Sri Lanka Widens AML Net, Putting Bank Managers in the Criminal Liability Spotlight

• Sri Lanka’s amended anti money laundering framework is raising the stakes for bank employees who knowingly help move illicit funds. A nearly $1 billion trade fraud investigation has brought the issue into sharp focus, with four bank officials already remanded over alleged involvement in suspicious import payments.

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Sri Lanka’s strengthened anti money laundering regime could expose bank managers and other financial sector employees to criminal prosecution where they knowingly handle or facilitate transactions involving illicit funds.

Supreme Court Justice A.H.M.D. Nawaz said employees who knowingly assist the movement of criminal proceeds could potentially face charges of aiding and abetting money laundering. A bank manager who knowingly receives criminal property could, depending on the circumstances, face a money laundering charge directly.

Justice Nawaz was speaking at a recent forum titled “The Changes to Sri Lanka’s Anti Money Laundering Regime”, organised by Corporate Management Consultants, headed by Malik Cader.

His comments come as Sri Lanka’s Financial Crimes Investigation Division investigates almost $1 billion allegedly transferred overseas since 2023 through import transactions involving goods that investigators say never arrived.

Four officials attached to four private commercial banks have been remanded as part of the investigation. Authorities allege that the scheme involved forged Customs documentation, breaches of Central Bank of Sri Lanka rules and payments to bank officials to facilitate the transactions.

Analysis

The significance of the case goes beyond the amount allegedly moved.

It raises a basic question for banks: When does poor compliance become criminal conduct?

Justice Nawaz stressed that prosecutors would have to prove knowledge. An employee does not become criminally liable simply because a transaction later turns out to involve illicit funds.

But if investigators can establish that a bank employee knew the money was criminal property and deliberately helped move it, the legal position changes considerably.

“If you can fix the knowledge that the bank manager knew that it was ill-gotten money, there is no way that he can escape the offence of money laundering,” Justice Nawaz said.

He also explained that the amended framework reaches beyond transactions taking place entirely within Sri Lanka. It can cover conduct occurring partly inside and partly outside the country, as well as proceeds from overseas conduct that would amount to an offence if committed in Sri Lanka.

Trade based money laundering

The alleged import scheme provides a practical example. A company makes an advance payment for goods. The money leaves the country, but the goods never arrive.

That alone may have an innocent explanation. Goods can be delayed. Contracts can collapse. Suppliers can default.

The compliance problem emerges when the missing goods are combined with forged documents, unusual payment patterns, suspicious counterparties or evidence that bank officials knowingly helped the transactions pass through.

This is where trade- based money laundering becomes particularly difficult for financial institutions.

Banks are often processing documents and payments rather than physically inspecting the underlying goods. That makes documentary checks, customer due diligence, transaction monitoring and escalation procedures critical.

Compliance Implications

The case is a warning to banks that AML responsibility does not necessarily stop with the institution.

Employees who knowingly facilitate illicit transactions can face personal exposure. Banks therefore need clear escalation procedures, effective transaction monitoring, staff training and controls capable of identifying suspicious trade payments.

Compliance Takeaway

Sri Lanka’s amended regime raises the personal stakes for financial sector employees.

The critical word is knowledge. A suspicious transaction may trigger an investigation. Deliberately facilitating the movement of criminal proceeds can create something far more serious.

For bank managers, “I was only processing the transaction” may not be enough if investigators can establish what they knew.