE DILIGENCE’ in regard to the sale of EAP Group companies has considered the DAMNING allegations in the news report in ‘The Sunday Times’ of 3 June 2018 “Purchase of Edirisinghe Group: Investors in a labyrinth of multiple companies”? 

In particular CBSL has AVOIDED confirming whether there is any truth to the terrible allegation:

“But punitive action is being blocked by the Ministry of Finance which has taken from the Customs Department a file containing evidence against the suspects”

If the CBSL considers the report spurious, why has ‘The Sunday Times’ not been taken to task?

Mano Tittawella until recently Chairman, EAP Group is currently Senior Adviser to the Minister of Finance under which falls the CBSL.

Conclusion

Just a few weeks back the Director General of Customs Department, Ms. P.S.M. Charles was removed from office under controversial circumstances connected with the alleged “probes on 143 suspicious containers” allegedly linked to some influential officials in the Ministry of Finance under which falls the Customs Department. Due to the agitation of Customs ‘unions’ Ms. Charles was reinstated as Director General. 

It was reported just 10 days ago that a high profile Sri Lankan arrested in Dubai for his alleged involvement in the illicit drugs trade had allegedly deposited as much as “Rs.10 billion in 23 bank accounts” in Sri Lanka and Dubai. Even if half this sum was deposited in Sri Lankan banks, does it not indicate that the CBSL has been in “deep slumber” in this respect too? One could only speculate as to how many other cases not yet in the public domain have escaped the notice of the CBSL?

The businessmen owned mainstream print media have only SELECTIVELY reported on the damning FATF  ‘GREY LIST’ and EU ‘BLACKLIST’ placed on Sri Lanka. It was left to the ‘Colombo Telegraph’ (CT) website to place matters in perspective.  There was even a total ‘blackout’ of the alleged “Massive Fraud At Sampath Bank” published in CT. It was alleged by the “victims” that CBSL “was in a deep slumber while Sampath Bank was siphoning off the customers’ money”. We are still to hear from the CBSL on this alleged “Massive Fraud”.

Of what use is the CBSL “time bound action plan” when just LAST WEEK the EU REITERATED that Sri Lanka continued to be a “high-risk third country” for money laundering? No doubt FATF and EU are aware that the CBSL for the most part will not stand up and be counted in the face of there being NO POLITICAL WILL to fully implement even existing laws. 

In the context of little respect for the rule of law and regulatory agencies such as CBSL for the most part being indifferent, is there no danger that the proposed ‘Colombo International Financial City’ with high end CASINOS also reportedly being part of the mix, may enhance Sri Lanka’s image as a premier hub for money laundering in the Asian region? 

Discerning visitors to Sri Lanka have commented on the MISMATCH on the one hand of a country with a weak economy and infrastructure bending over backwards even for questionable FDIs and financial assistance and on the other the swanky high-rise apartments, fancy restaurants and luxury department stores dotting the city of Colombo with high-end vehicles which would do even a first world country in Europe proud.