Economic crimes in post-conflict SL

Text of the presentation made by the Rtd. Chief Justice Asoka de Silva on September 8, 2012, at the Cambridge University, on ‘Economic Crimes’.

The thrust of what I want to say in the next few minutes is to highlight extremely briefly few challenges out of the several daunting ones posed by economic crime in post conflict Sri Lanka.

It is universally recognized that economic and financial crimes, manifest in various dimensions and with deleterious effects which threaten the very foundation of any civilized society and thus must be eliminated.

Economic crimes include a broad range of illegal activities; from conventional methods such as - fraud, embezzlement, breach of trust, corruption, and submission of securities reports containing false information, to more innovative methods such as - offences in which criminals abuse the financial system; offences against free and fair trade; violation of intellectual property rights; fraudulent price manipulation and insider trading in financial markets; and money laundering. Economic crime also covers many activities instrumental to the offences I just mentioned, such as forgery of documents and payment cards, cybercrimes, and also encompasses corporate crimes, including, tax evasion, violation of regulations and pyramid scheme.

Experience over the years has shown us that these various forms of economic crime are often interwoven and interrelated. It was only in May 2009, that Sri Lanka emerged victorious from the three decade long protracted armed conflict, during which enormous resources were spent on defense related expenditure by the government for the people of my country who had been facing hard financial conditions to carry on business and maintain their livelihood. But today after three years after the ending of the protracted armed conflict, the picture is slowly but surely changing and the government of Sri Lanka faces new challenges - on one hand the government is working on meaningful reconciliation and political settlement for the ethnic issue while pushing forward rapid economic development across the country including war ravaged northern and eastern provinces, on the other hand there is a steady increase in white collar crimes.

Fraudulent business practices

For a multi-ethnic, multi-religious country with a population of 21.2 million people the problems posed by economic crime is formidable and intractable. Recent study by KPMG Sri Lanka has revealed that there has been a marked increase in fraudulent business practices over the last two years which has resulted in losses of billions of rupees annually. Further according to this study some 44 percent of economic crimes were reported from the supply chain areas, while 35 percent came from bribery and kickbacks. Though economic crime has come to the forefront in post- conflict Sri Lanka, it originates from the time our economy was liberalized in the late nineteen seventies, perhaps not in such magnitude as last couple of years. But what was absent at that time was, laws to curb the market forces and plug the loop holes in the system.

Sri Lanka however, made considerable headway in this regard by the year 2006, with the enactment of three laws, The Convention on the suppression of Terrorist Financing Act, The Prevention of Money Laundering Act and the Financial Transactions Reporting Act. When these legislations were enacted and came into operations due to then domestic situation greater focus was on terrorism and terrorist financing issues.

Following September 11 attacks in the United States, Sri Lanka issued UN Regulation No.1 of 2001 and in August 2005 enacted the Convention on the suppression of Terrorist Financing Act No 25 of 2005. Both these instruments create terrorist financing offences: the first explicitly in response to UN Security Council Resolution 1373 and the second in order to implement the UN Terrorist Financing Convention.

Financial transactions

In general, the offences in both instruments reflect the terms of both UN instruments, although some requirements are either not covered or inadequately covered in these enactments.

So turning to the substance of what I will say to you, I want first to outline very briefly some salient features of these legislations. The Prevention of Money Laundering Act went on to provide an inclusive reference to the types of activities that could attract liability under the Act, which included dangerous drugs, terrorism, bribery, corruption, firearms and explosives, foreign currency transaction, transnational organized crimes, cybercrimes, child pornography and trafficking of persons. This Act applies to (a) a person who commits an offence under this Act whilst being resident in Sri Lanka; (b) an Institution which is used for the commission of an offence under this Act; and (c) an act which constitutes an offence which is committed in Sri Lanka.

A person is guilty of the offence of Money Laundering, if he has engaged directly or indirectly in any transaction relating to any property which is derived or realized, directly or indirectly, from any unlawful activity or from the proceeds of any unlawful activity. The offence also applies to situations where a person receives, possesses, conceals, disposes of or brings into Sri Lanka, transfers out of Sri Lanka or invests in Sri Lanka any property which is derived or realized, directly or indirectly from any unlawful activity or from the proceeds of any unlawful activity. It must also be proved however, that the person knew or had reason to believe that such property was derived or realized, directly or indirectly from any lawful activity or from the proceeds of any unlawful activity. The assets of any person found guilty of the offence of money laundering are also liable to forfeiture.

Under the Financial Transactions Reporting Act (No. 06 of 2006) a Financial Intelligence Unit was set up to independently monitor suspected financial transactions and to conduct further investigations as may be warranted, if there is reasonable suspicion that money laundering is taking place. The Financial Transactions Reporting Act was enacted with the objective of collecting of data relating to suspicious financial transactions to facilitate the prevention, detection, investigation and prosecution of the offenders of money laundering and the financing of terrorism respectively. This Act also requires certain institutions to undertake due diligence measures to combat money laundering and the financing of terrorism, and seeks to provide extensive supervisory powers to monitor the activities of all financial institutions. Furthermore, the Financial Intelligence Unit can disclose to any foreign institution or agency any report or information received on proceeds of crime and evidence gathered in investigations with any other foreign agencies.

Global financial crisis

However, given the recent passage of these laws Sri Lanka’s anti money laundering/combating the financing of terrorism regime is thus at a nascent stage and there has been no history of investigations or prosecutions of money laundering under the current legislation by which the extent of the problem could be judged in any comprehensive way and our authorities are also yet to undertake a comprehensive risk assessment or analysis of money laundering or terrorist financing.

Sri Lanka is also yet to draft a Proceeds of Crime Act or have other similar general mechanism to confiscate the proceeds of crime. However, there are targeted mechanisms to freeze and confiscate assets in relation to money laundering, terrorism and terrorism financing under the Prevention of Money Laundering Act, the Prevention of Terrorism Act No. 48 of 1979, the Convention for the Suppression of Terrorist Financing Act, and UN Regulation No. 1 of 2001. However, to date there have been no freezing, seizing or confiscations of assets pursuant to the Prevention of Money Laundering Act or the Convention for the Suppression of Terrorist Financing Act, despite coming into force over five years ago. One of the key signs in the post-war scenario was a booming stock market with many IPO’s and new players entering the fray.

To be continued