Combating money laundering:

Governor of the Central Bank of Sri Lanka Dr. Nandalal Weerasinghe has said combating money laundering and countering financing of terrorism will help improve the credibility of the financial system, increase FDIs, enhance access to international financial markets, promote good governance practices and strengthen national security. Accordingly, a Financial Intelligence Unit has been given the opportunity to conduct further investigations into suspected transactions and activities related to money laundering and financing of terrorism.

Money Laundering: A Global Menace

Money laundering is a pervasive global issue that threatens financial systems and undermines the integrity of economies. It involves disguising the origins of illicitly obtained funds to make them appear legitimate. Criminal networks, terrorist organizations, and corrupt officials frequently employ this technique, exploiting weaknesses in financial regulations and enforcement mechanisms. Today we examine the concept of money laundering, its mechanisms, and its impact, supported by notorious examples worldwide, highlighting the need for robust anti-money laundering (AML) frameworks.

Definition and Mechanisms

The Financial Action Task Force (FATF) defines money laundering as the process of concealing the illicit origins of funds through a series of transactions designed to obscure the money’s true source. The process typically involves three stages: placement, layering, and integration. Placement introduces illicit money into the financial system, often through cash-intensive businesses or smuggling. Layering involves complex transactions to obscure the trail, such as transferring funds through offshore accounts or shell companies. Finally, integration reintroduces the laundered funds into the legitimate economy as clean money.

The main methods of money laundering include:

Layering: This involves complex financial transactions designed to obscure the origin of the illicit funds. Layering can involve transferring money through various accounts, converting it into different currencies, or using shell companies. The goal is to make tracing the money difficult.

Placement: This is the initial stage where the illegal funds are introduced into the financial system. It often involves depositing large amounts of cash into banks, purchasing assets such as real estate, or using the funds for gambling or investments in legitimate businesses.

Integration: In this stage, the illicit money is integrated into the economy in a way that makes it appear legitimate. This could involve purchasing high-value goods, transferring money across borders, or setting up fake businesses to funnel money in and out.

Smurfing:This involves breaking up large amounts of illegal money into smaller, less suspicious amounts and depositing them in different accounts or financial institutions to avoid detection by regulators or authorities.

Use of Shell Companies:

Criminals create fake companies (shell companies) that don’t engage in any real business. These companies are used to hide the ownership of illegal funds, often moving them through multiple jurisdictions.

Trade-Based Money Laundering:

Criminals manipulate trade transactions, such as over- or under-invoicing, to disguise the movement of money. They may falsely report the value or quantity of goods to justify payments or receive excessive payments from foreign entities.

Cryptocurrency Laundering:

With the rise of digital currencies, criminals use cryptocurrencies to facilitate money laundering, often through exchanges or by using privacy-focused coins to obscure the transaction trail.

Real Estate Laundering:

Criminals buy high-value real estate and then sell it, using the profits to launder the illegal funds. This may involve inflating property values or flipping properties for a higher price.

Casino Laundering:

Money launderers may use casinos to launder funds. They could gamble with illicit funds and then cash out with a “clean” check or claim winnings, making the money appear legitimate.

Terrorist Financing:

Though not exactly money laundering, terrorists sometimes use similar methods to move money around, often utilizing donations, front organizations, or international financial networks.

Preventing money laundering involves stringent regulatory controls, such as Know Your Customer (KYC) procedures, anti-money laundering (AML) checks, and monitoring for suspicious transactions.

Notorious Examples of Money Laundering

The Bank of Credit and Commerce International (BCCI) Scandal

The BCCI scandal of the 1980s and early 1990s remains one of the most infamous cases of global money laundering. BCCI was accused of laundering billions of dollars for drug cartels, terrorists, and corrupt officials across multiple countries. The Colombo branch of BCCI was acquired by Seylan Bank and restructured it with the help of the CBSL.

Danske Bank Case

Danske Bank, Denmark’s largest financial institution, became embroiled in a money laundering scandal in 2018. Investigations revealed that its Estonian branch had facilitated the laundering of approximately €200 billion, involving funds from Russia and other former Soviet states.

Panama Papers

The Panama Papers leak in 2016 exposed how Mossack Fonseca, a Panamanian law firm, helped individuals and entities worldwide evade taxes and launder money through offshore shell companies. Notable figures implicated included politicians, celebrities, and business magnates.

The MDB Scandal

Malaysia Development Berhad (MDB) fund was established to promote economic development. However, investigations revealed that billions of dollars were misappropriated and laundered through luxury purchases, real estate investments, and shell companies. High-profile individuals, including Malaysian officials and international bankers, were implicated.

The HSBC Case

HSBC, one of the world’s largest banks, faced allegations in 2012 for facilitating money laundering by drug cartels in Mexico. The bank’s inadequate AML controls allowed billions of dollars in illicit funds to pass through its accounts, resulting in a $1.9 billion settlement with U.S. authorities.

Impact and Challenges

Money laundering has far-reaching consequences. It erodes trust in financial systems, fuels corruption, and enables organized crime and terrorism. Moreover, it creates economic distortions by misallocating resources and undermining fair competition. Countries with weak AML frameworks often become attractive destinations for illicit financial flows, further exacerbating economic inequality.

However, combating money laundering presents significant challenges. These include the complexity of tracking cross-border transactions, the rise of cryptocurrencies, and the use of sophisticated techniques by criminals to evade detection. While international bodies such as FATF and national governments have implemented stricter regulations, enforcement remains inconsistent.

Mechanisms to Prevent Money Laundering: Existing Measures and Proposed Controls

Money laundering poses a significant threat to global financial systems and economic stability. Preventing this illicit activity requires a combination of robust regulatory frameworks, international cooperation, and technological innovation. We examine existing mechanisms for combating money laundering, evaluates their effectiveness, and hope to propose enhanced controls and remedies to address emerging challenges.

Existing Mechanisms to Prevent Money Laundering

1. Regulatory Frameworks

Governments worldwide have established laws and regulations to combat money laundering. Key frameworks include:

Anti-Money Laundering (AML) Laws:

Laws such as the US Bank Secrecy Act (BSA) and the European Union’s Anti-Money Laundering Directives (AMLD) mandate financial institutions to implement controls for detecting and reporting suspicious activities.

Know Your Customer (KYC) Policies:

Financial institutions are required to verify the identities of their clients, ensuring transparency in transactions and reducing the risk of illicit activities.

Suspicious Activity Reports (SARs):

Institutions must file SARs with relevant authorities when they identify transactions that may involve money laundering.

2. International Cooperation

Money laundering often involves cross-border transactions, necessitating international collaboration. Organizations like the Financial Action Task Force (FATF) set global standards for AML measures and facilitate cooperation among member states. Additionally, mutual legal assistance treaties (MLATs) enable countries to share information and coordinate investigations.

3. Technology and Data Analytics

Advancements in technology have bolstered AML efforts. Artificial Intelligence (AI) and machine learning (ML) are used to detect anomalies in transaction patterns. Blockchain technology also enhances transparency by providing immutable records of financial transactions.

4. Financial Intelligence Units (FIUs)

FIUs, such as the US Financial Crimes Enforcement Network (FinCEN), analyze financial data to identify and investigate money laundering activities. These agencies act as intermediaries between financial institutions and law enforcement.

Effectiveness and Limitations of Existing Mechanisms

While existing mechanisms have had some success in curbing money laundering, challenges persist:

Evasion Tactics:

Criminals continually devise sophisticated methods, such as trade-based money laundering and virtual asset exploitation, to bypass controls.

Regulatory Gaps:

Variations in AML standards across jurisdictions create vulnerabilities, particularly in countries with weak regulatory frameworks.

Resource Constraints:

Many financial institutions and enforcement agencies lack the resources to implement advanced AML measures effectively.

Proposed Controls and Remedies

1. Strengthening International Cooperation

Enhanced collaboration among countries is essential to close regulatory gaps. Establishing a unified global AML framework, supported by real-time data sharing and joint task forces, can improve enforcement.

2. Leveraging Advanced Technologies

AI and Predictive Analytics:

Develop AI-driven tools capable of real-time transaction monitoring and predictive analysis to identify suspicious activities.

Blockchain Integration:

Promote the use of blockchain in financial systems to improve transparency and reduce opportunities for laundering.

3. Addressing Cryptocurrency Risks

Cryptocurrencies have become a preferred medium for laundering due to their pseudonymity.

4. Capacity Building and Training

Provide financial institutions and enforcement agencies with adequate resources and training to stay ahead of evolving laundering techniques. Awareness campaigns targeting high-risk sectors can also enhance compliance.

5. Public-Private Partnerships (PPPs)

Fostering collaboration between governments and private sector entities can improve AML efforts. PPPs enable the sharing of intelligence, resources, and best practices.

(The writer, a senior Chartered Accountant and professional banker, is Professor at SLIIT University, Malabe. He is also the author of the “Doing Social Research and Publishing Results”, a Springer publication (Singapore), and “Samaja Gaveshakaya (in Sinhala). The views and opinions expressed in this article are solely those of the author and do not necessarily reflect the official policy or position of the institution he works for. He can be contacted at saliya.a@slit.lk and ww.researcher.com)

by Professor Emeritus,

I M Dharmadasa
Sheffield Hallam University, UK

This article summarises the history of solar energy development in Sri Lanka that I have been involved with, over the past 40 years and my thoughts on the present situation in the country. As an active solar energy conversion researcher in both academia and industry (British Petroleum Research in London), I have seen the maturity of this technology since the late 1980s and started to promote it in schools and community events in the United Kingdom.

I then extended this work to my native country, Sri Lanka, in 1991, by initiating a UK-DFID (UK Department of Foreign and International Development) funded and BC (British Council) managed Higher Education Link (HE-Link) programme. This is how I met all renewable energy promoters in Sri Lanka. This article brings back my memories from the work done in collaboration with various people, starting in the late 1980s.

During the six-year HE-Link programme, I worked with several universities (Peradeniya, Colombo, Kelaniya, Moratuwa and Ruhuna) and organised conferences, seminars and public lectures in schools and government ministries. There were only two or three small solar energy companies at that time, struggling to do business, and they all joined together to promote renewable energy initiatives in the country.

Among many interested academics, senior engineers like Dr. Ray Wijewardane joined all these events, and I met three notable entrepreneurs working in this field starting in 1985. They were Lalith Gunaratne, Pradip Jayawardane and Viran Perera. These three friends, who were brought up in Canada, visited Sri Lanka for a holiday after their marriages and decided to stay in Sri Lanka and start a solar energy business. Their starting work was a mobile solar water pump, but about 80% of the people who were not connected to the national grid asked for solar lighting rather than solar water pumping.

Sir Arthur C Clark also gave them a good helping hand and they started to install small solar home systems in rural areas. They also started to import solar cells and assemble SUNTEC 36 W solar modules in the country, but due to various barriers from outside, that project had to be terminated. There were numerous barriers within the country itself. I remember a newspaper article that appeared in Sri Lanka titled, “Solar Power Suitable for Lotus Eaters”. After all this fantastic work in the late 1980s, Lalith returned to Canada, Viren started an eco-tourist centre, and Pradip continued to work in the solar energy field.

Most of these entrepreneurs told me that the government authorities did not listen to them due to their vested interests. For this reason, I made the decision to promote renewables as a research scholar without any connection to a commercial company. This approach worked well, and I made two or three visits to Sri Lanka in some years delivering public lectures in ministries, universities and in schools. I also wrote numerous articles in the local press and completed many interviews on applications of renewable energy sources.

Solar home systems, at early stages, had about 50 W solar panels. These were combined with lead-acid batteries to store energy and provide 5-6 lights at night. This was also enough to power a black-and-white television for a few hours. Depending on the number of lights used, the cost of such a system varied between Rs 40,000 and Rs 60,000.

Meanwhile, the Ceylon Electricity Board also worked to expand the national grid under the country’s 100% electrification programme. As the national grid is available almost everywhere, the interest in small solar home systems gradually disappeared.

There were many people in the country involved in promoting renewables, and I was able to visit Sri Lanka every year to spend a few weeks at a time and work with numerous institutes.

I also personally met almost all Science & Technology Ministers, starting from Bernard Soysa, and some Power and Energy Ministers to introduce renewable energy projects. Although the government’s take-up was slow, the private sector developed very rapidly, starting many new companies for solar system installation.

Gradually, the main interest turned to the grid-tied larger solar systems installed on freely available rooftops. With the “Soorya Bala Sangramaya” programme introduced around 2016, solar roofs began to be connected to the grid via “Net Metering”, “Net Accounting”, and “Net Plus” methods. A few years ago, a 5 kW solar roof used to cost about Rs 14,00,000, but today, the cost has come down to about Rs 9,00,000. Each 5 kW solar roof installed in the country removes the need to burn 7.5 metric tons of imported coal, introducing numerous health and economic benefits to the nation, including reducing the country’s huge import bill.

I also collaborated with the ex-chairman of the Sri Lanka Sustainable Energy Authority (SLSEA), Prof. Krishan Deheragoda, to bring two 500 kW solar farms to the country, introducing larger solar farms. After promoting renewable energy over four decades, I am pleased to see numerous large solar energy systems beginning to appear in the country, including “Floating Solar Farms”.

The current government’s interest in indigenous, hydro, solar, wind, biomass and bio-gas energy, as well as the contributions from over 200 private solar energy companies to power Sri Lanka, is a very encouraging sign.

As a result of the six-year HE-Link programme SAREP (South Asia Renewable Energy Programme), the Solar Asia Conference series and the “Solar Village” project evolved. Solar Asia Conferences have taken place twice in Sri Lanka, once in Malaysia and once in India.

A pilot solar village started in 2008, and nine solar villages have been established in the country since. The concept of solar village is to empower rural communities by introducing a regular wealth creation method using solar energy and guiding them to develop themselves sustainably. This, in turn, contributes to reducing poverty and mitigating damaging climate change, benefits 80% of the Sri Lankan population who lives in villages, and paves the way for the prosperity of Sri Lanka. To attract external funding and rapidly replicate solar villages in Sri Lanka, a “Solar Village SDG” community interest company (CIC) was formed in November 2024.

According to the latest SLSEA statistics, Sri Lanka has 2000 MW of solar and 200 MW of wind installations. This is 2.2 GW and a good fraction of the total power production capacity (~5 GW) in the country.

The intermittent nature of solar and wind can currently be balanced using hydropower until the fast-developing green hydrogen technology is established in Sri Lanka. When solar power is at its maximum power production during the daytime, the hydropower can be reduced simply by controlling the flow of water without any technical difficulties. With the positive steps taken by the GOSL and the private sector, Sri Lanka could become a renewable energy island in the future, giving the country many health and economic benefits and attracting many tourists from around the globe.

To achieve this noble goal, every sector in the country should work together. The general public should understand the benefits of using renewables and install more systems in the country, perhaps via “Crowd Funding”.

It is now clear that ROI (Return on Investment) from a solar roof is greater than the interest earned by keeping the money in the bank. PV companies must improve their “after-sales service” to increase customer satisfaction and help their customers get the most from their investment by promptly rectifying any issues arising from these new technologies.

The CEB has a great responsibility to gradually improve the national grid by reducing energy leakages and replacing weak transformers and grid lines to move towards a smart grid, enabling the absorption of more indigenous solar and wind energy.

The Author, I. M. Dharmadasa, is an Emeritus Professor with 51 years of university service, over 40 years of active solar energy research, and over 35 years of renewable energy promotional work. He has supervised 30 Ph.D. students and published 254 scientific articles and two books in this field.

by Jehan Perera

Four months after coming to power, the NPP government is facing growing criticism from those in the opposition and also scepticism regarding its ability to make policies necessary to revive the country and its economy. The catchy stories in the media are invariably in relation to some mishap or shortcoming in the past of government leaders.  Some of these relate to the inexperience of the new decisionmakers, many of them having spent their lives in academia rather than in politics or public administration.  The criticisms that ring true to the masses of people relate to the economic difficulties they continue to experience in full force. Those who contributed to the economic catastrophe of 2022 by their own actions over the past decades have little credibility to criticise.

The promise of an uncorrupt government made at the presidential and general elections continues to keep popular support on the side of the government.  There is a continuing belief that the government is sincere about keeping corruption under control and dealing with past abuses.  But there is also disappointment that the promises the NPP made about renegotiating  the IMF agreement and reducing its burden on  the masses of people are not being realised in the short term.  The gap between the rich and the poor continues to be very large with those who are owners of rice mills, hotels and stocks getting massive profits while those on fixed incomes and subsistence farmers eking out a living.

The basic problem for the government is that it inherited an economy that had been made to collapse by irresponsible governments of the past.  The agreements that the previous government signed with the IMF and international bondholders reflected Sri Lanka’s weak bargaining position.  This was why Sri Lanka only got a 20 percent reduction in its debt, whereas other countries got 50 percent reductions.  The NPP government cannot extricate itself from the situation.  The hope that a generous benefactor will extricate us from the difficult economic situation we are in underpins the unrealistic expectations that accompanied President Anura Kumara Dissanayake during his two state visits to India and China.

CAUTIONARY TALES

Nearly two centuries ago, in 1848, one of Britain’s 19th-century Prime Ministers, Lord Palmerston, declared “We have no eternal allies, and we have no perpetual enemies. Our interests are eternal and perpetual, and those interests is our duty to follow.” His speech was meant to explain and defend Britain’s foreign policy, emphasising that the country’s decisions were guided by its strategic interests rather than fixed loyalties to other nations or ideologies. It justified Britain’s controversial alliances and interventions, such as supporting liberal revolutions in Europe while maintaining colonial dominance elsewhere. This explains the inconsistent use of legal and moral standards by the international community that we see in the world today.

When Sri Lanka engages with other countries it is important that we keep Lord Parlmerston’s dictum in mind.  Over the past three decades there has been a noticeable shift in the practices of countries that have claimed to believe in the rule of law and universal human rights.  There was a long period after the end of the second world war when the powerful countries of the world that had emerged victors in that war gave leadership to liberal values of human rights, democracy and justice in their engagements in the international arena. Together they set up institutions such as the United Nations, international covenants on human rights and the International Court of Justice, among others.  But today we see this liberal international order in tatters with happenings in countries such as Iraq, Libya, Syria, Ukraine and Palestine reflecting the predatory behaviour of the strong against the weak.

According to international scholars such as Prof Oliver Richmond of the UK, the Liberal International Order (LIO) is losing its grip as global power shifts toward an emerging Authoritarian International Order (AIO).  In his writings, he highlights how the LIO’s failures to resolve key conflicts have exposed its weaknesses. The prolonged failures like the Cyprus peace talks and the breakdown of the Oslo Accords in Israel-Palestine have highlighted the limits of a system driven more by Western dominance than equitable solutions. The rise of powers like China and Russia, who openly prioritise state sovereignty and power over liberal values, marks the shift to a multipolar AIO in which every country tries to get the maximum advantage for itself even at the cost to others.

Prof. Richmond warns that neither the liberal or authoritarian international orders, as implemented, are equipped to deliver lasting peace, as both are driven by geopolitical interests rather than a commitment to justice or equality. He argues that human rights, development, pluralism and democracy as the outcome of peacemaking and political reform that the Liberal International Order once held out as its vision is more just and sustainable for ordinary people than the geopolitical balancing, and authoritarian conflict management which is now crudely pushed forward by the proponents of the Authoritarian International Order. Without a new approach that prioritises fairness and sustainability, the world risks further division and instability.

NOT GENEROSITY

Following upon the stately receptions accorded to President Anura Kumara Dissanayake in India and China, there is much anticipation that Sri Lanka is on the verge of receiving massive support from these countries that will give a turbo-boost to Sri Lanka’s development efforts.  In the aftermath of India’s unprecedented economic support of USD 4 billion at the height of the economic crisis in 2022, the promise of as much as USD 10 billion in  economic investment from China reported by the media offers much hope.  India and China are two economic giants that are in Sri Lanka’s  neighbourhood who could do much to transform the economy of Sri Lanka to reach take-off into self-sustaining and rapid economic development. This accompanies the shift of economic power in the world towards Asia at this time.

Both India and China are keen that Sri Lanka should be in their orbit or minimise its position in the other’s orbit.  They each have strong rivalries and misgivings about each other, especially regarding security issues.  They have had border disputes that led to military confrontations.  The Authoritarian International Order that Prof Oliver Richmond has written about would influence their behaviour towards one another as well as towards third countries such as Sri Lanka.  President Anura Kumara Dissanayake appears to have been aware of this problem when he visited India and China.   In both countries he pledged that Sri Lanka would do nothing that would be injurious to their security interests.

 Lord Palmerston’s old dictum that countries act on permanent interests rather than permanent friendships is important to bear in mind when foreign governments make inroads into third countries.  Sri Lanka needs to protect its own interests rather than believe that foreign countries are going an extra step to help it due to shared political ideology, age-old friendships or common culture or religion.  Sri Lanka, its leaders and citizens, need to look at each and every offer of foreign assistance in a realistic manner.  Each offer should be assessed on its own merits and not as part of a larger package in which generosity is imagined to be the sole or main motivating factor of the foreign country.

For Sri Lanka to emerge stronger, it needs to evaluate every offer of foreign assistance with a clear-eyed focus on its own national interests, ensuring that the benefits align with the long-term well-being of its people. Pragmatism, and hard headed analysis, must guide the country’s engagement with the world. This would be best done in in a bipartisan manner at the highest level, without being distracted by partisan party politics and narrow political and personal self-interest which has been our failure over time with a few exceptions.