Mix of strong-arm tactics and charm to restore worker remittance inflows
FIU and Police tasked to take action against those who receive moneys through unofficial channels CB says some bank accounts used for unofficial remittance services already frozen
CB to offer special incentive package to encourage Lankan migrant workers to use official channels in addition to Rs.10 per US$ incentive
CB Governor says rupee has already depreciated beyond its real value despite wide gap between official and market exchange rate
The Central Bank (CB) plans to restore official worker remittance inflows by clamping down on unofficial money transmission channels such as ‘Hawala’ and ‘Undiyal’ systems while offering a special incentive package to Sri Lankan expatriates to remit their foreign currency earnings through official channels.
“We have seen a US$ 300 million drop in official worker remittance inflows last month. We suspect that the main reason for this decline is the use of unofficial channels to send remittances. We are aware that some channels such as Hawala pay Rs.240 per US$ when the official exchange rate is at around Rs.200 per US$,” CB Governor Ajith Nivard Cabraal told reporters in Colombo last Saturday.
He noted that the Financial Intelligence Unit (FIU) with the support of the Police have already commenced an operation to find and prosecute individuals using unofficial channels to send or receive remittances, under the legal provisions of the country’s Anti-money Laundering & Countering the Financing of Terrorism (AML/ CFT) regime.
Recently, informal money transfer schemes such as Hawala, regained traction among Sri Lankan expatriates due to the widened gap between the pegged official exchange rate of the rupee and the market rates. A critical component of the system is that no money is actually transferred and there is no written contract. Cabraal questioned the source of funds, which are credited or handed over to family members of Sri Lankan expatriates, while raising suspicion on linkages to narcotic trade.
“In order to distribute US$ 300 million remittances, which is around Rs.72 billion with no actual fund transfers through banking channels, we need to ask where this money is coming from? We have launched an investigation into this through the FIU. We have reasonable suspicions that most of these funds distributed via informal channels are linked to narcotic trade,” he elaborated.
Cabraal noted that some bank accounts used for unofficial remittance services were already frozen by the CB, with the police investigating the persons involved.
He stressed that FIU and the Police are equipped with necessary tools including money laundering tracking software to track and prosecute anyone involved in such transactions.
Therefore, he warned that anyone using or facilitating such unofficial channels in cross border fund transfers could be prosecuted.
Meanwhile, Cabraal noted that CB is working along with other key State agencies to offer a special incentive package to Sri Lankan expatriates to remit their funds through official channels starting next January.
Under the package, Sri Lankan expatriates who use official channels to remit their funds to Sri Lanka will be eligible for pension and insurance schemes, enhanced duty free allowances as well as credit facilities for their immediate family members.
This package would be offered in addition to the Rs.10 per US$ incentive on top of the official exchange rate given to migrant workers to remit their foreign currency earnings via official channels.
Under a three-pronged approach, which also includes smooth facilitation of finding employment opportunities abroad for Sri Lankans, the CB hopes to restore worker remittance inflows to the levels seen during first half of the year. commenting on exchange rate management, Cabraal said the rupee has already depreciated beyond its real value, hence, he stressed that the government would not want the rupee to fall further.
In addition, he also claimed that the confidence in rupee has improved with the recent uptick seen in exports despite the widening gap between official exchange rate and parallel market rates.