Money laundering and regulatory failure in Sri Lanka queried at Singapore investment show

Nov 23, 2006

Foreign investors in Singapore who attended a road show by the Colombo Stock Exchange have raised questions about Sri Lanka’s growing infamy as a money laundering hub, and the inability of authorities to counter such activities, participants said.

One foreign investor asked the head table what action the authorities planned to take against recent share acquisitions in Sri Lanka by companies with questionable backgrounds.

Sri Lankan officials had replied that the country has signed international conventions against money laundering and a Financial Intelligence Unit had been set up, a participant said.

Sri Lanka’s Central Bank Governor Nivard Cabraal, Colombo Stock Exchange Chairman Nihal Fonseka, representatives from blue chip investment firms such as Dialog Telecom, John Keells Holdings and Sri Lanka Telecom as well as stock brokering firms participated in the investment conference in Singapore.

Critics have charged that Sri Lanka is becoming a favourite target of companies engaged in international financial frauds and other questionable activities.

Sri Lanka’s Central Bank is also currently surrounded in controversy after a scandal erupted over the sudden closure of an investigation unit, that was probing the activities of Goldquest in Sri Lanka, under newly enacted anti-pyramiding legislation.

The Colombo Stock Exchange is also in hot water after it failed to query why John Keells Holding shares suddenly shot up last week, when companies connected to Goldquest bought shares, though it is quick to query unusual price movements in other instances.

Meanwhile foreign investors had also privately raised questions from representatives of listed firms and brokers about regulatory failure in Sri Lanka’s financial markets at the Singapore show.

"Privately we were asked many questions after the main session ended," one representative of a listed company said.

"Naturally long-term genuine investors are concerned whether a company they invest could suddenly be taken over by criminals and looted and whether their money is safe."

Another participant said, he was asked more questions about dirty money entering Sri Lanka and regulatory failure, than terrorism.

The purchase of John Keells Holdings by companies related to Goldquest and Questnet has raised a storm in Sri Lanka because the blue chip owns a commercial bank, and has interests in vital areas of the economy such as container terminals.

Sri Lanka’s influential Sunday Island newspaper ran a front page lead story headlined 'Ogre behind stock market boom?' asking why there was no action against pyramid related firms buying into the leading listed companies.

"These suspect companies have been buying heavily, particularly in to JKH, where their holding is now near 5 percent, spectacularly pushing up the share price and provoking questions that pyramid related entities are buying into the parent of a bank," the newspaper said.

Recently a Ponzi scam run by Indian nationals collapsed, leaving hundreds of people penniless.

Analysts say Sri Lanka's lax regulations and corruption that is blocking their implementation is making the country easy prey to international racketeers.

Two foreign banks have so far been involved in channeling money from questionable sources into Sri Lanka's equity markets on the guise that they 'knew' their customer, despite such companies openly promoting illegal activities, sources said.

Analysts say Sri Lanka should now look at confiscating assets of known scam operators to pay off poor people who lost money, using the provisions of the anti-money laundering legislation.

Sri Lanka has also enacted anti-pyramiding legislation, under the direction of Treasury Secretary P B Jayasundera, when many Sri Lankans were left penniless after joining two referral fraud schemes, involving diamonds and gold coins.