Special Assignment

25th March  2001

Plunder by forex vultures

By Chris Kamalendran
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Detection of foreign currency smuggling at Sri Lanka's ports is just a trickle compared to the volume of illegal foreign currency trade running into hundreds of millions of rupees, The Sunday Times probe reveals. 

The Customs Department makes routine detection of people smuggling foreign currency out of the country. The suspects are produced before courts, which usually impose a fine double the value of the currency and order the confiscation of the money.

Despite detection to the tune of 38 million rupees last year a ridiculously low total the foreign exchange racket operates with its wings spreading to many world capitals.

Police and Customs officials are unable to act against racketeers because they make use of loopholes in the law to project their operation as legal.

Under Sri Lanka's Exchange Control laws, up to US $ 10,000 or its equivalent in other currencies could be brought in or taken out of the country. Those who bring in more than US $ 10,000 or its equivalent have to declare it to the Customs. But there are restrictions on the outflow of money. If the outflow is US $ 10,000 or more than that, it has to be declared with reasons supported by documents.

To skirt the strict regulations governing the outflow of money, racketeers use 'professional' couriers who carry the maximum amount allowed without a declaration for example US $ 9,950. The foreign currency thus siphoned off is collected by agents in foreign capitals. They keep in touch with Colombo racketeers and serve different clientele. 

The services of racketeers are sought by travellers and businessmen, both local and foreign, especially Indians. 

Several businessmen and travellers from India where foreign exchange regulations are stricter than those of Sri Lanka, come to Colombo on their way to other destinations, to obtain the foreign currency they require, a person involved in the illegal currency trade told The Sunday Times. 

According to this source, the businessmen would buy dollars from the racketeers but would collect the money outside Sri Lanka from the agents who are active in India, Pakistan, Dubai, Bangkok and Singapore.

"Sri Lanka has become one of South Asia's most lucrative black market for foreign currency as strict exchange control regulations operate in many countries in the region," said Mali Piyasena, Customs Additional Director at the Bandaranaike International Airport.

He said he believed that racketeers' services were sought not only by businessmen and smugglers of electronic items and textiles, but also by drug smugglers and human-cargo racketeers. 

"We are also aware of Indians who fly to Singapore with a one day stop over at Colombo mainly to pay for the foreign currency they want to collect in Singapore. They cannot fly directly from India with so much foreign currency as their country's exchange control regulations are strict," Mr. Piyasena said.

Once the deal is made in Colombo, the racketeers immediately fax or e-mail the details of the customers. Even when couriers take their money for agents, information about who is bringing how much is sent in advance to the agent who meets the courier at the port of arrival. This way the agents make sure the courier does not disappear with the money. Couriers are generally trusted acquaintances of the racketeers. They are paid Rs. 15,000 each time they take with them US $ 9.950 and the air ticket is also paid for.

"There are regular travellers. We know they are money couriers. Their faces are familiar to us, but we cannot act on them," Mr. Piyasena said. Apart from couriers whose operation is legal though illegitimate, there are money smugglers who take foreign currency out of the country by using various methods.

A man who was once a courier told The Sunday Times he had taken foreign currency to Singapore in a false bottom of his suitcase. He said he had done this several times and the operation went undetected.

"We were only carriers. There were businessmen behind the racket. We were handed over the money at this end and those at the other end received them," he said.

The man said he was paid a percentage of the money he would smuggle out and the percentage varied depending on the country and the risk involved.

"By experience we knew that carrying money on certain days was risky as some honest and strict Customs officers were on duty," he said.

The man said he gave up his highly lucrative courier operation because he felt it was too risky to continue any longer.

He claimed that two of his colleagues who were also involved in money smuggling operations were killed. "They handed over the money to the agent but the Sri Lankan businessmen behind the racket believed they played them out. Eventually the two men met with tragic deaths," he said.

Mr. Piyasena said one way of controlling the money being spirited out of the country was to strengthen the exchange control laws.

"They should closely monitor the money changers in the city. They are involved not only in buying, but they are also selling foreign currency. This is illegal. The law allows them only to purchase foreign currency," he said.

Customs officials believe that some moneychangers are hand in glove with foreign exchange racketeers. 

It is alleged that unscrupulous moneychangers who possess licence to engage in the business declare only a portion of the foreign currency they purchased. The rest they would sell to racketeers who badly need them. This way the moneychanger also obtains a higher price much higher than the Central Bank price for the foreign currency.

"We are supposed to get involved only in buying foreign currency, but it is no secret that we are also involved in the sale of foreign currency. You can observe it happening at many money changing bureaus," a fort moneychanger said.

"We are allowed only to buy foreign currency and the law demands that we maintain proper records and show them to the Central Bank. But we do not declare the full amount of notes we have purchased.

"A moneychanger may collect 15,000 US dollars for a day, but he would declare only 5,000 US dollars. The remaining 10,000 is sold and it is not recorded," the moneychanger who spoke on anonymity said.

The Exchange Controller H. A. G. Hettiarachchi told The Sunday Times that the laws were adequate to keep the situation under check. 

"We are keeping the money changers under control with regular monitoring. There were more than one hundred moneychangers. But most of them lost their licences due to illegal practices. At present there are only 30 licensed money changers operate in the country," he said. 

But, just 100 metres away from Mr. Hettiarachchi's office, many moneychangers are openly flouting the law by selling foreign currency.

According to Mr. Hettiarachchi, the moneychangers should record a monthly purchase of US $ 5,000 but this mark seems to be ridiculous as traders achieve the target in a day or two.

Another moneychanger who spoke on anonymity said they buy much of their foreign currency from housemaids returning from West Asia. Other customers include Sri Lankan expatriates largely from Italy and other western countries.

- With additional reports from Ruwan Weerakoon.

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