FlU to combat money laundering and terrorist financing
The topics of Money Laundering and Terrorist Financing have been
discussed at all levels of Governments in the International Community.
Recognising the vital importance and the need to take action to combat
these activities an Intergovernmental body called the Financial Action
Task Force (FATF) was recently established to set standards and
thereafter develop and promote policies to combat the noted activities,
a media release from the Central Bank said.
FATF has outlined 40 recommendations as counter measures against
Money Laundering (ML) covering the criminal justice system and law
enforcement, the financial system, and international co-operation. The
recommendations have been recognised endorsed and adopted by most of the
members of the International Community. In addition the FATF has also
formulated a further nine proposals specifically directed to combat
Terrorist Financing. (TF)
ML is a process whereby proceeds of a crime are converted into
legitimate funds using complex transactions effected through Financial
Institutions . By obscuring the origin of the money, criminals can use
the funds without raising any suspicion about its legitimacy. The impact
of such activity is the distortion of resource allocation as laundered
funds are generally used for non-profitable investments that do not
bring any tangible benefits to a country.
It is the practice of those involved in laundering of funds to bring
in money for a short period into a country and suddenly exit to another
territory. This type of inflows to a small country can result in a surge
of financial transactions which when transferred out can lead to
economic as well as financial system's instability. Sri Lanka is faced
with the grave concern relating to terrorist financing and there is an
urgent necessity to arrest same.
To meet both its own and international initiatives Sri Lanka has
adopted the FATF recommendations. This has culminated in the
promulgation of three acts. They are Convention on the Suppression of
terrorist financing Act No. 25 of 2005.
Prevention of Money Laundering Act (PMLA) No. 5 of 2006 Financial
Transaction Reporting Act (FTRA) No. 6 of 2006. The establishment of the
Financial Intelligence Unit (FIU) is a key component under the FTRA, to
deter criminals from using Sri Lanka and its Financial Institutions for
money laundering and terrorist financing activity and thus mitigating
the risk of the country being exposed to volatile economic and financial
The PMLA prohibits and provides measures to combat such activity and
the FTRA has institutionalised the FIU and makes it mandatory for all
financial institutions and designated institutions, professionals to
adhere to guidelines and stipulations and report suspected transactions
that seem to suggest money laundering activities.