Black money gets the ‘no questions asked’ whitewash

Secret elite who benefit from coronavirus calamity

Two weeks ago, the Lankan branch of a worldwide anti-corruption monitoring body raised the alarm over the Lankan government’s decision to allow the inflow of foreign exchange into the country on a ‘ no questions asked’ basis that runs contrary to the existing legal framework.

Transparency International Sri Lanka (TISL) the local chapter of Transparency International which has 90 chapters worldwide, stated “Whilst TISL recognises the need for policies to bolster foreign currency reserves, we strongly believe that any new policies should be consistent with Sri Lanka’s anti- money- laundering framework.’’

The Lankan government’s extraordinary decision to lay the red carpet of welcome for foreign money from whatever source on a ‘no questions asked’ basis came just two weeks after the country was embroiled in the coronavirus crisis and under an indefinite curfew. While the nation was gripped with the corona fear and its resources were being marshalled to meet its deadly threat, the bugle was being blown of the need to attract foreign money to provide the government the financial wherewithal for the virus war.

The man chosen to play host and do the honours of garlanding every coveted shady foreign exchange package with a rose wreathe of incentives is the Governor of the Central Bank, Professor W. D. Lakshman, who, with the approval of the Cabinet of Ministers, appealed on April 2 to all Sri Lankans and well-wishers here and abroad ‘to consider depositing their savings and other funds in foreign currency within the Sri Lankan banking system as a gesture of goodwill and assistance.’

The danger in granting approval carte blanche to Lankans and to all foreigners to park their foreign money in Lanka is that if the Government is not careful and does not introduce some measure of safeguards to prevent its misuse, the Central Bank Governor’s Cabinet sanctioned letter may well be misunderstood to mean that it is an open invite for the spoils of corruption and the evil gains of the international drug mafia to f low freely to the Lanka Launderette Inc. for a thorough whitening rinse and a tumble dry with no questions asked as to its stained origins.

And what are the carrots dangled to trigger the bonanza rush? To make the manna fall from a hazy heaven?

The Central Bank Governor in his letter of invitation issues a guarantee on behalf of the Central Bank and the Government. He states:

that the Government, the Central Bank or any other Government authority guarantees that the foreign currency deposits into the Sri Lankan banking system will be accepted without any hindrance

that it further guarantees the future convertibility of these deposits into foreign currency whenever it is desired to do so,

that all forex remittances will be exempted from exchange control regulations and taxes, an

that it will be protected under

banking secrecy provisions;

that this offer will commence on 2 April 2020 and will remain valid for a period of three months. Thus those who haven’t still availed themselves of this opportunity still have the opportunity until 2 July 2020 to do so, These exemptions from the strict provisions of the Financial Transactions Reporting Act (FTRA) which is the main legislative tool for detecting and investigating money laundering has been prompted, perhaps, by the exigencies that have risen from the COVID crisis.

In fact the Central Bank Governor expressly cites the COVID crisis as the reason. He writes in his invitation letter that this is in support of ‘a wide ranging effort to safeguard the people from the coronavirus, to bring its spread under control and to provide healthcare and social security to the people. Your foreign currency deposits in Sri Lanka banking system at this difficult stage will be of immense help to the authorities to tide over the present crisis.’

But the CB Governor has so far failed to explain to the Sri Lankan public how the sudden influx of ‘ questionable’ foreign exchange deposits to the Sri Lanka banking system will ‘help the authorities to tide over the present crisis?

Especially when the Central Bank and the Government guarantee that the foreign deposits can take sudden flight, in the same foreign currency it was brought in, to realms elsewhere at the whim of the depositor? Or explain how it will ‘help the authorities to tide over the present crises’, when there seems to be no bar for it to remain in the Sri Lanka banking system but can be withdrawn the instant the money is deposited in the banks and even kept idle under his bed if the depositor’s whim and fancy so dictate it?

It does not seem to be even a temporary loan to the Government returnable on demand, nor does there seem to be any proviso making it mandatory that it be invested in Government Treasury Bills or other ventures during its sojourn in Lanka.

On the face of it, as things have been explained in the Central Bank Governor’s invitation letter, it appears to be that all the attendant privileges have been granted to it, including the waiver of all taxes, not to help the authorities tide over the present coronavirus crisis by one iota.

Instead it seems designed to be the gateway for depositors the world over to bring their foreign exchange hoards to Lanka in complete secrecy without fear and on a ‘no questions asked’ basis, use it any which way they like, even to finance terrorism, and send it packing off to another banking system probably attached with a clean bill of health. A certificate that will excuse the hoard from being quarantined in another nation’s central bank, pending queries as to its’ legitimate’ status.

The Central Bank Governor also states in his letter: ‘ This announcement and appeal is made following a decision of the Government of Sri Lanka, made during the April 1st meeting of the Cabinet of Ministers. The Cabinet has decided to suspend all restrictions on foreign currency inflows to Sri Lanka during COVID-19 preventive period, defined as the three ( 3) months commencing 2 April 2020.

The Finance Transactions Reporting Act provides for the collection of data relating to suspicious financial transactions to facilitate the prevention, detection, investigation and prosecution of the offences of money laundering and financing of terrorism. The task and the overall objective of the Financial Investigative Unit set up under the same Act, is to combat money laundering, terrorist financing and related crimes in Sri Lanka.

The Prevention of Money Laundering Act was enacted to prohibit money laundering in Sri Lanka and to provide the necessary measures to combat and prevent money laundering. While the general norm in criminal law, enshrined in Article 13 (5) of the Lankan Constitution, is the presumption of innocence until proven guilty, the Money Laundering Act is the exception to the rule, whereby the accused is presumed guilty unless he can prove his innocence.

Under this act, it is presumed that any movable or immovable property acquired by a person has been derived or realised directly or indirectly from any unlawful activity, or are the proceeds of any unlawful activity, if such property has been acquired beyond the known income of a person. The onus of proving his innocence by evidence to the contrary will lie on the accused.

Today, the operation of these two Acts’ have been deemed suspended on account of Cabinet approval having been granted to keep it in limbo for three months between 2 April and 2 July.

On March 2, President Gotabaya Rajapaksa dissolved Parliament and called for elections to elect a new Parliament. With the dissolution, all members of Parliament ceased to be members forthwith. Only a skeleton cabinet, as sanctioned by the constitution, remained in office, to temporarily oversee the government’s day to day administration until a new Parliament was elected.

Thus, when the Cabinet of Ministers met on April 1, it was merely the meeting of a temporary caretaker Cabinet; and the question, therefore, arises whether the temporary caretaker Cabinet’s approval on that day to suspend the provisions of existing legislation, namely, the Prevention of Money Laundering Act and Financial Transactions Reporting Act, both, ironically, enacted during Mahinda Rajapaksa’s first presidential term in 2006, has the compelling force of law?

As Transparency International Sri Lanka Executive Director Asoka Obeyesekere said:

“At a time when there is an unprecedented lack of parliamentary and judicial oversight on Government actions, coupled with limited proactive disclosure of information, corruption risks and vulnerabilities are exacerbated. It would therefore be unwise for a caretaker Government to implement policies which could encourage money-laundering, with potentially far reaching detrimental effect to the Sri Lankan economy.”

On May 7, the European Commission de-listed Sri Lanka from its list of High Risk Third Countries. Lanka was removed from the “Grey List” of the Financial Action Task Force ( FATF). But with Lanka’s new money- laundering exposure, it risks FATF blacklisting again, which has far- reaching consequences on domestic banking and economic activity.

What a pity when the nation is on the right track to attract bona fide investments and strengthen the banking system’s credibility, it has chosen to make a U-turn under cover of COVID expediency and despoil it.

And created a new set of sacred cows to park their deposits of dubious origin with no questions asked in the safe haven of Lanka’s banking system: A shadowy moneyed elite whose names and the amounts deposited are granted complete anonymity under the blanket of banking secrecy with how such deposits will help win the COVID battle, still unexplained.