https://www.dailymirror.lk/print/business-news/Banking-sector-faces-elevated-money-laundering-risks-amid-rising-fraud-and-tax-evasion/273-334770

Sri Lanka’s banking sector is currently confronting a medium-high money laundering risk, compounded by emerging threats from financial fraud and tax evasion.

These findings were recently published in the Sri Lanka National Risk Assessment on Money Laundering, Terrorist Financing, and Proliferation Financing 2024/25, a comprehensive evaluation coordinated by Central Bank of Sri Lanka;s Financial Intelligence Unit. The overarching national money laundering risk for the country has been evaluated as medium, but specific sectors are navigating distinct and pressing challenges.

Within the financial industry, the banking sector’s internal vulnerability is assessed as medium, but it faces a high external threat level, driving its overall money laundering risk to a medium-high rating. The sector and its associated products, specifically term deposits, have been directly linked to the majority of identified money laundering cases in the country. This elevated risk environment is further exacerbated by a medium-high threat from fraud.

The assessment indicates that large value transactions and an increased frequency of reported incidents are closely tied to the abuse of financial institution products and channels. Evolving fraud trends heavily feature illicit activities promoted via social media and instant messaging, while new transnational threats such as ‘pig-butchering’ scams led by foreign networks have also surfaced.

Adding to the complex financial crime landscape, tax evasion has been formally recognized as a notable threat affecting the domestic economy. Both direct and indirect taxes were evaluated in the recent assessment, revealing that return compliance remains at moderate levels, reflecting a medium-level compliance behavior among the taxpayer base. Consequently, the money laundering threat emanating from tax crimes is rated as medium.

To actively address this revenue leakage and associated financial crime, the Inland Revenue Department has established a new Tax Crimes Investigation Unit, which has already initiated several targeted tax crime investigations throughout 2024 and 2025.

While domestic banks maintain strong anti-money laundering frameworks and robust suspicious transaction reporting, residual vulnerabilities remain a concern due to limitations in enforcement and gaps in the national customer verification infrastructure.

Despite these practical challenges, collaborative national countermeasures involving the Central Bank of Sri Lanka and law enforcement agencies are yielding positive results in detecting and disrupting these illicit financial flows. Moving forward, the national risk assessment emphasizes the absolute necessity of adopting new technologies for real-time transaction monitoring to further safeguard the banking system from these interconnected risks.