Money laundering:

How the Law works...

by Justice P.H.K. Kulatilaka

It is good now and then to recall those wise and thought provoking poems that we memorised during our school-going days. Let me take you back to Lowada Sangarawa (Towards a better world). Poem 37 says ‘As sweet as honey is evil - when you are doing it. As scorching as fire is pain - when you suffer for it’.

Poem 40 says ‘The crab in the water pan revels in water sport until the water is kindled in the fire place’. (vide pages 13 and 14 in Bikkhu. K.Nananada’s book titled Towards a Better World)

We are mindful of the fact that a culture of corruption has evolved over the years. Ensconced in that culture were the corrupt mega deals which had come in the guise of development involving millions of rupees, sterling pounds or American dollars, Japanese yen or other currencies. These monies unlawfully grabbed enriched the pockets of many corrupt politicians and their henchmen. Drug peddlers galore and the poor citizens in large numbers got used to drug addiction or drug dependence. It has become a vicious circle.

The promise or the pledge given to the voter during the January 8th Presidential Election that immediate measures will be taken to rid the country of the aforesaid menace was one of the main factors that brought the new regime into power. The people are bored and worried of the lackadaisical approach or the failure of the law enforcement officers to catch the ‘big ones’.

The Sunday Observer of February 2015 reported that the number of allegations relating to corrupt deals alleged to have committed by some key players of the deposed regime received by the Anti – Corruption Committee has now topped 2000.

Sri Lanka has already evolved a sufficient and effective mechanism to charge the wrong doers and put the house in order.

Dirty money in politics

It is no secret that ‘ dirty money’ coming from illegal importation and drug trafficking has soiled our politics. ‘ Vele Suda’ the drug baron and his involvement with a politician is not an isolated incident. Even before that the media reported detection by the Custom Authorities large stocks of heroin.

Media had further reported of a letter alleged to have been issued to the Customs by the Secretary to the then Premier seeking priority clearance of the container which was later found to contain a huge stock of heroin, Heroin is known as ‘kudu’ in Sri Lanka and internationally as brown sugar . Apparently it is the drug of choice in Sri Lanka and has found its way to the rural villages as well.

Challenging task

Whatever the party or government that is in power the civic minded community is anxiously waiting to see that the law enforcement authorities huddle together all those blood suckers who allegedly plundered fraudulently public wealth in mega deals, those involved in money laundering, those involved in bribery and corruption as well as notorious drug dealers.

The mechanism to punish all those wrong doers has to be put into operation very carefully. The investigators and prosecutors must not be misled by turncoats in politics. The law must apply equally to everyone irrespective of whether one is blue, red or green. It is a challenging task for the law enforcement authorities to investigate into who’s who of the country’s politics.

I like to state here for the benefit of the authorities a word of caution spoken to by the former Prime Minister S.W.R.D.Bandaranaike when the Bribery Act was introduced in 1954 against using the Act to chase after sprats only. He said ‘ Take action of people in high places….. Do you really think that as long as those impressions, at least, remain in the public mind, by penalising some wretched peon or some miserable hospital attendant, through the atomic bomb of the machinery of this Bill, you are going to stop bribery and corruption in the country’. What an amazing foresight he had about the outcome of the Act as far back as 1954. His warning should be an eye opener.

Cut down on delays

If the government is keen or genuinely interested in getting rid of the aforesaid crimes against the community the most important factor to deal with is to cut down on delays. Delay in whatever form is an ‘unmitigated evil’ undermining as it does the very foundation of the constitutional government. It calls for priority.

There are three sectors which need to be activated to the maximum, namely (a) crime investigation which is the function of the Police Department in co-operation with the Government Analyst’s Department, (b) prosecution handled by the Attorney General’s Department and the Bribery Commission (which deals with the complaints of bribery) to peruse the reports submitted by the police and send out indictment, (c) the Courts of law that hear and determine the cases of the accused.

Mechanism

In order to deal with the illegal importation, trafficking and possession of the prohibited drugs specified therein the Poison, Opium and Dangerous Drugs Ordinance as amended by the Act No. 13 of 1984 was introduced by the Legislature.

The Bribery Act and the Commission to Investigate Bribery or Corruption Act No. 19 of 1994 were brought in to deal with the allegations of bribery and corruption. In order to give effect to the U.N. Convention, the Legislature introduced the Convention on the Suppression of Terrorist Financing Act, No. 25 of 2005.

In the year 2006 two other important Acts saw the light of day, namely the Prevention of Money Laundering Act No. 5 of 2006 which was brought in to combat and prevent money laundering, and the other was the Financial Transactions Reporting Act No. 6 of 2006 to enable data collection to facilitate the prevention, detection and prosecution of the offenders in money laundering and financing of terrorism.

It is common knowledge that during the period after the war drums were silenced by the brave soldiers fighting for freeing the motherland from the brutal terrorism the government of the day told the people that it was time for ‘development’.

They promised the people that they would make Sri Lanka‘The wonder of the East’. Ironically, in no time the society became infected with organized importation and trafficking in narcotics and other prohibited drugs, bribery and corruption, fraudulent mega deals, human trafficking and various forms of other criminal activities.

Rid the country of money laundering

Cash or other property derived or realized directly or indirectly from unlawful activity specified in the interpretation section of the Prevention of Money Laundering Act is known in the common parlance as‘ dirty money’.

What is money laundering?

Wealth that was derived or realized through the aforesaid unlawful means cannot be circulated through the legal process of the country unless washed. The Oxford Dictionary gives the meaning as ‘to move money that has been obtained illegally into foreign bank account, or legal business so that it is difficult for people to know where the money came from’.

The purpose of conversion is to give the appearance that the cash or such other property has been obtained through a legal process. It means ‘the conversion of tainted or ‘dirty money’ into respectable assets so as to disguise or conceal the origin of such money and to give it the appearance of having been obtained from a legitimate source’.

The Act specifies the offence as well as the punishment in section 2. It refers to any person who engages directly or indirectly in any transaction in relation to any property which is derived or realized from any unlawful activity or from the proceeds of any unlawful activity.

The offence also applies to any person who receives, possesses, conceals or disposes or brings into Sri Lanka or transfers out from Sri Lanka any such property illegally obtained. The property means not only currency and assets of any kind.

A full interpretation is given in section 35 of the Act. It is interesting to note that ‘unlawful activity’ refers to in the Act which is the main ingredient in the offence means any act which ‘constitutes an offence’ under the Acts and laws specified therein.

This is an area where the prosecutors have to give serious consideration because the law relating the doctrine of double jeopardy is a part of our criminal law. I do not wish to elaborate on it for the reason it would be boring for the readers. Any way the officers of the Attorney General’s Department are well possessed of these principles of law.

The funds generated through activities which are illegal and covert cannot be easily identified and quantified. These crime doers have been resorting to ingenious as well as immoral ways to launder funds.

They are always one step ahead of law enforcement agencies. In most cases false identities are offered to facilitate accounts to be opened so that it would attract minimal suspicion. False travel documentation is used to conceal identity of the offender. In order to cover movements of funds false or forged invoices and receipts are used.

There can be cases where fictitious transfers among inter-company accounts are used in committing the crime. Apparently there are cases of trade based money laundering as well, a phenomenon that has come up along with the development in international trade.

It is the process of disguising the proceeds of crime and moving value through the use of trade transactions in an attempt to legitimate their illegal origin. The readers will remember that few months back large stocks of narcotics were detected by the Customs as well as by the Police but in most cases it was not possible to get at the culprits. In the first week of March a large stock of ethanol was detected. It was reported in the media that the importer is a dead man.

Recently when the so-called Vele Suda, a drug baron was arrested and brought to Sri Lanka Police special unit recorded a statement from him. He was interrogated at length. The Police spokesman who is an attorney at law revealed at various press conferences that names of certain politicians and some public officers came to light from the suspect’s statements made during interrogation.

But when the identities of those involved were not made known to the public and no arrest were made the people who voted the present regime into power were left dysphoric and disgusted. Even some politicians of the government were worried. The law would not allow a person to be arrested merely because his or her name had been revealed by a suspect in his statement made to the Police. It cannot be used against such person in Court.

Nevertheless, the Police would make use of such statement to have an in depth investigation into the alleged involvement and gather evidence that would enable them to arrest him and produce before Court. It cannot be hastily done.

The units set up to investigate into commission of these offences eg. Police Financial Fraud Investigation Division, Police Narcotic Bureau should have the know-how, experience and commitment to carry out an in depth and extensive investigation.

These officers will collect evidence and after an assessment decide whether such persons against whom complaints have been lodged or whose names have been disclosed in the statements made by any suspect are in fact involved in the commission of a particular crime. Thereafter the Police will proceed to apprehend them and produce them before Court.

To combat money laundering at global level the draftsman by section 27 of the Money Laundering Act has brought in the provisions of Mutual Assistance in Criminal Matters Act to be made use of, which would enable providing assistance as between the Government of Sri Lanka and Commonwealth Countries in the investigation and prosecution of the offence of money laundering.

If there is any bilateral treaty such assistance can be made available from a Non-Commonwealth as well. An offender will not be able to run away from the country to escape prosecution. He will be brought back to the country making use of extradition arrangements.

Ignorance of the law is no excuse

Both the Prevention of Money Laundering Act and the Financial Transactions Reporting Act facilitate the investigators to take various steps to carry on with their investigations. There is a duty cast on persons who have knowledge or reason to believe that a particular person has any property derived from any unlawful activity to disclose such knowledge to Intelligence unit.

Those who fail to comply will also be prosecuted in the High Court. On the other hand a person who knows that an investigation is pending knowingly falsifies, conceals, destroys or disposes any document or material also would be prosecuted in the High Court. I make it a point to mention these matters because the people must know what the law is all about. Ignorance of the law is no excuse.

It is common knowledge that apart from the corrupt politicians there are corrupt public officers, investigators, corrupt officers of financial institutions and interested NGO, who are involved in the commission of the crime.

There are persons who attempt or conspire to commit the offence. Some are involved in aiding and abetting. They also will be prosecuted in the High Court.

Freezing of property

For the investigators possessed of credible information or grounds to believe that any person is involved in the commission of the offence, it may be necessary to take steps to prevent further acts being committed in relation to the offence.

Hence the Act empowers a Supt. of Police or in his absence an A.S.P to issue an order prohibiting any transaction in relation to any account, property or investment which may have been used or which may be intended to be used in connection with the offence of money laundering. Such Freezing Order is subject to confirmation by the High Court.

If any transaction is done in relation to the subject matter such transactions are null and void. Those who contravene such freezing order will be prosecuted in the High Court. In addition the Act empowers any police officer not below the rank of a Supt. of Police to take possession of or deal with any account, property or investment which is subject to a Freezing Order.

The suspect will be arrested and produced before the Magistrate. It is a non-bailable offence. It will be left to the Magistrate to decide using his discretion to allow or refuse bail if there is an application for bail.

Trial before High Court

Once the investigations are over the investigation report will be submitted to the Attorney General. After due consideration the Attorney General will send direct indictment to the High Court.

An important feature in a money laundering trial is the presumption operating in terms of section 4 of the Act. It‘ shall be deemed until the contrary is proved’ that any movable or immovable property specified in the indictment acquired by a person had been derived or realised directly or indirectly from any unlawful activity or are the proceeds of any unlawful activity. It is a rebuttable presumption. If the accused is making a drfence the evidence he adduces to the contrary will be weighed according to the rules of balance of probability.

Sentencing on conviction

If the Judge finds the accused guilty he will record a verdict of conviction in terms of section 203 of the Code of Criminal Procedure Act. Section 3 of the Prevention of Money Laundering Act imposes a heavy sentence on the convicted person, namely (a) to a fine not less than the value of the property in respect of which the offence is committed or to a fine not more than three times the value of such property or (b) to rigorous imprisonment for a period not less than 5 years and not exceeding 20 years or (c) to both such fine and imprisonment.

Order of forfeiture

On conviction of the accused the Court has power to make order forfeiting the property (which is the subject matter of the offence) to the State free from all encumbrances. Law is not unreasonable for any bona fide claimant (a person in good faith) can within 30 days of the aforesaid Order make an application to the Court setting out his claims. If the Court is satisfied that the applicant has suffered loss it will award compensation.An accused aggrieved by the conviction and sentence imposed on him by the Trial Court can proceed by way of appeal to the Court of Appeal.

The writer is a former Director of the Sri Lanka Judges Institute.