Sri Lanka’s fragile foreign-exchange system has been confronted by an alleged trade-based money-laundering operation in which billions of rupees were reportedly moved overseas through phantom imports, shell companies and allegedly compromised banking procedures.
At the centre of the investigation is a network reportedly involving 105 shell companies and 227 bank accounts across 13 state-owned and private commercial banks. Investigators have been examining how advance payments made through Telegraphic Transfers (TTs) were allegedly used to move foreign currency out of the country without corresponding imports entering Sri Lanka.
The vulnerability lay in the difference between advance TT payments and Letters of Credit. While an LC normally involves multiple documentary checks before payment, an advance TT can permit an importer to transfer money overseas on the strength of a proforma invoice. Investigators allege that the system was exploited by companies that generated invoices for goods that were never subsequently imported.
Cosmetics and other high-margin consumer products reportedly featured prominently in the transactions. In some instances, investigators found significant discrepancies between declared values and the physical movement of goods, raising questions about whether trade documentation was being deliberately manipulated to facilitate capital transfers.
The investigation took a dramatic turn on 17 August 2026, when CID officers reportedly arrested four executive-level managers at major private banks. The arrests raised questions about whether sophisticated money-laundering operations could have operated at such scale without assistance from individuals familiar with internal banking controls.
Investigators allege that the bank officials accepted kickbacks and helped customers structure transactions in ways designed to avoid automated anti-money-laundering alerts. They are also accused of facilitating documentation and compliance procedures that allowed suspicious transactions to pass through institutional safeguards.
Transactions involving US$32 million, US$24.6 million and US$5.5 million have emerged as examples of the enormous amounts that allegedly moved through the system.
The investigation reportedly accelerated following the arrest of Jeffrey Mohamed, linked to A.Y. Investment in Fort, who investigators identified as a key figure in the alleged network. A further arrest on 22 September in Wellampitiya involved a 35-year-old suspect accused of facilitating transfers amounting to Rs.24.85 billion through five shell companies.
The alleged racket has also exposed a broader regulatory weakness: the difficulty of connecting banking transactions with the eventual physical arrival of imported goods.
That gap is now being targeted through tighter digital controls. Under Extraordinary Gazette No. 2493/39, advance trade payments are being subjected to tracking and Customs verification mechanisms.
For legitimate importers, the new system could increase compliance costs and transaction delays. For regulators, however, the central issue is the protection of scarce foreign currency.
The investigation therefore extends beyond individual arrests. It raises a fundamental question over how billions could allegedly leave the country while existing financial and Customs controls failed to detect the transactions in real time.