ECONOMYNEXT – Sri Lanka’s third evaluation on its Anti-Money Laundering and Countering the Financing of Terrorism (AML/CFT) framework is postponed by one-year and rescheduled to commence in March 2026, the Central Bank data showed.
The delay is due to the two national elections held last year, a Central Bank official said.
Sri Lanka is facing a risk of falling into the grey list for a third time if it fails to implement strong AML/CFT measures recommended by the global body. Such failure could dent the island nation’s economic recovery from sovereign debt default, analysts have said.
Sri Lanka’s third Mutual Evaluation on its AML/CFT framework, coordinated by the Asia Pacific Group on Money Laundering (APG), was scheduled to commence in March 2025.
However, this evaluation has now been rescheduled to March 2026, the Central Bank said in its Policy Agenda for 2025 and beyond, released on Wednesday (08).
“This evaluation will assess the country’s efforts to combat money laundering and the financing of terrorism,” the Central Bank said.
“Sri Lanka must ensure compliance with the 40 recommendations of the Financial Action Task Force (FATF) and demonstrate the effectiveness of its AML/CFT framework under the FATF’s 11 Immediate Outcomes.”
The Central Bank has planned to further strengthen the conduct of risk-based AML/CFT examinations of banks in terms of the Financial Transactions Reporting Act (FTRA) and the recommendations of the Financial Action Task Force (FATF).
The high level AML/CFT Task Force, reconstituted in December 2024 will remain operational until the successful completion of the Mutual Evaluation in July 2027.
The country is obliged to fulfill a raft of measures including passing new laws to comply with preventing AML/CFT laws before the next evaluation.
When a country is placed on the Financial Action Task Force (FATF) grey list, it faces several financial, economic, and reputational challenges including reduced access to global financial markets, decline in foreign direct investment (FDI), increased compliance costs, and risks of rating downgrading.
TWICE IN GREY LIST
In 2019, Sri Lanka was removed for the second time from the grey list of FATF, a global anti-money laundering body, after the Central Bank took some actions mandated by the FATF.
Sri Lanka is at risk of falling into the grey list again if it fails to take stern actions against possible money laundering and terrorism financing loopholes in the country.
The Cabinet has already approved 24 institution-specific action plans, which were prepared based on FATF criteria and gaps, identified during the previous Mutual Evaluation conducted in 2014/2015 and the National Risk Assessment (NRA) conducted during 2021/2022 on Money Laundering and Terrorist Financing (ML/TF).
“They are currently being implemented by the relevant stakeholders and implementation progress is continuously reviewed by the AML/CFT Task Force,” it said.
The Central Bank’s Financial Intelligence Unit (FIU) with its stakeholders and working groups expects to conduct another update to the NRA by the second quarter of this year.
“This assessment will consist of an assessment of tax crimes and proliferation financing risks as new areas, in addition to updating the 2021/2022 risk assessment.”
“In order to further strengthen the cooperation between FIU and non-financial institutions and their regulatory authorities, FIU expects to form several working groups.”
The FIU has been pushing for anti-money laundering and countering terrorism financing compliance obligations and has been working on the FATF’s compliance measures in line with a request by the International Monetary Fund (IMF).
The IMF has urged Sri Lanka to comply with the latest international Anti- AML/CFT Compliance Obligations in return to its $3 billion bailout package.
Sri Lanka has already fallen to the grey list twice in the past 14 year with money laundering and terrorism financing posing serious risks to the domestic and global financial system, peace, and development.
“FIU is in the final stages of drafting amendments to the three key pieces of AML/CFT legislation to strengthen the legal framework in alignment with international standards,” the Central Bank said.
AMENDMENT TO COMPANIES ACT
“Furthermore, FIU will assist in the implementation of amendments to the Companies Act on beneficial ownership requirements and will assist with any other relevant legislative amendments or regulations related to AML/CFT.”
“In order to enhance intelligence sharing and strengthen international cooperation and compliance with global standards, FIU aims to increase the number of bilateral Memoranda of Understanding (MOUs), both domestically and with relevant foreign counterparts, as necessary.”
“FIU will continue to raise awareness among stakeholders regarding the critical importance of effective AML/CFT implementation. Strengthening AML/CFT-related frameworks would provide the country with numerous economic, social, and national security benefits, including enhanced financial system integrity, increased foreign investments, increased access to international financial markets and enhanced support for the promotion of good governance practices.”
The IMF’s loan programme has emphasized the need of addressing bribery and corruption and Sri Lanka is required to fulfil a raft of obligations under the AML/CFT pillar, the central bank has said.
Failure to fulfil them will result in Sri Lanka being identified as a country with strategic deficiencies in its AML/CFT Framework and will be designated as a grey-listed/ blacklisted country.
Sri Lanka was under the grey list for the first time in February 2010 soon after the landslide election victory of former leader Mahinda Rajapaksa following the island nation’s military winning a 26 year war in the previous year.
However, the government managed to comply with some of the AML obligations and was able to get delisted in June 2013 under an IMF loan programme.
However, Sri Lanka fell under the grey list again in November 2017 before being delisted in October 2019.
Though grey Listing is a warning, most countries treat grey-listed nations as of ‘high risk’ and blacklist them. The European Union included Sri Lanka in its blacklist subsequent to Sri Lanka’s second grey-listing. (Colombo/January 09/2025)
