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CB erred in good faith, admits Governor Mahendran
Central Bank (CB) Governor Arjun Mahendran admitted Thursday that the Bank had “genuinely with good faith … erred” over a gazette notification, exclusively highlighted in the Sunday Times of February 14, which was angrily denied the same day by Finance Minister Ravi Karunanayake as well as another CB official as being false.
“…In the Central Bank we genuinely with good faith erred by repeating the old number which actually was set a long time ago when 200,000 rupees probably was worth a lot more in dollars,” Governor Mahendran said when asked about the gazette notification issued by the CB on January 27 setting the Rs. 200,000 or more on inward remittances as the limit above which all banks should check the source of the remittance.
He said it is “unfortunate this circular (gazette) came out and appeared to clash” with the view of Finance Minister Karunanayaka who wants a liberalised system from the country. “. It was totally unintentional. It was entirely done in good faith to comply with these Asia Pacific Group (APG) rules that have come into play between Central Banks worldwide and in the region,” he said.
The Governor’s response came when reporters asked about the denial by the Finance Minister that such a gazette has been issued. Mr.Karunanayake at a hurriedly summoned press conference threatened to sue this newspaper over the article. He also implied that the article was the work of “catchers” of the former Governor of the Central Bank Ajith Nivard Cabraal and that the journalists were “anti-national” elements.
A journalist first queried about the CB s Financial Intelligence Unit (FIU) gazette and Deputy Governor P. Samarasiri stepped in to explain that the APG on Money Laundering (AML), an autonomous and collaborative international organisation had requested that CB should review its Customer Due Diligence requirements and educate institutions of their AML Anti-Money Laundering and Combating the Financing of Terrorism requirements. He said in a bid to do this some elements in the original gazette were incorporated into the new one the CB issued in January. He added that the Rs. 200,000 was inserted prohibiting a third party to deposit this amount in a particular account, but that it was reported erroneously.
The Sunday Times pointed out that it wasn’t so and that a third party wasn’t mentioned in the new gazette, when he insisted, The Sunday Times read out the particular section. At this juncture the CB Governor stepped into explain how the disputed gazette had actually been erroneously issued by the Central Bank.
He said that with the changes in the world after the 2008 crises with the Dodd-Frank (Wall Street Reform and Consumer Protection Act, which seeks to lower risk in various parts of the U.S. financial system) and new types of regulations, central banks have been asked to be much more vigilant.
“In the case of Sri Lanka we had the problem of terrorism financing and this Gazette was originally published at the height of the war against the LTTE and terrorism financing was a very sensitive issue,” he explained. The Governor added that at the time when people brought anything over Rs.200, 000, it was considered important that the banks establish who the person is and have some sort of profile of what that person is doing, and where the person is getting this sort of money.
“Now obviously times have moved on and we don’t have a terrorist issue anymore and the Minister of Finance wants to see that we have a liberalised system .When he says ‘liberalised’ he does not mean that he wants people to bring terrorist financing or money laundering back into Sri Lanka. What he is saying is he wants this place to have a money market like Dubai or Singapore where you can freely take currencies and go to a money lender and change them and the limits there are quite generous.”
The Governor said the Central Bank is now reviewing this 200,000 rupees limit. “I think it may be too low in the current context and that is probably where in the Central Bank we genuinely with good faith erred by repeating the old number which actually was set a long time ago when 200,000 rupees was probably worthy a lot more in dollars,” he said.
Governor Mahendran admitted the principle remains the same which is that Sri Lanka does not want money launderers and all sorts of undesirables to come into Sri Lanka. ”We want genuine investors, tourists, other types of people to be able to change their money easily without too much hassle and build up confidence in Sri Lanka as a financial centre. That is very important if we are going to make the Megapolis work and the Port City attract people. So that is the spirit in which I think the Minister wanted us to act and then in the meantime I think this unfortunate circular came out and appeared to clash with that view. It was totally unintentional. It was entirely done in good faith to comply with these Asia Pacific group rules that have come into play between Central Banks worldwide and in the region.”
Finance Minister Karunanayake was not available for comment.