Sri Lanka’s revamped anti-money laundering (AML) framework is placing bank managers and other financial-sector employees under unprecedented criminal scrutiny, with officials who knowingly facilitate suspicious transactions potentially facing prosecution alongside the customers behind illicit fund movements.
Supreme Court Justice A.H.M.D. Nawaz has warned that the amended legal regime significantly expands personal liability within the financial system, particularly where bank employees knowingly handle, transfer or receive criminal proceeds. His comments assume heightened significance amid a major Financial Crimes Investigation Division (FCID) investigation into almost US$1 billion allegedly transferred overseas since 2023 through purported imports that investigators say never materialised.
Four officials attached to four private commercial banks have already been remanded in connection with the investigation. Authorities allege that forged Customs documentation, violations of Central Bank regulations and payments to bank personnel were used to facilitate the outward movement of funds.
Justice Nawaz said the critical legal issue would be proving knowledge. If prosecutors establish that a bank manager knew money was criminally obtained, he could potentially face a money-laundering charge rather than merely being treated as an unwitting intermediary.
Employees who knowingly assist customers in transferring illicit funds could similarly face liability for aiding and abetting money laundering.
The warning exposes a potentially serious weakness in the traditional banking defence that responsibility rests primarily with the customer. Under the strengthened framework, banks are expected to scrutinise transactions continuously, rather than simply establish a customer’s identity when an account is opened.
Know Your Customer requirements and continuing customer due diligence therefore assume greater importance. Justice Nawaz specifically questioned how fictitious companies could be permitted to maintain functioning bank accounts capable of moving substantial sums.
Trade-based money laundering provides a particularly stark example. A customer can legitimately appear to be making an advance payment for imported goods, while the money is transferred overseas and the goods never arrive. If the customer and bank personnel knowingly participate in the arrangement, both could face criminal consequences.
The revised legislation also significantly broadens the geographical reach of Sri Lanka’s AML regime. Transactions partly conducted outside the country can fall within its scope, while proceeds from foreign criminal conduct may become subject to action when subsequently brought into Sri Lanka.
Another major shift concerns unexplained wealth. Where funds appear disproportionate to legitimate income, their holder may be required to provide a credible explanation. Failure to establish a lawful source could contribute to a money-laundering prosecution.
The law also permits money laundering to be prosecuted as a stand-alone offence without first securing a conviction for the underlying crime.
Nevertheless Justice Nawaz’s most serious warning concerned implementation. With an Asia/Pacific Group on Money Laundering assessment expected, he questioned whether Sri Lanka’s strengthened laws were actually being enforced effectively.
The continuing allegations of large-scale illicit transfers suggest that the challenge is no longer simply drafting tougher legislation. The real test is whether banks, regulators, investigators and prosecutors can detect, stop and punish financial crime before billions more leave the country.