Crypto fraud storm faces regulatory overdrive
The Government has taken significant steps to regulate crypto currency, primarily to address money laundering and financial crimes ahead of a 2026 international mutual evaluation by the Asia-Pacific Group (APG) on money laundering, Finance Ministry sources confirmed.
A specialised integrated data system is to be developed linking the Central Bank, Sri Lanka Police, and the Department for Registration of Persons.
This system aims to detect and take legal action against illegal financial transactions linked to organised crime and drug trafficking, a ministry official told the Sunday Times Business.
Measures have been taken to combat the use of eZCash and mCash for illegal transactions related to drug trafficking and organized crime, often facilitated through crypto.
Banks are prohibited from processing payments related to crypto currency, ensuring that local fiat currency cannot be directly converted to crypto through formal banking channels.
A Sri Lankan court has directed the Criminal Investigation Department (CID) on March 12 to expedite investigations into massive financial frauds, including a specific case involving the disappearance of Rs. 290 million, which was allegedly laundered through crypto currency transactions on platforms like Binance. Nineteen suspects are accused of exploiting loopholes in foreign exchange laws to convert public funds into crypto currency, resulting in significant capital flight from the country.
Besides this case, there is another case of a fraudulent transaction that exceeded Rs. 14 billion, which affected 8,000 people. The Colombo Chief Magistrate has directed the Central Bank and the CID to monitor and raise awareness of the risks of using unauthorized crypto currency platforms.
Binance said there are proceedings in the Colombo Chief Magistrate’s Court and that it is cooperating with the authorities by providing them with the necessary information. They have also stated that their users are fully licensed and KYC compliant.
The government is also working on a legal framework that includes the classification of virtual assets as a separate asset class. This includes the implementation of the “Travel Rule,” which is an international standard that involves the sharing of information related to the originators and beneficiaries of digital asset transactions.
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