Law enforcement, Sri Lanka dirty money’s game-changer

• Deloitte says Sri Lanka has come a long way on Anti-Money Laundering compliance but warns of ‘teething problems’ that are still around
• ‘The key: Implementation’ – Deloitte’s Partner Karthik
• Compliance monitoring in ‘COVID Work From Home mode’ likely raises false red flags
• Sri Lanka ahead in compliance in three factors compared to B’Desh and India – Karthik

As Sri Lanka vies for bigger global trade, getting into Anti-Money Laundering (AML) good books will be increasingly critical. Progress in Sri Lanka’s Anti-Money Laundering and Combating the Financing of Terrorism (AML/CFT) regulatory regime is satisfactory but teething problems in its implementation (law enforcement) are seen, which could rob its sought-after victory, said the global Big Four recently.

“While Sri Lanka’s AML framework may be good, there are teething problems in its implementation. As for trade based AML, the biggest challenge Sri Lankan banks face is identifying any network of hidden relationships in data between trade partners and ports. AML monitoring based on Work From Home (WFH) in COVID, old monitoring systems in banks when adapted to WFH may give lots of false alerts, or red flags. We may need to work with the ‘digital’ new normal for many months to come,” warned K.V. Karthik, Partner, Financial Advisory – Forensic and Dispute Services Deloitte Touche Tohmatsu India LLP on 9 September. 

Taking part in an exclusive one-on-one Zoom with Daily FT immediately after the Online Media Round Table called ‘Insights and findings on Sri Lanka from the South Asia Anti-Money Laundering (AML) Readiness Survey’ on 9 September, Partner K.V. Karthik, who has extensive experience in financial crime management having spent more than 19 years, added that with regard to Sri Lanka’s AML compliance, the country has come a long way especially with the removal of the country from Grey List, but warned that Sri Lanka ‘should not rest on its laurels’.

The revelations come hot on the heels of recent Anti-Money Laundering Preparedness Survey Report 2020 published by Deloitte Touche Tohmatsu India LLP (member of Deloitte Touche Tohmatsu Limited) lead by Partner Karthik and President – Financial Advisory Uday Bhansali. The Online Media Round Table was empowered by Colombo’s PRWIRE Sri Lanka, affiliate of global communications giant Edelman, adjudged as UK’s top communications consultancy in April 2020 as the ‘agency most admired by CMOs and CCOs’. The landmark Deloitte Survey on AML, conducted in India, Sri Lanka and Bangladesh, focuses on AML governance framework, customer due diligence, sanctions and trade-based money laundering, and transaction monitoring systems, and significantly strengthens South Asian AML battles.

Deloitte is one among the Big Four – the four largest professional services networks in the world-consisting of Deloitte, Ernst & Young, KPMG and PricewaterhouseCoopers. With more than 100,000 professionals, Deloitte provides audit and assurance, tax, consulting, and risk and financial advisory services to a broad cross-section of the largest corporations and governmental agencies.

“According to the survey when it came to the biggest AML compliance challenges that banks face currently, Sri Lankan banks compared to Indian and Bangladeshi banks, are ahead in three aspects (out of 10): Compliance with multijurisdictional requirements, least levels of outdated technology and adequately trained AML staff. Both Indian and Bangladeshi banks showed several levels of pressing challenges that exceeded challenges faced by Sri Lankan banks. As for AML compliance in COVID times, we need to understand it is not easy to implement Work From Home (WFH) of traditional processes. Also old monitoring systems when adapted to WFH may give lots of false alerts, or red flags. We may need to work with the ‘digital’ new normal for many months to come. New changes bring in new risks and it is here that we need to put in new Risk Assessment Monitoring systems,” said Partner Karthik.

“Sri Lanka is progressing and has come a long way. In 2019, the global policy setter on Anti-Money Laundering and Countering the Financing of Terrorism (AML/CFT) the Financial Action Task Force (FATF) delisted Sri Lanka from the Grey List. Adding a country to the Grey List is a warning – it’s done before it’s placed on the black list and Sri Lanka was initially placed in the grey list in 2016 but due to Sri Lanka’s progress in compliance, the country was taken out from the list in October 2019. This is a validation of Sri Lanka’s AML compliance. These validations show progress on Sri Lanka’s side. Even the Deloitte deciding to AML Survey on Sri Lanka is a sign that Sri Lanka has progressed significantly, but the country should not rest on its laurels,” he added.

Money laundering is big business globally. In 2006, the World Bank said Money Laundering (ML) as the world’s third largest industry after oil production and agriculture. At present, the estimated amount of money laundered globally in one year is 2-5% of the global GDP, or in the range of $ 800 billion to $ 2 trillion. In South Asia particularly, the rapid adoption of online payments and wallet technologies means banks and financial institutions have had to fast-track and enhance their know your customer (KYC), and transaction monitoring processes. 

In 2019, the global policy setter on Anti-Money Laundering and Countering the Financing of Terrorism (AML/CFT) the Financial Action Task Force (FATF) delisted Sri Lanka from the Grey List. Adding a country to the Grey List is a warning – it’s done before it’s placed on the black list and Sri Lanka was initially placed in the grey list in 2016 but due to Sri Lanka’s progress in compliance, the country was taken out from the list in October 2019. This is a validation of Sri Lanka’s AML compliance.