The new anti-money laundering (AML) regime widens potential criminal liability for bank managers and other financial-sector employees who knowingly handle or facilitate transactions involving illicit funds, Supreme Court Justice A.H.M.D. Nawaz said.
The remarks come against the backdrop of an ongoing Financial Crimes Investigation Division (FCID) investigation into nearly $ 1 billion allegedly transferred overseas since 2023 under the guise of imports that did not take place. Four officials attached to four private commercial banks were recently remanded in connection with the probe, with investigators alleging the use of forged Customs documents, breaches of Central Bank of Sri Lanka (CBSL) rules, and payments to bank officials for facilitating transactions.
He said employees who knowingly facilitated the transfer of illicit funds could face charges of aiding and abetting money laundering, while a bank manager who knowingly received criminal property could potentially be prosecuted for money laundering itself.
Justice Nawaz was speaking at a forum last week titled ‘The Changes to Sri Lanka’s Anti-Money Laundering Regime,’ organised by Corporate Management Consultants headed by Malik Cader.
‘If you can fix the knowledge that the bank manager knew that it was ill-gotten money, there is no way that he can escape the offence of money laundering,’ he said.
Justice Nawaz stressed that prosecutors would have to establish knowledge on the part of an accused. He also said his observations represented his personal views and did not reflect judicial views or those of the Supreme Court.
He said the amended framework had moved beyond the territorial limits of the original 2006 law, covering money-laundering activity conducted partly within and partly outside Sri Lanka, as well as proceeds from foreign conduct that would constitute unlawful activity if committed locally.
Justice Nawaz used trade-based money laundering to illustrate the implications for banks, citing advance payments for imports where money is transferred overseas but the goods do not arrive.
He said a customer who knowingly brought illicitly obtained funds to a bank for transfer could be charged with money laundering. Bank employees who knowingly facilitated such a transfer could also face prosecution for aiding and abetting.
He also pointed to Know Your Customer requirements and continuous customer due diligence, saying fake companies should not be able to operate accounts.
The amended law also extends to proceeds generated through criminal conduct overseas and subsequently used to acquire property in Sri Lanka. Justice Nawaz said such property could be liable to forfeiture following a successful money-laundering prosecution.
He said money laundering could also be prosecuted as a stand-alone offence without first prosecuting the underlying, or predicate, offence.
Justice Nawaz said the scope of unlawful activity had also been widened, including by bringing within the framework offences carrying a minimum sentence of five years or more.
The amended law also changes the treatment of unexplained funds. Justice Nawaz said where funds were disproportionate to a person’s legitimate income, the person could provide a legitimate explanation for their origin. If such funds could not be explained, they could provide a basis for money-laundering proceedings.
‘In my view, this is a greater advance in the law,’ he said.
Justice Nawaz also drew attention to Sri Lanka’s implementation of its AML framework ahead of an expected Asia/Pacific Group on Money Laundering (APG) assessment. He said, while expressly noting that he had obtained the information online, that an APG visit was due in October.
‘We may be compliant. But the question is, are we effectively implementing the legislation? The fact that we are having this spate of problems, transfer of ill-gotten money, leaves much to be desired,’ he said.
The amended framework also strengthens freezing powers. Justice Nawaz said a Police officer not below the rank of Assistant Superintendent of Police could obtain a freezing order where property was suspected to have been unlawfully obtained or irregular movements of funds were identified.
He said the initial freezing period was now 14 days, with an application to the High Court required for an extension.
Justice Nawaz also highlighted reporting obligations on financial businesses and certain professionals. Failure to report suspicious activity could attract punishment, while tipping off a person about an investigation could itself constitute an offence.
He said the changes had expanded the reach of Sri Lanka’s AML framework nearly 20 years after the original legislation was enacted.