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Lanka lacks laws to combat money laundering and terrorist financing, says EC
The European Commission (EC) has named Sri Lanka a “high-risk third country” with strategic deficiencies in anti-money laundering and countering financing of terrorism (AML/CFT) laws. It is the only other South Asian nation to be flagged apart from Afghanistan and Pakistan.
Sri Lanka is also among 11 nations identified by the intergovernmental Financial Action Task Force (FATF) as having AML/CFT regimes that are deficient, but who are cooperating with the organisation to cover these gaps. The others are The Bahamas, Botswana, Ethiopia, Ghana, Pakistan, Serbia, Syria, Trinidad and Tobago, Tunisia and Yemen.
“High risk and monitored jurisdictions” are countries that have taken insufficient measures to combat money laundering, terrorist financing and other threats to the international financial system. Any non-European Union (EU) country identified by FATF as representing a risk to the international financial system is presumed to represent a risk to the Union’s internal market.
The EC on Tuesday adopted a new list of countries which, as a result of their unsatisfactory legal regimes, pose “significant threats to the financial system of the Union”. This means that transactions involving Sri Lanka will attract additional layers of due diligence.
The list shows Sri Lanka in the company of Afghanistan, American Samoa, The Bahamas, Botswana, Democratic People’s Republic of Korea, Ethiopia, Ghana, Guam, Iran, Iraq, Libya, Nigeria, Pakistan, Panama, Puerto Rico, Samoa, Saudi Arabia, Syria, Trinidad and Tobago, Tunisia, US Virgin Islands and Yemen.
The EC’s proposal will be submitted to the European Parliament and Council within a month for approval. If passed, it will enter into force 20 days after publication. This is not the first time Sri Lanka has earned the dubious distinction from the EU.
The European Parliament in February last year voted to add Tunisia, Sri Lanka and Trinidad and Tobago to its money-laundering blacklist. The Assembly was split, with 375 votes in support of the motion, 283 votes against and 26 abstentions. But most MEPs opposed the inclusion, not of Sri Lanka, but of Tunisia which they held was a burgeoning democracy in need of support.
Sri Lanka has, however, taken measures to strengthen its laws and the Central Bank — where the Financial Intelligence Unit is based — has said it was confident the country will be off the FATF’s “grey list” by this year. To do so, however, the country must comply with 40 recommendations. An assessment mid-last year found it had made considerable progress, but must do more.
In June 2018, the International Monetary Fund (IMF), too, acknowledged that Sri Lanka has stepped up efforts to improve the AML/CFT regime. And, in a letter of intent to the IMF, Finance Minister Mangala Samaraweera and Central Bank Governor Indrajit Coomaraswamy pledged that other measures will be taken, including enactment of a law to criminalise all outstanding United Nations Convention against Corruption (UNCAC) offences.
They also vow that an amendment to the Asset Disclosure Law is forthcoming, covering a comprehensive range of public officials, including assets legally-owned and beneficially-owned. It will be subject to dissuasive sanctions for non-compliance or false declarations. It will also be verifiable and publicly available online.
Amendments to the Trust Ordinance were passed by Parliament in March 2018. Guidelines for casino, real estate and gem and jewellery sectors were issued the following month, along with guidelines on identification of beneficial ownership for financial institutions.
The EU’s fundamental criteria to determine if a country is compliant with AML-CFT requirements is that it must have criminalised money laundering and terrorist financing; applied customer due diligence requirements, record keeping and reporting of suspicious transactions in the financial and non-financial sector; ensured transparency of beneficial ownership for legal persons and legal arrangements; and engages in international cooperation.