Financial Times

Crackdown on pyramid scheme outflows
The Central Bank is cracking down on the outflow of foreign exchange through improper means and has sought legal advice to stop payments to pyramid and network marketing schemes by treating them as capital transfers.

This decision has been taken by the regulator due to many individuals breaching exchange control regulations by shelling out funds through their credit cards on behalf of third parties to pay GoldQuest International.

"We are taking steps to straightaway stop payments to these types of schemes by treating such transactions as investments equivalent to capital transfers," H. A. G. Hettiarachchi, Controller of Exchange told The Sunday Times FT.

Legal expert Naomal Goonewardena, Partner, Nithya Partners said that an acquisition of a capital asset or an investment is regarded as a capital transaction.

Hettiarachchi said that capital transactions require exchange control approval and as such the Central Bank is looking to bar such transactions entirely. "There is a lot of exchange leaving the country and we want to block this avenue," he said.

Hettiarachchi said that the regulator is planning to ban such transactions not only through credit cards, but also through any other instruments such as demand drafts or telegraphic transfers.

Meanwhile, the regulator has identified further 36 credit card holders who have violated exchange control regulations to pay GoldQuest International. "They will be taken to task soon," Hettiarachchi said.

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