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A senior cop remembers April 1971

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(Excerpted from the memoirs of Senior DIG (Retd.) Edward Gunawardena)

A few months after the SLFP-led United Front Alliance headed by Mrs. Sirima Bandaranaike was elected in 1970, information started trickling in that the JVP was planning an uprising against the government. Cells were formed island-wide and clandestine indoctrination classes conducted by trained cadres. Simultaneously there was a spate of bank robberies and thefts of guns from households were reported to the police from all parts of the island. Unidentified youths were collecting empty cigarette and condensed milk tins, bottles, spent bulbs and cutting pieces of barbed wire from fences to make hand bombs and Molotov cocktails. Instances of bombs being tested even in the Peradeniya campus came to light.

By January 1971 the threat became real and the police began making arrests. Rohana Wijeweera, the leader of the movement, was arrested with an accomplice Kelly Senanayake at Amparai and detained at the Magazine prison. In the villages the common talk was that a ‘Che Guevera’ movement has started. Unknown youth moving about in villages were being referred to as ‘Che Gueveras.’ Police intelligence briefed the government of the developing ‘Naxalite’ like situation and action was taken to alert all police stations.

At the end of March 1971 there was specific information that the first targets would be the police stations. The attacks were to be carried out simultaneously on a particular day at a given time. With heightened police activity, the JVP ‘attack groups’ were pressurized to put their plan into effect hurriedly despite Wijeweera being incarcerated.

Synchronizing the attacks was a problem for the JVP. Mobile phones were not available then and the leaders had to resort to coded messages in newspapers. Police intelligence was able to crack their codes without much difficulty. It came to light that all police stations would come under attack at midnight on of April 5. The plan was to fire with guns at the station, and throw hand bombs and Molotov cocktails so that the policemen would run away or be killed. The attackers were to rush in and seize all the firearms in the stations.

The Police were ordered to be on full alert on this day. On April 4, in addition to my duties as the Director, Police Planning and Research I was acting for Mr. P. L. Munidasa, SP as the Personal Assistant to Mr.Stanley Senanayake the IGP. At about 4 p.m. an urgent radio message addressed to the IGP was opened by me. The message was alarming. The Wellawaya Police station had been attacked and the OIC Inspector Jayasekera had received gunshot injuries, a PC killed and several injured. The police had fought back bravely and not abandoned the station.

As soon as the IGP was informed, he reacted calmly. He summoned all the senior officers present at Headquarters briefed them and ordered that all police stations including the Field Force Headquarters, the Training School and Police Headquarters itself be placed on full alert with immediate effect. Among the officers present I distinctly remember DIGs S.S. Joseph and T.B. Werapitiya. All police officers irrespective of rank were to be armed and issued with adequate ammunition. This task was entrusted to ASP M.D. Perera of Field Force Headquarters who was in charge of the armoury. I too was issued with a Sterling Sub-machine gun.

During this time I was living in Battaramulla with my wife and year old child in my father’s house. My brothers, Owen and Aelian, who were unmarried were also living there. My wife and I with the child occupied a fairly large room in which an official telephone had been installed. We had decided to live here as I had started building a house on the same ancestral property; and it is in this house that we have lived since 1971. 1 had an official car, a new Austin A40 which I drove as I had not been able to find a suitable police driver. Apart from the telephone, I had a walkie-talkie and was in constant communication with the Police Command Room and the IGP.

On the night of April 4 as there was nothing significant happening except for radio messages from police stations asking for additional strength, weapons and ammunition, I was permitted by the IGP to get back home. I telephoned the Welikada and Talangama police stations and was informed that the stations were being guarded and the areas were quiet. At about 10 p.m. I reached home safely and slept soundly. But something strange happened which to date remains a mystery. At about 3.30 a.m. (on the April 5) my telephone rang. The caller in a very authoritative voice said, “This is Capt. Gajanayake from Temple Trees, the Prime Minister wants you immediately.”

I hurriedly got into my uniform and woke up my wife and told her about the call. Just then it occurred to me that I should call Temple Trees. There was an operations room already functioning there and Mr. Felix Dias Bandaranaike had taken control of the situation. When I called, it was answered by my friend and colleague Mr. Cyril Herath. He assured me that I was not required at Temple Trees and that there was no person there by the name of Capt. Gajanayake. Much against the wishes of my wife, my father and brothers, dressed in a sarong and shirt and armed with my revolver I walked down the road for about half a kilometer. But there was none on the road at that time of the night.

By next night disturbing messages were coming to Police Headquarters from all over the Island. A large number of police stations had been attacked and police officers killed and injured. SP Navaratnam and Inspector Thomasz had been shot at on the road in Elpitiya and the latter had succumbed to the injuries. A number of Estate Superintendents had been shot dead. Trees were cut and electricity posts brought down. Desperate messages were pouring in from several Districts stating that administration had come to a standstill. The Kegalle, Kurunegala, Galle and Anuradhapura Districts were the worst affected. The least damage was in areas where the police had taken the offensive. In Colombo although the police stations were not attacked there was panic. With the possibility of water mains being damaged tube wells were hurriedly sunk at Temple Trees. General Attygalle, the Army Commander, had taken over the security of the Prime Minister and Temple Trees.

Talangama Police station that policed Battaramulla was guarded by the people of the area. Even my brothers spent the nights there armed with my father’s shotgun. IP Terrence Perera who was shot dead by the JVP in 1987 was the OIC. The excellent reputation he had in the area made ordinary folk flock to the station and take up positions to defend it if it was attacked. Some of the people of Battaramulla who were regularly there whose names I can remember and who are still living are K.C. Perera, W.A.C. Perera, Jayasiri, Victor Henry, Lionel Caldera and P.P. de Silva among others. Incidentally Brigadier Prasanna de Silva one of the heroes of the recently concluded war against the LTTE is a son of P.P. de Silva.

There were also those who gave assistance in the form of food and drink for all those who had gone to the aid of the police. The late Edward Rupasinghe a prominent businessman of Battaramulla, supplied large quantities of bread and short eats from the Westown Bakery which he owned. However as the attacks on police stations and state property became more and more intense, the SP Nugegoda T.S. Bongso decided to close down the Talangama Police Station and withdraw all the officers to the Mirihana Headquarters Station. This move made it unsafe for me to live in Battaramulla and travel to Police Headquarters.

The late Mr. Tiny Seneviratne SP and his charming wife readily accommodated us in their official quarters at Keppetipola Mawatha. The late Mr. K.B. Ratnayake had also left his Anuradhapura residence to live with the Seneviratnes. KBR and Tiny were good friends. During this time in the midst of all the disheartening news from all directions there were a few bright spots I have not forgotten. These were messages from Amparai, Kurunegala and Mawanella.

At Amparai the ASP in charge A.S. Seneviratne on information received that a busload of armed insurgents were on the way to attack the police station in broad daylight had hurriedly evacuated the station and got men with arms to hide behind trees and bushes having placed a few dummy policemen near the reserve table that was visible as one entered the station. As the busload of insurgents turned into the police station premises a hail of gunfire had been directed at it. About 20 insurgents had been killed and the bus set ablaze.

In Kurunegala the Pothuhera police station had been overrun and occupied by insurgents. Mr. Leo Perera who was ASP Kurunegala had approached the station with a party in mufti unnoticed by the insurgents, taken them by surprise and shot six of them dead. The police station had been reestablished immediately after.

In Mawanella and Aranayake the insurgents held complete sway. Two youths had visited the house of a retired school master on the outskirts of Mawanella town and demanded his gun. He had gone in, and loaded his double barrel gun and come out on the pretext of handing it over to the two youths he had shot them both dead discharging both barrels. The schoolmaster and his family had taken their belongings, got into a lorry and immediately left the area.

With the joint operations Room at Temple Trees under Minister Felix Dias Bandaranaike assisted by the Service Chiefs, the IGP and several senior public servants functioning fully the offensive against the insurgents began to work successfully. Units from the Army, Navy and the Air Force were actively assisting the police in all parts of the Island particularly in making arrests. Helicopters with pilots provided by India and Pakistan were being extensively used by officials and senior officers of the Armed Services and the Police for urgent travel.

On the night of April 10 or 11, I had finished my work at Police Headquarters and returned at about 10 p.m. to Keppetipola Mawatha. During the day my wife had been able to find a police jeep to be sent to Battaramulla to fetch a substantial supply of jak fruits, manioc and coconuts from our garden. The Seneviratnes took immense pleasure in feeding all and sundry who visited their home.

At about 10 p.m. I received a call from the IGP requesting me to take over Kurunegala Division the following morning. He told me that a helicopter would be ready for me at Parsons Road Air Force Grounds at 5.30 a.m. According to him the insurgents were still active in the area; the SP Mr. A. Mahendran was on sick leave and Mr. Leo Perera ASP was bravely handling the situation almost single handed. Although the assignment did not bother me much, my wife was noticeably concerned. Mrs. Seneviratne an ardent Catholic gave me a miniature medal of St. Anthony assuring me that the Saint will protect me from harm.

The helicopter took off at the crack of dawn. It was piloted by a young Flt.. Lieutenant from the SLAF and I was the only passenger. I have forgotten the name of this pilot. He was a pleasant guy who kept conversing with me all the way. He told me that he had flown to Anuradhapura and Deniyaya the previous day and in both those areas the insurgents were on the run and the security forces were on top.

Having been cloistered at Police Headquarters always peeking out of windows with a weapon in the ready or reading messages of deaths of police officers and the successes of insurgents, a feeling of relief overtook me on the flight. In fact I began to look forward to some action and this did not take long to come.

As the helicopter landed I was met by ASP Leo Perera who was a contemporary of mine at Peradeniya. There were several other police officers and also two officers of the Air Force. The latter were there to go to Colombo in the same aircraft. I carried only a travel bag with the minimum of clothes.

My first task was to address the officers gathered at the Police Station. I praised them for facing the situation bravely. Their only complaint was that they were short of ammunition. I suggested to Leo that as far as possible shotguns be used instead of 303 rifles. An officer was dispatched immediately to get as many guns as possible from the Kachcheri and the production room of the court house.

ASP M.D. Perera of Field Force Headquarters who was contacted on radio undertook to airlift 15 boxes of SG and No. four 12-bore cartridges. All the officers present were pleased as they all agreed that shotguns were more effective. The families of police officers too had left their quarters and barracks and taken up residence in different sections of the station. Most importantly their morale was high. Leo Perera had led them admirably.

At about 10 a.m. after partaking of a kiribath and lunumiris breakfast with the men I left for my office, that of the SP Kurunegala. I was very happy when Inspector Subramaniam was assigned to me. He was known to me and he appeared to be pleased with the task. He was a loyal and cheerful type. I chose a Land Rover with a removable canvas top for my use and also a sergeant and two constables with rifles. Subramaniam and I had Sterling sub-machine guns. These officers were to be with me at all times. In the afternoon I was able to obtain two double barrel Webley & Scott shotguns with about 10 No. four cartridges. There were several beds also already in place in the office. Telephoning my wife was no problem as I enjoyed the privilege of priority calls.

I had lunch with Inspector Subramaniam and my escort in the office. The rice and curry lunch had been sent from the Police Station mess. After a late lunch and a brief post lunch rest the four of us dressed in mufti set off in the Land Rover driven by a police driver. IP Subramaniam carried a Stirling sub-machine gun and the sergeant and PC 303 rifles. A loaded double barrel gun lay on the floor board of the Land Rover. After visiting the Potuhera and Mawathagama stations and patrolling the town area we returned to our base. Subramaniam also made arrangements with a boutique in town for some egg hoppers to be delivered to us at 8 p.m.

A little excitement was to come soon. After refreshing ourselves and having eaten the egg hoppers we visited the station. At about 9.45 p.m. I was having a discussion with a few officers in the office of the OIC Crimes when we heard two minor explosions and somebody screaming that the station was being attacked. Armed officers took up positions according to instructions. I ordered that the station lights be put off. An Inspector armed with a loaded shotgun, a few constables and I crawled to the rear of the building. Bombs were being thrown from the direction of a clump of plantain trees. A small tin with the fuse still burning fell close to where we were.

A PC jumped forward and doused the fuse throwing a wet gunny bag on the object. Two more similar objects fell thrown from the same direction. The same PC rushed forward and removed the burning fuses with his hands. As the objects were coming from about the identical place, I grabbed the shotgun and discharged both barrels in that direction simultaneously. The ‘bombing’ stopped thereafter. Two armed mobile patrols were sent out to the roads to look for any suspects. But the roads were empty. At about 11 p.m. the lights were put on and the station resumed its activities.

To say the least these ‘bombs’ were crude and primitive. In each of these we found a large ‘batta’ cracker the fuse of which came out of a hole in the lid of a cigarette tin. Round the ‘batta’ was a layer of tightly compressed fibres akin to the fibres in a squirrels nest. On the outer side of the compressed fibre were barbs cut off barbed wire and rusted nails. A thousand of such ‘bombs’ could not have matched the destructive force of a modern hand grenade. This state of unpreparedness was perhaps the foremost reason why the insurrection fizzled out early.

More action was to follow that same night. After my escort of three officers and I had retired to bed in the SP’s office, a few minutes after midnight the Sergeant guarding a large transformer on the Wariyapola Road with two other constables started calling me on the walkie talkie in a desperate tone. He sounded very excited and told me that shots were being heard close to the guard point. I instructed him to take up position a reasonable distance away from the transformer where there were no lights and shoot at sight any person or persons approaching the transformer. I also assured him that I would be at the guard post with an armed party in the quickest possible time.

IP Subramaniam and the other two officers were eager to join me. I got the driver to remove the hood cloth of the Land Rover. Whilst the sergeant who was armed with a rifle occupied the front seat alongside the driver, Subramaniam and I armed with two double barrel guns loaded with No. four cartridges took up a standing position with the guns resting on the first bar of the hood. The two PCs were to observe either side of the road. Prior to leaving I radioed the Police station to inform the Airforce operations room about my movements and not to have any foot patrols in the vicinity of the transformer.

There were no vehicles or any pedestrians on the way to the transformer. About a hundred meters to go we noticed a group of about eight to 10 dressed in shorts getting on to the road from the shrub. The distance was about 50 to 75 meters. The driver instinctively slowed down. The shining butts of two to three guns made us react instantly. I whispered to Subramaniam when I say ‘Fire’ to pull both triggers one after the other. We fired simultaneously and the Sergeant and PCs also fired their rifles.

Once the smoke cleared we noticed that the group had vanished.

As we approached the spot with the headlights on we noticed three shot guns scattered about the place. On closer examination there was blood all over and a man lay fallen groaning in pain. Beside him was a cloth bag which contained six cigarette tin hand bombs. Two live cartridges were also found. In two of the guns the spent cartridges were stuck as the ejectors were not working. The other gun was loaded with a ball cartridge which had not been fired. Having collected the guns, the bag containing the bombs and some rubber slippers that had been left behind. We proceeded on our mission to the transformer having radioed the guard Sergeant that we were close by.

As we approached the transformer the Guard Sergeant and the 2 PCs came out of the darkness to greet us. They were visibly relieved. But when the Sergeant told us that several shots were heard even 15 minutes before we arrived, I explained to them what had happened on the way. The Sergeant’s immediate response was, “They must be the rascals who were hovering about the village. They are some rowdies from outside this area who are pretending to be Che Guevaras”.

After reassuring them we left. On the way we stopped at the place where the shooting occurred. The man who was on the ground groaning in pain was not there.

Having snatched a couple of hours of sleep, at about 9 a.m. I drove with the escort to the Kurunegala Convent to call on the Co-ordinating officer Wing Commander Weeratne. A charming man, he received me cordially. He looked completely relaxed, dressed only in a shirt and sarong. He introduced me to several other senior officers of the Airforce and Army who were billeted in that spacious rectangular hall. One of the officers to whom I was introduced was Major Tony Gabriel the eminent cancer surgeon. A volunteer, he had been mobilized. I was also told that a bed was reserved for me. But I politely told him that I preferred to operate from my office. Wing Commander Weeratne also told me that he would be leaving to Colombo on the following day and the arrangement approved by Temple Trees was for the SP to act whenever the Co-ordinating officer was out of Kurunegala.

I joined the Co-ordinating officer and others at breakfast – string hoppers, kirihodi and pol sambol and left for the Police Station soon after. The escort was also well looked after. Weeratne and Tony Gabriel became good friends of mine. Sadly they are both not among the living today. After the meeting with the Co-ordinating officer we visited the Potuhera Police Station. Blood stains were clearly visible still and the walls and furniture were riddled with bullet and pellet marks. The officers looked cheerful and well settled. They were all full of praise for the exemplary courage shown by ASP Leo Perera in destroying the insurgents and other riffraff who were occupying the station and for re-establishing it quickly. One officer even went to the extent of suggesting that a brass plaque be installed mentioning the feat of Mr. Leo Perera.

When we returned to Kurunegala the officers were having lunch at the Station. The time was about 1.30 p.m. We too joined. Leo Perera was also there. He had tried several times to look me up but had failed. I complimented him for the excellent work done and told him that the high morale of the Kurunegala police was solely due to his leadership. He smiled in acknowledgment. But I noticed that he was not all that happy. He had a worried look on his face.

At about this time a serious incident had taken place giving the indication that insurgents were still active in the area. An Aiforce platoon (flight) on a recce in the outskirts of the town had come across a group of insurgents in a wooded area. The surprised group had surrendered with a few shot guns. An airman noticing one stray insurgent who was taking cover behind a bush had challenged him to surrender. The insurgent had instantly fired a shot at the airman who had dropped dead. The attacker had been shot dead in return by another airman.

At about 3 p.m. an Airforce vehicle drew up at the police station with a load of nine young men who had been arrested. They had deposited the two dead bodies at the hospital mortuary. All those under arrest were boys in their teens dressed in blue shorts and shirts. They had all been badly beaten up. I cautioned the airmen not to beat them further and took them into police custody. They had bleeding wounds which were washed and attended to by several policemen as they were all innocent looking children.

On questioning they confessed that they were retreating from the Warakapola area and their destination was the Ritigala jungles in Anuradhapura. They had these instructions from their high command. At this time, as if from nowhere appeared two young foreign journalists, a man and a woman. One was from the Washington Post and the other, the young woman from the Christian Science Monitor. Apart from taking photographs they too asked various questions.

The boys had their mouths and teeth were badly stained. They had been chewing tender leaves to get over their hunger. According to them they had been taught various ways to survive in the jungle. They had been told to eat apart from fruits and berries and tender leaves even creatures such as lizards and snakes; and insects particularly termites and earthworms. The nine young men were provided bathing facilities and a meal of buns and plantains; and locked up with about five more insurgent suspects to be sent to the rehabilitation camp that had been established at the Sri Jayawardenapura University premises. This was to be done on the following day in a hired van under a police escort.

At the police station I received a call from the Wariyapola police to say that six young men with gunshot injuries had got admitted to the Wariyapola hospital. They had told the police that they had been shot by a group of insurgents on the Wariyapola-Kurunegala road and had been able to reach the hospital in the trailer of a hand tractor. I immediately guessed that they could be the insurgents who were shot near the transformer. I explained to the OIC Wariyapola that they were a group of insurgents and to keep them in police custody.

In the evening I received a call from the IGP that he would be arriving in Kurunegala at 8 a.m. accompanied by General Attygalle. He told me that they wanted to have a chat with Leo Perera. I immediately informed Leo and told him to remain in office or at the Police Station in the morning.

By that time I had come to know that several Kurunegala SLFP lawyers had made some serious complaints against the ASP. Leo having received credible information that some of these lawyers were in league with insurgent leaders had not only questioned and cautioned them but even got their houses searched. One special reason for these lawyers to be aggrieved was because three of the insurgents shot dead by Leo when he recaptured the Potuhera Police Station had been local criminals who had been associating closely with them.

When the IGP arrived with the General I met them and brought them to my office. Wing Commander Weeratne, the Co-ordinating officer was also present to meet them. He had made arrangements for an armed escort of airmen to accompany the IGP and the General wherever they went. The undisclosed mission of the two top men was to take Leo back to Colombo with them. The IGP had been pressurized by Minister Felix Dias Bandaranaike to transfer the ASP, but the IGP had decided not to displease and discourage a young officer by making him feel that he had been punished. The IGP was more than conscious of the fact that the ASP had done an excellent job in quelling the insurgency in the Kurunegala District.

Leo was in my office. He was cheerful, calm and collected. The IGP and General Attygalle spoke to him cordially. Over a cup of tea the four of us discussed the happenings in the country. After a few minutes the General turned to Leo and said, “Leo, you have been working very hard. You need some rest and you must come along with us to Colombo”. Leo smiled, looked down and calmly responded, “Sir, thank you for the compliment, but let me say that this is not the time to rest, there’s plenty of work to be done”. He then went on to explain the underhand manner in which three lawyers, mentioning their names, who pretended to be great supporters of the government were acting. He went on to emphasize that he even had proof how they were hand in glove with insurgents and local criminals.

The IGP and Attygalle were conspicuously silent. After a few moments Leo spoke again. He said: ” If I come with you now, all these rascals will think that I was arrested and taken to Colombo. I will come to Police Headquarters on my own. Shall drive down this afternoon”.

Soon after the IGP and General Attygalle had left, at about 11 a.m. a high level team of investigators arrived from Colombo. This team consisted of Kenneth Seveniratne, Director of Public Prosecutions; Francis Pietersz, Director of Establishments and Cyril Herath, Director of Intelligence. Their mission was to carry out a general investigation into the happenings in Kurunegala. They were all my friends; my task was to give them whatever assistance they required. They were billeted with the Airforce and worked mainly from my office. They visited several places including the Kurunegala, Potuhera and Mawathagama police stations; and the Rest House which had been the meeting place and ‘watering hole’ of some of the lawyers during the height of the troubles. Many lawyers and several police officers were also questioned by them. They completed their assignment after about a week and left for Colombo.

Significantly they had not been able to find evidence of any wrongdoing by ASP Leo Perera. Before long I too was recalled to Colombo and asked to resume duties as the Director of Police Planning & Research. From this position too I was able to make useful contributions to the rehabilitation effort and particularly the fair and equitable distribution of the Terrorist Victim’s Fund.



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Features

Dirty Money

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How Criminal Networks Launder Billions Across the World

Illegal foreign exchange, Undiyal, Hawala and money laundering: A four-part investigative series

The invisible financial empire – II

The Businessman Who Never Sold Anything

Ranjan owns a small export company in Colombo. On paper, business has never been better. His shipments of cinnamon and coconut-based products to a trading partner in Dubai have tripled in declared value over eighteen months. His bank statements show steady, healthy growth. His tax filings are immaculate. His accountant calls him a model client.

There is only one problem. Ranjan’s actual cinnamon exports have not tripled. They have barely changed at all.

What has changed is the invoice. Each shipment of cinnamon worth roughly $50,000 is now declared on customs paperwork as being worth $150,000. The Dubai buyer, who is not really a buyer in any ordinary sense, pays the full invoiced amount without complaint. The extra $100,000 that flows back to Ranjan’s company with each shipment did not come from selling cinnamon. It came from somewhere else entirely: the proceeds of an offshore gambling operation that needed a way to bring money into Sri Lanka looking like ordinary export earnings.

No bank flagged it. No customs officer questioned it. The cinnamon was real. The shipment was real. Only the price was a lie, and that lie was enough to turn dirty money into the cleanest thing in the world: a profitable Sri Lankan export business.

This is money laundering. And it is far more sophisticated, far more pervasive, and far more damaging to ordinary economies than most people realise.

Why Laundering Matters More Than the Crime Itself

Money laundering is not merely about hiding cash under a mattress. It is the financial infrastructure of organised crime. Every major criminal enterprise, from narcotics trafficking and cyber fraud to corruption, tax evasion, illegal mining, human trafficking, and terrorism financing, ultimately depends on one single capability: the ability to convert illicit proceeds into apparently legitimate assets.

Without laundering, crime does not pay, not in any usable sense. A drug trafficker sitting on millions in cash cannot buy a house, send a child to university abroad, or invest in a business without first explaining where the money came from. Laundering is the bridge between criminal proceeds and a normal life. Remove the bridge, and the profit motive for organised crime collapses.

This is why the international community treats money laundering as a standalone crime, separate from and in addition to the original offence. According to the United Nations Office on Drugs and Crime, global money laundering is estimated at between 2% and 5% of world GDP, somewhere between USD 800 billion and USD 2 trillion every single year.

The Three Stages: Placement, Layering, Integration

Despite enormous variation in method, almost every laundering scheme, from a street-level drug operation to a sophisticated transnational network, follows the same underlying three-stage structure first formally identified by international regulators and now codified by the Financial Action Task Force (FATF) and adopted by Sri Lanka’s own Financial Intelligence Unit. (See Graph 1) 

Crucially, as Sri Lanka’s FIU and the FATF both note, these three stages do not always occur neatly in sequence. They can happen simultaneously, separately, or overlap entirely, and critically, the offence of money laundering occurs at each individual stage, not merely at the end of the process. (See Table 1)

Trade-Based Money Laundering: Hiding in Plain Sight

Of all these methods, trade-based money laundering deserves special attention, because it is, by most expert estimates, the largest channel of all. According to FTI Consulting’s anti-financial-crime specialists, TBML accounts for an estimated 87% of all global illicit financial flows, which could translate to USD 800 billion to USD 2 trillion annually. Despite this staggering scale, court cases worldwide identified only about USD 60 billion tied to TBML between 2011 and 2021, meaning the overwhelming majority of trade-based laundering is never detected, let alone prosecuted.

The reason is structural. Banks process the payments behind a trade transaction, but they rarely verify the physical goods being shipped. Customs authorities inspect the goods but focus on tariffs and contraband, not financial crime. Between these two gaps sits an enormous blind spot that traders like Ranjan, real or hypothetical, can exploit with remarkable ease. (See Graph 2)

Under Invoicing

Over-invoicing and under-invoicing are the two basic tools. In over-invoicing, the declared value of a shipment is inflated, allowing the buyer to transfer excess funds to the seller, disguised as a trade payment. Under-invoicing works the opposite way, understating the value to move money in the reverse direction, or to evade customs duties on the true value of the goods.

More sophisticated variants include multiple invoicing of the same shipment, misrepresenting the quantity or quality of goods, and outright phantom shipments where no goods move at all.

Money laundering does not exist in isolation. It is the connective tissue linking together a genuinely global criminal ecosystem, and the methods described above are used across an enormous range of predicate crimes.

The Cost to Nations

The damage caused by money laundering is rarely visible in the way a robbery or a bombing is visible. It is slower, quieter, and in some ways more corrosive, because it operates by corrupting the very institutions meant to prevent it. (Table 2)

These costs are not abstract for institutions caught facilitating them, even unknowingly. Canada’s TD Bank was fined USD 3 billion in 2024 for failing to prevent criminals from transferring hundreds of millions of dollars in illegal funds through its systems. The UK’s Barclays Bank was fined a combined £42 million (approximately USD 56 million) in 2025 across two separate AML failings. Globally, the first half of 2025 alone saw USD 1.23 billion in AML fines, a 417% increase over the prior year, reflecting both the scale of the problem and intensifying regulatory pressure.

Sri Lanka’s Challenges: Preparing for a High-Stakes Test

Sri Lanka’s own experience with money laundering and its enforcement architecture offers an instructive case study, one with significant stakes attached in the immediate future.

Sri Lanka’s Financial Intelligence Unit, established under the Financial Transactions Reporting Act No. 6 of 2006 and operating within the Central Bank, is unusual among its global peers: although administrative in type, it has direct powers to freeze accounts, suspend transactions, and impose penalties for noncompliance, powers many FIUs around the world lack. The Prevention of Money Laundering Act No. 5 of 2006 backs this with serious criminal penalties: imprisonment of between five and twenty years, and fines of up to three times the value of laundered property, with the burden of proof placed on defendants to justify the legality of their assets.

Yet deficiencies remain. The absence of explicit conspiracy clauses limits prosecutors’ ability to charge coordinated networks rather than individuals. Predicate crimes such as drug trafficking, corruption, and trade-based manipulation generate significant illicit proceeds, but tracing those funds and linking them conclusively to offenders remains genuinely difficult, a challenge shared with every FIU in the world, not a uniquely Sri Lankan failing.

The stakes for getting this right have rarely been higher. Sri Lanka was grey-listed by the FATF in 2017 following “strategic deficiencies” identified in its AML/CFT regime, and was subsequently blacklisted by the European Union, a designation only lifted after extensive remedial work by the FIU and Central Bank. Sri Lanka now faces its third FATF mutual evaluation, scheduled for 2026, under a revised methodology that prioritises measurable enforcement outcomes, convictions, confiscations, and inter-agency coordination, over the mere existence of laws on paper.

“The bottom line, simply, is that we cannot afford to be grey-listed again,” FIU Director Dr. Subhani Keerthiratne has said. “We must somehow avoid it, because we are still recovering from the 2019 Easter Sunday attacks, the Covid pandemic, and recent economic crisis.” Grey-listing carries real economic consequences: it increases transaction costs, subjects correspondent banking relationships to stricter oversight, and reduces foreign investment, costs the Central Bank itself has acknowledged Sri Lanka cannot currently absorb.

In preparation, Sri Lanka has taken concrete steps: a High-Level Task Force on AML/CFT was appointed in February 2025; the Proceeds of Crime Act, passed in 2024, gave regulators new powers to freeze and manage confiscated assets; the FIU signed information-sharing agreements with bodies including the Commission to Investigate Allegations of Bribery or Corruption (CIABOC) and counterpart FIUs in Oman, Mongolia, Russia, Saudi Arabia, and the United States; and the UK’s HM Treasury has provided direct technical assistance ahead of the 2026 evaluation.

What Comes Next

But the landscape of illicit finance is changing faster than most regulators can track. In Part III of this series, “The Digital Underground: Forex Platforms, Cryptocurrency, AI and the New Financial Battlefield”, we turn to the technology reshaping this entire ecosystem: legitimate and fraudulent online forex platforms, the explosive growth of crypto-enabled laundering, and the artificial intelligence tools now being deployed on both sides of this contest.

(The writer, a senior Chartered Accountant and professional banker, is Professor at SLIIT, Malabe. Views expressed in this article are personal.)

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The Right of Passage of Ships in the Straits of Hormuz

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The long drawn out imbroglio in the straits of Hormuz and the blockades to navigation of ships through these straits by the warring parties to the US and Israel war against Iran was causing immeasurable economic disruption and suffering to people in the region and around the world. The signing of the Memorandum of Understanding and the ceasefire was received with cautious optimism and it is to be hoped that the fragile ceasefire endures. The seas are the paths of navigation and to the flow of goods and trade around the world. This is why freedom of navigation in the seas has always been the most important principle of the international law relating to the seas. Hence the right of innocent passage of ships even in territorial waters of coastal states and in international straits, has been retained despite claims of territorial sovereignty by coastal states.

The ongoing negotiations and the possibilities of a final settlement and permanent opening of the straits of Hormuz requires us to look at the international law of the sea and the question of passage of ships through territorial waters and international straits as also the rights of the different parties I.e the right of the coastal state or states, and the rights of third states in these waters which is what this article seeks to set out.

The law of the Seas has not been static. It has been dynamic and evolving in response to economic and political factors and new dimensions in science and technology. In Roman law the sea was regarded as ‘Res communes’ open to all. Subsequently there was the, closed sea doctrine and around the 16th century doctrine of the open seas ‘Mare Liberum’ espoused by the Dutch Jurist Grotius, which served the interests of the maritime and colonial powers like Holland and England. However in the 20th Century with new states in Asia, South America and Africa coming into being, there was a curtailment of this freedom as these states wished to control the resources of the seas adjoining their coasts, and hence the coastal states began to have greater areas of the sea under their sovereignty, as in the territorial sea, the exclusive economic zones, and under the sea, in the continental shelf of the seabed. These new zones were recognised under the 1982 Law of the Sea Convention. However, in order to protect the right of navigation in the seas the customary international law right of innocent passage of ships in the High seas was extended into the Territorial waters and Exclusive economic zones of coastal states and to international straits. This right has been codified and incorporated into the United Nations Law of the Sea treaty 1982, (UNCLOS), to which a large number of states are party.

Territorial seas

– It must be pointed out that in the territorial sea i.e. the seas adjoining the territory of States with maritime boundaries, it has always been recognised that the State exercises a sovereign right which extends not only over the Sea but also over the Air space. In the Sea up to a certain limit, which was earlier recognised as extending to 3 miles which was then the canon shot limit of coastal defenses. Today under UNCLOS it extends to 12 miles of territorial sea. Under the traditional law of the sea as set out by ‘Colombos’ a classical authority on “the International law of the Sea”, the Coastal State exercised well defined rights of control over foreign ships of war and merchant vessels in respect of police, customs and revenue functions, which implies right to collect tolls, fishing rights, maritime ceremonial and right to establish defense zones. In so far as the State exercises all these powers there is little to distinguish between territorial waters and internal waters. But there is one important point of difference and that is the Right of innocent passage, which is also provided for in United Nations Convention on the Law off the Sea (UNCLOS). As it is also a customary right of international law, it binds even non-parties to the Law of the Sea Convention such as the United States of America.

Innocent passage is defined under the convention as navigation through the territorial sea for the purpose of traversing the sea without entering internal waters or of making for internal waters, or for making for the high seas from internal waters i.e. Ports. The earlier 1958 Convention, defines it as “one that is not prejudicial to the peace, good order or security of the coastal state.” The 1982 Convention sets out what activities would be prejudicial and this includes any threat of force against the sovereignty, territorial integrity or political independence of any State or in any other manner in violations of the principles of international law in the Charter of the United Nations”. A new feature is the addition of any acts of willful and serious pollution contrary to the Convention. The Coastal State is also empowered to make laws and regulations relating to innocent passage as well as designated traffic separation schemes. Foreign ships exercising this right must comply with the laws and regulations of the coastal state. The question of the right of innocent passage of war ships is not specifically provided for in the Convention, however state practice indicates that they may require prior authorisation as in the case of India, Sri Lanka and other states such as Soviet Union, France, Norway etc.

The Coastal State may take the necessary steps to prevent passage which is not innocent. Furthermore it is the Coastal State that has the right to characterise the Passage. If the Coastal State deems the passage to be ‘Not Innocent’ it may refuse such passage. Hence although foreign ships have such right the Coastal State exercises a considerable degree of Control. As regards the Strait of Hormuz this falls within the territorial waters of Iran and Oman, and these states exercise this jurisdiction. Under UNCLOS all Coastal states have a territorial sea of up to 12 nautical miles and a contiguous zone of 12 nautical miles. In the case of States with opposite or adjacent coasts as in the case of Iran and Oman, the territorial waters are divided between them by agreement or by a median or lateral line.

The Strait of Hormuz is regarded as an international strait. International straits are narrow natural waterways connecting two parts of the high seas or Exclusive Economic zones with a High sea. UNCLOS provides for transit passage for ships in such Straits. Transit passage unlike innocent passage allows for continuous and expeditious transit for ships, submarines and Aircraft. However the Straits of Hormuz does not connect two parts of the High seas as for example the Straits of Malacca connects the Indian Ocean to the Pacific Ocean, or the Straits of Gibraltar connects the Atlantic Ocean to Mediterranean Sea. The Straits of Hormuz actually connects two parts of the same water body i.e. the ‘Persian Gulf’, and the Gulf of Oman which is not a separate ocean or sea. The Persian Gulf and Gulf of Oman are both parts of what is in the nature of an inland sea as for example the Baltic Sea. However as it has been regarded as an international straits over a long period of time it may not be possible to change its designation.

In any event even if there is some doubt as to whether these are international straits and hence there is no transit passage in these straits, there is nevertheless the right of innocent Passage. In the case of transit passage, it ensures freedom of Navigation and over flight solely for continuous and expeditious transit. The ships or Aircraft must proceed without delay, refrain from threat of force and comply with safety and environmental regulations. So we can see that freedom of navigation is assured and while Iran as the coastal state can claim that their action to close the strait was an act to protect their sovereignty, the blockade by the United States was illegal as it is contrary to the Treaty and customary international law of the Sea.

Way forward – Under the Charter of the United Nations it is the Security Council which has the primary responsibility for maintaining the peace and security of the world. Unfortunately this has not been the case in respect of the war in the region and threats to freedom of Navigation. Furthermore States whose interests were affected who should have made a collective effort to resolve the issue amicably keeping in mind the Sovereignty and territorial integrity of the States through whose territorial waters the straits are situated, namely Iran and Oman failed to intervene. It must also be kept in mind that the Coastal State in this instance Iran, has presented its action of Closure of these Straits as a defensive measure against an unprovoked armed attack and use of force by third states namely US and Israel. An attack which was not carried out under the mandate of the United Nations Security Council which alone has the right to initiate collective military action to restore international peace.

A fragile ceasefire under constant pressure remains in doubt and the recent signing of a Memorandum of Understanding between Iran and USA through the mediation of Pakistan, Oman and Qatar is still in place while negotiations continue. Once Peace is restored with guarantees for non-renewal of attacks, Iran can be called upon to fully open the straits, which were open before the commencement of the attacks. The Freedom of Navigation which is the underlying principle of the law of the Sea can then be restored and the right of passage in the straits of Hormuz restored.

The writer LL.B (Cey), LL.M (Cantab), Ph.D.(Col), Attorney–at–Law.

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From Manifesto to Action without delay

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The prison violence in Negombo has become the first major crisis to confront the government since it came to power. The government may or may not be responsible for creating the conditions that have accumulated over decades and made the prison system a powder keg. The fact is the government’s Ratama Ekata anti-drug crackdown boosted the countrywide prison population from 28,000, in late 2024, to 41,000, in 2026. The conditions of imprisonment include chronic overcrowding, poor infrastructure, inadequate staffing, the penetration of organised crime and drug networks into prisons, and the long neglect of prison reform by successive governments. The Negombo Prison was housing approximately 2,600 inmates at the time of the clashes although it was built for only about 650. By the time order was restored, 29 people, including seven prison officers, had lost their lives and more than 100 others had been injured.

Justice Minister Harshana Nanayakkara accepted responsibility before Parliament, visited the Prison and announced immediate measures, including legislative changes to facilitate bail and alternatives to remanding prisoners. The NPP government needs to accept responsibility for its failure to anticipate the danger, to respond with sufficient speed and competence once the problem had erupted. A dangerous situation can be observed countrywide with more than 42,000 prisoners being held in prisons designed to accommodate about 10,000 inmates. The magnitude of the Negombo Prison tragedy needs to be understood not merely as an isolated incident but as a warning that the government cannot postpone structural reforms indefinitely. A government elected on the promise of changing the system cannot justify repeating the failures of its predecessors on the basis that it is sincere and uncorrupt unlike them.

The failure to move beyond promises has become evident in several other sectors as well. Farmers continue to agitate over unresolved problems. Plantation workers continue to seek meaningful integration into national life. Many of them, who were victims of Cyclone Ditwah, continue to live in miserable conditions due to the government’s slowness in dealing with their problems of their lack of ownership of lands and homes. The Mylathamadu cattle farmers of Batticaloa have issues once again even after two presidents, President Ranil Wickremesinghe and now President Anura Kumara Dissanayake ordered evacuation of intruders in terms of court orders. But the local police and the Mahaweli Authority officials seem slow to take any actions, even to the extent of not complying with judicial decisions. Victims of past human rights violations and thousands of families of missing persons are still waiting for justice. The promised repeal of the Prevention of Terrorism Act has yet to materialise. Prison reform has now joined this growing list of deferred commitments.

NPP Pledges

The National People’s Power election manifesto promised not merely honest government but systemic transformation. Under the section dealing with prisons, it pledged to restructure the prison system, reduce overcrowding, expand open prison facilities, strengthen rehabilitation through education, vocational training and psychological support, establish a formal parole system and transform prisons from places of punishment into centres of rehabilitation and reintegration. Those promises reflected international best practice and recognised that a humane prison system is essential to a democratic society. Yet nearly two years into its term little visible progress has been made in implementing these reforms.

Sri Lanka has witnessed different types of prison violence. Some have erupted spontaneously because of intolerable prison conditions, overcrowding and frustration. Others have occurred under circumstances that raised alarming questions about state complicity. The massacre of 53 Tamil political prisoners inside Welikada Prison during the anti-Tamil violence of July 1983 remains one of the darkest chapters in the country’s history. Those prisoners were not protected despite being under state custody. The Mahara Prison violence of November 2020, in which 11 inmates were killed after protests over Covid conditions, similarly generated serious allegations regarding the targeted use of weapons and led to widespread calls for an independent investigation.

Following the deadly violence at Mahara Prison during the Covid pandemic, then Opposition party leader Anura Kumara Dissanayake declared in Parliament that “those who are remanded and imprisoned are under the custody of the state. Therefore, the primary responsibility for the safety of the lives of the prisoners and detainees who are in state custody lies with the government.” He further said that “it is entirely unacceptable in a democratic nation that upholds human rights for prisoners, who are under the protection of the state, to be gunned down while in government custody.” But in the Negombo tragedy once again the state, with President Dissanayake at the helm, was unable to protect the inmates though there is no evidence that the government orchestrated the violence. Being in power for two years there is a rightful expectation that it could have taken better preventive action.

Urgency Needed

There are two special conditions, however, that make the Negombo Prison tragedy a possible turning point rather than merely another episode in Sri Lanka’s long history of prison violence. The first is that until these events the country had enjoyed an extended period without major organised political or communal violence. This improvement was recognised internationally when Sri Lanka rose 30 places in the 2025 Global Peace Index to rank 67 among 163 countries. The Index measures countries on three broad indicators, namely the level of societal safety and security, the extent of ongoing domestic and international conflict, and the degree of militarisation. The improvement reflects the country’s recovery from the years of political upheaval and economic collapse and suggests that Sri Lanka is moving towards a more peaceful future.

The second distinguishing feature is that the present government has no known links to organised crime or the underworld that has so often been associated with sections of the political establishment in the past. This is one of its greatest strengths. President Anura Kumara Dissanayake has spoken publicly about the nexus between organised crime, drug trafficking, money laundering and politics, and has challenged political parties to take action against members who maintain links with criminal networks. That willingness to confront organised crime gives the government a credibility that previous governments lacked. But integrity by itself is not enough. Honest intentions must be matched by administrative competence and political will. A government that seeks to change the system must demonstrate that it can reform and manage the institutions of the state more effectively than those who came before it. The Negombo tragedy suggests that this remains a major challenge.

The government’s greatest asset remains the trust that the public has placed in its sincerity. Unlike many previous governments, it is not burdened by allegations of protecting organised crime or profiting from corruption. That gives it a unique opportunity to undertake reforms that others could not credibly pursue. But it must not rest on its laurels in the belief it is superior to the rest. The Negombo Prison tragedy should become the catalyst for implementing the wider programme of reform promised in the election manifesto. Prison reform cannot be viewed in isolation. It is part of the broader commitment to change the system, strengthen public institutions and ensure that the state serves the people with competence as well as integrity. The reforms promised to rice farmers, cattle herders, plantation communities, victims of past human rights violations and all those who looked to the government for a new beginning deserve the same sense of urgency. Other priorities cannot justify postponing the structural changes that the NPP promised and the country has waited for decades.

by Jehan Perera

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