Disclosing source on remittances over Rs. 200,000:

No CB gazette notification - Director

by Rohana Jayalal

The Central Bank of Sri Lanka (CBSL) has not issued any gazette notification to disclose the source on remittances of over Rs 200,000 in banks, as per a newspaper report last week, CBSL’s Finance Intelligence Unit, Director H. Amaratunga said.

“Sri Lanka needs foreign exchange in its forward march and we should encourage the inflow of foreign remittances to the country,” he said.

The Central Bank has issued gazette notifications to bring our institutional and legal framework on a par with international regulations on money inflows, Amaratunga said. Finance Minister Ravi Karunanayake held a press conference at the Finance Ministry last Sunday, on what he described as rather anti-national statements made against the government by a weekend English newspaper.

Karunanayake lashed out at the newspaper saying it had published distorted, seriously damaging statements about the government’s financial policies and practices over the past three weeks.

“One among them is an article titled, ‘BT exposure sees one team heading for study at Harvard University’ and the latest came out today under the title ‘Disclose source, if you receive more than Rs 200 000’,” the Minister said.

The newspaper report was misleading to the extent of discouraging the inflow of foreign remittances to the country and the Central Bank is contemplating legal action, said Amaratunga. The Government has estimated that about $ 10-15 billion is being held by the Sri Lanka diaspora overseas. The Government has invited them to bring those monies back with an assurance of higher interest rates compared to those offered in international money markets. In Switzerland they get a zero return, while they could get 2-3% interest here.

The aim of the policy is to attract US $ 2-3 billion by the middle of this year, of the US $ 10-15 billion deposited in foreign banks. The Government hopes to position Colombo as a financial centre and become an alternative to Singapore and Dubai.

Highlighting that Singapore and Dubai were now overrun and expensive, he said that this was a great opportunity for the Sri Lankan diaspora to help the country as the government is paying outsiders 6-7% as interest.

Earlier Finance Minister Ravi Karunanayake had invited people to ‘park’ deposits, including funds presently in Switzerland and other tax havens, in Sri Lanka as ‘special deposits’ offering a premium investment return of 2% per annum, with ‘no locked in investment period’.He subsequently said that a single ‘mystery’ Belgian national working with a Sri Lankan partner had already remitted USD 500 million under this scheme and the balance of the promised total transfer of USD 1 billion would follow soon. Officials said remittances under this scheme had topped USD 1.5 billion.

It is said the remitting banks overseas would have already cleared the customer and associated due diligence; and hence there is no need for ‘Know Your Customer’ (KYC) and associated validation to be repeated in Sri Lanka, though required under international conventions, to be carried out by the recipient banks.

Bank officials, who appear not to have received specific guidelines regarding this scheme, said the scheme is akin to an ‘amnesty’ being declared, exempting the receiving banks from requirements under local statutory provisions and international guidelines.

Meanwhile, a Transparency International Sri Lanka (TISL) official said this move is contrary to the Prevention of Money Laundering Act.

Accepted regulatory frameworks could be exploited to ‘park’ in Sri Lanka ‘black money’ and funds gained through trading in narcotics, dangerous substances and illegal arms, and funds associated with serious financial crimes, bribery, corruption and terrorism.

It is well recognised that investors of such funds seek new havens to launder their money; and such investors could be attracted by the scheme, which has attractions of a ‘No Questions’ policy, and provides them with attractive investment returns with no lock-in periods.

These funds can easily move back out to other destinations by the investors, especially after serving the objectives of laundering the money by using the temporary ‘parking option’. Such actions could result in serious macro economic and financial consequences for Sri Lanka in the future.

Sri Lanka is a signatory to international standards on combating money laundering and Financing of Terrorism Proliferation (FATF recommendations), and this move by the Ministry of Finance could lead to Sri Lanka being internationally penalised. Such a situation will deter serious and honest foreign investments from coming into the island.

The FATF recommendations stipulate compliance procedures to be in place to ensure customer due diligence, ranging from record keeping and reporting suspicious transactions to strict regulation and supervision of financial institutions. In terms of the US Foreign Account Tax Compliance Act (FATCA), Sri Lankan banks operating within the framework of the ‘No Questions’ scheme risk being barred from the US banking system.

The scheme introduced without transparency and public discussion could create an investment framework operating outside acceptable and desirable best practices, with its business sector and citizens exposed to dangers of penal international sanctions, he said.