Money Laundering and development
Posted on September 16th, 2019

Dr Sarath Obeysekera

Condominium Mgmt Authority, National Gem & Jewellery Authority to share information with the Financial Intel Unit

in terms of the provisions of the Financial Transactions Reporting Act, No. 6 of 2006 (FTRA), the Financial Intelligence Unit (FIU) of Sri Lanka entered into Memoranda of Understanding (MOUs) with Condominium Management Authority (CMA) and National Gem and Jewellery Authority (NGJA) on 28 August 2019 at the Central Bank of Sri Lanka with the objectives of outlining the process for providing information and defining the nature of the support that the FIU expects from the CMA and NGJA in ensuring effective implementation of Anti-Money Laundering/Countering the Financing of Terrorism (AML/CFT) legal obligations for condominium developers and licensed gem and jewelry dealers in Sri Lanka.

News Items above raises the question about the laundering of dirty money generated by the drug trade and bribery in third world countries.In Dubai and some other countries like Panama are attracting people to use their liberal banking system to generates healthy cash flow and increase surplus money within the country. Time to time Sri Lankan politicians change laws in the country to suit their needs either to take out surplus cash generated by scrupulous means and also to bring in money which was stashed elsewhere.

Recently Panama papers which were published by Wikileaks shows many Sri Lankans who deposited money earned either abroad or in Sri Lanka

The question is whether we should allow Sri Lankans or any other foreign person can bring money to Sri Lanka as investment or deposited in banks which give higher interest rates.

Under a Regime heavily dependent on World Bank, ADB, and other foreign funding agencies, such activity is frowned upon. Therefore Central Bank poke their nose in every transaction to satisfy World Bank

When a country does not have natural resources other than Tea, Rubber and a few other raw materials such as Ilmenite etc it is essential to find a way to improve money flowing into the country.

Many expat Sri Lankan and foreigners are ready to bring money in but Central Bank in Sri Lanka has imposed strict controls. Until recently foreigners could open   Share Trading Account and bring money in. The capital and profit brought in can be transferred out to the third party as they wish.

Central Bank wise governors have advised all State and Commercial Banks that foreigners can only open new account named IIA ACCCOUNT with conditions attached

Quote

Eligible Investors

A non-national resident in or outside Sri Lanka.

A non-national of Sri Lankan origin, who is a resident outside Sri Lanka

A Sri Lankan citizen, resident outside Sri Lanka.

A company incorporated outside Sri Lanka.

Country and regional funds, mutual funds, unit trusts and other institutional investors who are established outside Sri Lanka.

An administrator or executor of a deceased person, in the name of such deceased person who maintained an Inward Investment Account with that authorized dealer until the completion of the administration of the deceased person’s estate.

A receiver or liquidator of a company that maintained an Inward Investment Account with that authorize dealer until proceedings are concluded.

Any other person or category of persons who may be authorized by the Central Bank from time to time.

Permitted Credits

Remittances in foreign exchange received from outside Sri Lanka in favour of the account holder through the banking system.

Transfers from Personal Foreign Currency Accounts, Inward Investment Accounts or accounts maintained in the Offshore Banking Unit of the same account holder.

Dividends, sale or maturity proceeds, disposal of liquidation, capital redemption, share buyback, profits, surplus funds, rental income, recovery of principal, interest or any other related income received from capital transactions undertaken in Sri Lanka by persons resident outside Sri Lanka as permitted under the provisions of the Foreign Exchange Act, No. 12 of 2017.

Foreign currency brought into Sri Lanka by the account holder upon declaration (i.e., where such foreign currency notes exceed or equals to USD 15,000 or its equivalent in other foreign currency on a declaration to Customs Department or where such foreign currency notes are less than USD 15,000 or its equivalent in other foreign currency on an appropriate declaration to the authorized dealer).

Sale proceeds including capital gains, leasehold rights, sub-lease hold rights, if any, received in Sri Lanka rupees re-designated where such investment had been made through the Inward Investment Account or through the Securities Investment Account of the account holder or upon ascertaining the proof of inward remittances prior to these regulations come into effect.

Transfers from Business Foreign Currency Account of a person resident in Sri Lanka as repayment of foreign currency loans obtained by such person (i.e., borrower) from the account holder (i.e., foreign lender) under a general or special approval granted under the provisions of the repealed Exchange Control Act or Foreign Exchange Act, No. 12 of 2017.

Sri Lanka rupees converted into foreign currency by a resident in Sri Lanka (i.e., borrower) for repayment of foreign currency loans obtained from the account holder (i.e., foreign lender) under a general or special approval granted under the provisions of the repealed Exchange Control Act or Foreign Exchange Act, No. 12 of 2017.

Transfers from Diplomatic Foreign Currency Accounts and Diplomatic Rupee Accounts of the same account holder.

Transfers from an Inward Investment Account of another person (i.e., buyer) in respect of sale of permitted investments to such buyer by the account holder where such investment has been made by the account holder through the same Inward Investment Account (including any subsequent shares devolving on the investor by virtue of a corporate action by the issuer, exercise of a right, entitlement or conversion).

Transfers from Capital Transactions Rupee Account of the same account holder as permitted by directions issued by the Central Bank.

Transactions or Transfers from any other category of accounts that may be permitted to maintain by the Central Bank from time to time, to the extent such transactions or transfers have been permitted by directions issued by the Central Bank.

Interest earned on the funds held in the account. 


Permitted Withdrawals

Disbursements in Sri Lanka in Sri Lanka rupees.

Outward remittances in favor of the account holder.

Transfers to Inward Investment Accounts, Personal Foreign Currency Accounts or accounts maintained in the Offshore Banking Unit of the same account holder.

Payments relating to capital transactions undertaken in Sri Lanka by person resident outside Sri Lanka in terms of the permissions granted under the provisions of the Foreign Exchange Act, No. 12 of 2017.

Disbursements relating to foreign currency loans to a person resident in Sri Lanka where such loans have been obtained in terms of a general or special approval granted under the provisions of the Foreign Exchange Act, No. 12 of 2017.

Transfer of proceeds of foreign currency loans (including debt securities) to an Outward Investment Account of the borrower, where such loans have been obtained for the purpose of financing an overseas capital transaction (i.e., an outward investment) permitted under the provisions of the Foreign Exchange Act, No.12 of 2017.

Transfers to Diplomatic Foreign Currency Accounts and Diplomatic Rupee Accounts of the same account holder.

Transfers to an Inward Investment Account of another person (i.e., seller) in respect of the purchase of any permitted investment from such seller by the account holder.

Transactions or Transfers to any other category of accounts that may be permitted to maintain by the Central Bank from time to time, to the extent such transactions or transfers have been permitted by directions issued by the Central Bank.

If and when a foreign or Sri Lankan national intends to repatriate funds to Sri Lanka .they are discouraged to do so when they are told about such conditions listed above

The most questionable condition is that the person who opens an account has to visit the Sri Lankan embassy of the respective country and get his identity verified and submit a plethora of forms to prove his identity and residence status and of course source of funds.

Many investors have expressed their dissatisfaction with this condition as it is cumbersome.

Another ludicrous condition is that if you need to transfer the proceeds of investment to an outsider (even your kith and kin) is not allowed. The proceeds should only be remitted to an account anywhere in the world on the condition that the receiving account is on the same name.

If our country which considered underdeveloped  ( though some claim that we are developed !) cannot attract funds from other countries like Dubai.Panama.Gurnsey Islands Solomon islands etc we will never be able to find enough cash for development.

Once developed we can exercise such rules.

With all such rules, people were wondering how an eastern politician received an enormous amount for an investment suspected of funneling for terrorist activity ( though it was not substantiated )  bypassing the safety net of Central Bank?

It is high time we liberalize cash movement in and out for at least 5 years initially, and then start imposing strict monitoring rules.

People are wondering whether we can entice the Bond Scammers and other politicians as well as powerful government officers to bring back the money with a penalty like what they used to do in Iran

There was an Iranian National holding a high position in the shipping sector who plundered money through illegal means was pardoned when he agreed to bring the money back with a 100% penalty. He avoided being sent behind bars

Dr Sarath Obeysekera

One Response to “Money Laundering and development”

  1. Nimal Says:

    We should remove all exchange controls and allow honest politicians to invest where they create at least 5 jobs for the locals.
    Also we must allow Venezuelans to settle here to replace the colourful burghers who settled abroad. Buy a big oil tanker and transport their oil and that of the Iranians and if someone objects then cut of their diplomatic ties.

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