Sri Lanka’s latest financial-crime investigation has exposed a vulnerability far more serious than the arrest of a single businessman. The alleged illegal transfer of US$80 million—around Rs.23.7 billion—through fictitious imports demonstrates how trade channels, banking systems and corporate structures can potentially be manipulated to move enormous amounts of foreign exchange out of the country.
The September 10 arrest of a 34-year-old cosmetics trader from Maradana has brought the issue sharply into focus. Investigators allege that he operated 26 fraudulent companies and controlled 54 bank accounts through which money was transferred overseas between January 2023 and November 2025. The payments were reportedly justified as imports, although the goods concerned never entered Sri Lanka.
More alarming is the scale of the wider investigation. Authorities are probing a phantom-import network allegedly responsible for draining between US$715 million and US$1 billion from Sri Lanka’s banking system since 2023. Investigators have also identified 105 shell companies, 227 bank accounts and more than 24,300 suspicious transactions involving 13 banks.
This transforms the case from an isolated fraud into a potential systemic failure in trade-based money-laundering controls.
The alleged involvement of banking personnel makes the situation even more serious. Four executive managers from separate private commercial banks have been arrested and remanded over allegations that they accepted weekly bribes to facilitate fraudulent dollar transfers, bypass customer-identification procedures and process forged documentation. Investigators are also reportedly monitoring officials connected with state-owned banks.
If established in court, such conduct would raise fundamental questions about the effectiveness of banks’ Know-Your-Customer, transaction-monitoring and suspicious-transaction reporting systems.
Sri Lanka’s foreign-exchange position makes the alleged outflow particularly damaging. A country recovering from a devastating balance-of-payments crisis cannot afford to lose hundreds of millions of dollars through fictitious trade. Every dollar diverted through a phantom import represents foreign exchange that could otherwise support essential imports, debt-service capacity, productive investment and reserve accumulation.
The scandal also carries an international dimension. Trade-based money laundering is a major concern for global anti-money-laundering authorities because it can disguise illicit financial flows behind apparently legitimate commercial transactions. Weaknesses in detecting such activity can damage a country’s credibility with correspondent banks, international investors and financial institutions.
The government’s regulatory response therefore represents an important test. New import-control regulations require banks to deal only with Customs-verified eligible importers and assign tracking numbers to foreign-exchange transactions. Transaction information must also be transmitted to Customs for reconciliation against actual imports.
These measures could significantly close the loophole—but regulation alone will not solve the problem.
The real test is enforcement inside banks, accountability of senior officials and the ability of Customs, the Central Bank, the FIU and law-enforcement agencies to exchange information quickly.
Sri Lanka cannot claim to have strengthened its anti-money-laundering regime merely because new rules exist. The credibility of those reforms will ultimately depend on whether the institutions responsible for enforcing them can prevent another billion-dollar phantom trade network from emerging.