Colombo (AsiaNews) – The Financial Intelligence Unit (FIU) of the Central Bank of Sri Lanka (CBSL) repeatedly warned successive governments that advance payments for imports were being exploited for trade-related money laundering, years before the scam came to light.
These warnings failed to lead to action, thus allowing one of the country's largest financial frauds to happen.
According to findings presented last week to parliament's Committee on Public Finance (COPF), the Criminal Investigation Department (CID) found that some US$ 715 million were moved abroad between 2023 and 2026 through fraudulent import transactions with no goods arriving in Sri Lanka.
Investigators linked part of the operation to international money laundering and drug trafficking networks. In fact, according to FIU officials, “risk assessments were conducted in 2021 and trade-based money laundering was one of the significant financial crimes.”
According to CoPF Chairman Dr Harsha de Silva, the Committee found numerous shortcomings by banks, Sri Lankan Customs, and the Department of Import and Export Control in reconciling outgoing remittances with actual imports.
“The most disappointing finding was that reporting requirements on outward remittances by both State and private banks were not being strictly adhered to. That is precisely the gap fraudsters exploited,” he stated.
Between February and June 2021, advance payment wire transfers posed a growing risk of money laundering. These findings were communicated to the Ministry of Finance, the president, and the central bank's Monetary Board, while banks were asked to strengthen their monitoring of advance payment transactions.
During that period, the CBSL governor formally alerted the Treasury secretary and the presidential secretary, while members of the Monetary Board raised the issue directly with the then president.
Despite these warnings, investigators believe the fraudulent transactions continued for many years. As FIU officials noted, banks were ordered to submit suspicious transaction reports (STRs) related to advance payments for imports.
The information gathered from these reports was shared with Sri Lanka Customs and the police until May 2024. Since then, this information has been continuously updated.
“The abuse of advance payments for imports may have started much earlier, after the 2017 Foreign Exchange Act,” note financial analysts Dakshitha Athukorala and Sagara Thilakawardena speaking to AsiaNews. The legislation “decriminalised foreign exchange-related offences, replacing the extant criminal enforcement regime with a predominantly civil framework.”
To address this issue, new beneficial ownership rules will come into force on 30 September 2026, requiring companies to disclose verified information about their true owners, with criminal penalties for false declarations.
“Failure to address unregistered companies could expose Sri Lanka to negative assessments by the Financial Action Task Force (FATF), potentially damaging the country's international reputation for anti-money laundering compliance," they explain.
Sri Lanka’s parliament has approved new measures requiring importers who make advance payments to register with customs. However, any “solution lies in rigorous enforcement, rather than in additional regulations,” this according to finance experts Shirantha Dissanayaka and Mayantha Alwis, who add that “the answer to poor enforcement is not to burden genuine importers with additional rules, but to enforce existing one to identify fraudsters.”
The Committee on Public Enterprises (CoPE), parliament's financial watchdog, set up an interagency working group to submit a comprehensive report within two months.
In addition, the authorities are planning to establish a National Coordinating Committee (NCC) composed of 22 agencies, while the proposed national digital identity programme is expected to boost customer verification and facilitate future investigations into financial crimes.
According to senior customs officials, “customs investigators can only vet records dating back to 2023 while older transaction histories are inaccessible due to gaps in digital systems”.
