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 conditions.

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.