Ajith Nivard Cabraal: Sri Lanka and its battle against money laundering and
terrorist financing activities
Keynote address by Mr Ajith Nivard Cabraal, Governor of the Central Bank of Sri Lanka, at the
Commonwealth Secretariat Programme on Financial Investigations Training, Colombo,
22-26 January 2007.
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Your Excellencies, Ladies & Gentlemen,
It is a great pleasure that I welcome you to the inaugural ceremony of this conference and extend to all
overseas participants and representatives a very warm welcome to our country. I am also very happy
to be able to share a few thoughts with you at this Forum about the progress Sri Lanka has made in its
battle against Money Laundering and Terrorist Financing activities.
Sri Lanka has given serious recognition to the need for preventing money laundering and combating
the financing of terrorism in view of their adverse consequences both economic and social. In fact, Sri
Lanka has been a victim of terrorist financing and suffered immensely by its consequences. As we all
know, money laundering and financing of terrorism promote criminal activities, endanger financial
system stability and misallocate resources into non-productive investments. The Central Bank of Sri
Lanka has a special concern about these adverse consequences, as it has a mandate to maintain
financial system stability together with economic and price stability. It is in this context that the Central
Bank has pledged, in its policy statement, "Road Map: Monetary and Financial Sector Policies for
2007 and Beyond" that it would expand the work of Financial Intelligence and actively investigate and
take actions to combat money laundering and terrorist financing.
In the years 2005 and 2006 Sri Lanka made considerable headway in this regard. The main actions in
this context were the enactment of three laws, namely, The Convention on the Suppression of
Terrorist Financing Act, The Prevention of Money Laundering Act, and the Financial Transactions
Reporting Act. The FTR Act created the institutional body of the FIU with regulatory powers and a
mandate to formulate policies and guidelines to meet the Financial Action Task Force (FATF) 40 + 9
recommendations. This legislative package was the outcome of an in-depth consultation initiated by
an inter-ministerial committee which engaged the stakeholders such as the banks and professional
bodies. In the preparation of the legislation, the inter-ministerial committee closely liaised with the IMF
in order to ensure that legislation complied with the Financial Action Task Force 40+ 9
recommendations.
Even prior to the enactment of this legislation in Sri Lanka, there have been certain punitive measures
in place, to discourage individuals from using the country's financial institutions for Money Laundering
and Financing of Terrorism activities. These measures were taken under the Exchange Control Act;
the Customs Ordinance and the Banking Act. Pending the enactment of the new legislation, the
Central Bank too issued as far back as 2001, 'Know Your Customer' (KYC) guidelines to all banks and
urged adherence when dealing with clients and counterparties. We cannot however be satisfied with
the results because it is unlikely that terrorism activity in particular, on the scale that has been
unleashed in Sri Lanka, could have taken place if these measures to combat terrorism financing and
money laundering had in fact been effective. We believe, the measures introduced have only
marginally deterred terrorism financing from delivering such ill-gotten funds to destabilize our country,
particularly before 9/11/2001. As many know, Sri Lanka has been crying foul for many years about
fund raising for terrorism, taking place in many countries, where the funds were used to procure and
supply weapons to wage terrorist activity in our country. Sadly, our pleas were not taken too seriously.
But the world took greater note of this scourge after 9/11/2001.
Fortunately for us, post 9/11, anti money laundering and terrorism financing measures were pursued
with vigour at international level and these processes have been evolving rapidly in recent years. The
international community has witnessed the use of increasingly sophisticated methods to curtail the
move of illicit funds through the financial systems across the globe. Sri Lanka, naturally, was keen to
support this global effort and soon established a comprehensive legal and institutional framework for
anti-money laundering and combating the financing of terrorism. Hence, the enactment of the
legislation by our country's legislature is welcomed by all of us who value stable economies and
peaceful societies. Due to the scale and magnitude of the heightened global interest in Money
Laundering and Terrorist Financing, international obligations too, required many countries to introduce
legislation. In fact, in terms of their international obligations the legislative approach pursued by many
countries, including Sri Lanka, has been in the context of Security Council Resolution 1373 dealing,
inter alia, with financing of terrorism and the International Convention on the suppression of financing
of terrorism. These agreements have, to a great extent, unified the world in its fight to meet this
challenge and, I dare say, the closing of ranks among the countries of the world, would have certainly
helped to curtail terrorism which may otherwise have reached unimaginable levels, thereby
threatening world peace in general and the world economy in particular.
Let me now say a few words about our own efforts in this sphere of activity.
The initial phase of establishing a comprehensive framework for anti money laundering and combating
financial terrorism in Sri Lanka was focused on the preparation of the draft legislation. With the
passage of legislation, our efforts were then directed towards setting up of the infrastructure for the
Financial Intelligence Unit (FIU). We now have a fully operational FIU established in the Central Bank,
the apex institution in the financial system in Sri Lanka, to meet both its local and international
obligations.
As you may be aware, Sri Lanka is presently engaged in a valiant effort to control many terrorist
activities waged by the LTTE, a Group acknowledged worldwide as a Terrorist movement. USA,
Canada, the EU and many other countries have banned this movement due to flagrant human rights
violations and inhuman acts of terror. They have been designated as a terrorist group by most
countries in the western hemisphere. As has been recognized worldwide, the most effective manner to
undermine and defeat terrorist activities is to stop or curb its funding sources. Notwithstanding the
bans, the LTTE has extended its tentacles in North America, the European Union and Australia. In
response, those countries and nations are today taking meaningful steps to stop these fund raising
activities and taking the perpetrators of such crimes to justice and we deeply appreciate such moves.
The Government of Sri Lanka is dedicated to winning the support of all countries in this regard through
the exchange of information on a bi-lateral basis which would enhance bi-lateral co-operation through
a structured exchange of information. Only last week, one such initiative with Switzerland was
commenced where fruitful discussions were held to establish a framework and modalities for
structured co-operation. It has also been recognized that efforts to combat the financing of terrorism
require jurisdictions to expand the scope of the anti money laundering framework to include non profit
organizations and, in particular, some dubious charities. This is to ensure that such organizations are
not used, directly or indirectly, to finance and support terrorism. We are in possession of information of
how certain so-called charities have been able to even hoodwink international agencies to donate
funds to them for, seemingly, charitable or humanitarian causes, but which have, instead, been
channeled for the upkeep of terrorist cadres and the provision of supplies to assist the terrorist effort.
Natural disasters such as the Tsunami have also unwittingly lent a humanitarian face and ample cover
to such activities. We, therefore, urge the co-operation of global and regional countries to trace and
eliminate such funding programmes and to be extremely vigilant when dealing with organizations
which may well be front organizations to finance terrorism. In this respect it need hardly be
emphasized that financial intelligence sharing is fundamental to this strategy. The FTRA enables the
FIUs to enter into agreements with other FIUs to exchange information. Obviously therefore, as our
FIU moves forward, we will give this matter our highest priority.
The International Monetary Fund has estimated that the aggregate amounts of funds laundered in the
world could range between 2 to 5 per cent of the global GDP. Given the estimated global GDP of
approximately USD 48 Trillion, this could range between USD 1 - 2.4 Trillion. Accordingly, by any
estimate the size of the problem is gigantic and merits the focus of all jurisdictions. Missions from
agencies such as the IMF and World Bank have identical goals in terms of money laundering and
combating the financing of terrorism. We are indeed very pleased to note that there are also many
other agencies outside the IMF and WB taking an active role, and often working jointly in an effort to
achieve these common goals. We commend these efforts.
Together with the establishment of a legal and institutional framework for anti money laundering and
combating terrorist financing, it is equally important to raise public awareness on issues pertaining to
money laundering and financing of terrorism, and introduce more effective ways of preventing such
actions by sharing experiences of other countries. It is not for nothing that the phrase "prevention is
better than cure" has been coined. It is therefore our fervent hope that this workshop will, in the next 5
days achieve this objective and also establish a framework for a regional dialogue to:
•
Share the lessons of success and failure;
•
Identify specific problems common to countries of the region;
•
Discuss future challenges common to participating countries particularly in the context of
effective programmes already implemented to fight money laundering and terrorist financing,
•
Identify practical means of sustaining economic development and maintaining financial
system stability in the face of such terrorist threats.
While thanking the Commonwealth Secretariat and all those who have made this Conference possible,
we also commend our new FIU for the initiatives it has taken to organize this international event, so
early in its existence. We urge you to discuss the many issues confronting our respective countries
and attempt to learn from each other as well as from the broader experiences from international
experts and develop our skills and expertise. We also look forward to your report at the conclusion of
your deliberations.
Let us also offer all of you our continued co-operation in your collective endeavors to combat money
laundering and terrorist financing activities.
Finally, we wish you a successful learning experience and hope that your efforts will effectively
contribute to the prevention and suppression of money laundering and financing of terrorism.