WHY DO CORPORATE DIRECTORS REMAIN OBLIVIOUS TO ANTI MONEY LAUNDERING REQUIREMENTS?

BY Dr. Dayanath Jayasuriya,
PC, Fellow International Compliance Association (UK)

The Financial Action Task Force (FATF), the global policy setter, has introduced 40 recommendations on Anti-Money Laundering and Countering the Financing of Terrorism (AML/CFT) in order to combat money laundering/ terrorist financing and other related offences globally.

The FATF evaluates legal, institutional framework and effective implementation of AML/CFT measures of countries regularly through regional monitoring bodies. In October 2016, the FATF informed that Sri Lanka will be subject to a review of the International Cooperation Review Group (ICRG) of the FATF to assess the progress of AML/CFT effectiveness. After several discussions and progress reports, the FATF informed that Sri Lanka has not made sufficient progress in four areas, namely International Cooperation, Supervision, Legal Persons and Arrangements and Targeted Financial Sanctions on Proliferations (North Korea & Iran).

As a result, the FATF in October 2017 listed Sri Lanka as a jurisdiction with strategic AML/CFT deficiencies in the FATF’s Compliance Document which is more commonly identified as “the Grey List”. Upon listing, a time bound action plan to address the strategic deficiencies identified was provided to Sri Lanka. This is a form of black listing leading to adverse implications on the rating of the country, delays in foreign transactions etc. After considerable efforts Sri Lanka was subsequently delisted.

Sri Lanka faces an assessment by the Financial Action Task Force (FATF) in early 2025. In readiness for this assessment, the Financial Intelligence Unit of the Central Bank and other training providers are assisting institutions (designated financial institutions and other corporates covered by the relevant legislation) to retrain their staff, improve in-house manuals and control systems and to be more proactive in conducting due diligence on customers and their transactions and report suspicious activities.

There are several areas where the level of compliance is still in the medium to high level. On matters such as beneficial ownership, information on sources of funding, drug trafficking, corruption, casino business, foreign exchange violations etc. the country falls far behind the expected degree of compliance. This year the International Narcotics Control Board in its annual global report cautioned Sri Lanka that the country could well become a major centre for drug trafficking and related criminal activity. There are a few banks, for instance, which blindly accept huge deposits of cash with the source of funding being vaguely disclosed as ‘church funding’ or ‘non-governmental aid’.

In 2011, the 2006 Prevention of Money Laundering Act was amended to provide, among other things, that upon a conviction after trial before the High Court the accused shall be liable to a fine which shall be not less than the value of the property in respect of which the offence is committed and not more than three times the value of such property, or to rigorous imprisonment for a period of not less than five years and not exceeding twenty years, or to both such fine and imprisonment.

Despite the legal obligation to comply with the requirements in the Financial Transactions Reporting Act, the Prevention of Money Laundering Act and the Convention on the suppression of Terrorist Financing Act, some financial institutions assume that the mere appointment of a ‘Compliance Officer’ (with whatever level of knowledge he or she may possess on the subject) will suffice.

The imposition of huge fines is a means of ensuring due compliance; in Sri Lanka the Financial Intelligence Unit has imposed nominal fines on some state banks and financial institutions for non-compliance and violations. The fines are paid and mention is supposed to be made in the annual report. Only a few boards feel that this a ‘black mark’ or a red flag in respect of the bank or institution and rarely consider proactive measures needed to prevent a recurrence.

It is important that the law enforcement authorities draw the attention of stakeholders to the following provision in the Prevention of Money Laundering Act:

Section 18:

Where an offence under this Act is committed by a body of persons, then, if that body of persons is—

(a) a body corporate, every director, or other officer of that body corporate;

(b) a firm, every partner of that firm; and

(c) an unincorporated body other than a firm, every individual who is a member of such body and every

officer of that body responsible for its management and control, shall be guilty of an offence:

However, there are two defences available. ‘Provided however, that no such person shall be deemed to be guilty of an offence if he proves that the offence was committed without his knowledge or that he exercised all due diligence to prevent the commission of the offence’.

Directors, officers and partners are well advised to pay more than mere lip service to the legal requirements and thus ensure that Sri Lanka will never again become a country on the FATF grey list. With current economic problems the country faces, it simply cannot afford a double jeopardy.