FINANCIAL CHRONICLE – The Financial Intelligence Unit (FIU) of the Central Bank of Sri Lanka has levied administrative fines totaling Rs. 14.6 million against 11 entities, including Indian Overseas Bank, due to violations of the Financial Transactions Reporting Act (FTRA). This information was released in a statement by the Central Bank.
The fines were imposed on various financial institutions and designated non-financial businesses and professions (DNFBPs) for significant infractions of the FTRA occurring between October 2025 and March 2026. Analysts indicate that these penalties, while reflective of regulatory action, highlight ongoing challenges within parts of the nation’s financial and business landscape regarding compliance with Anti-Money Laundering and Countering the Financing of Terrorism (AML/CFT) standards, despite extensive reform efforts.
The FIU’s enforcement measures affected both large financial corporations and smaller entities, indicating that compliance failures are widespread across diverse types and sizes of institutions. A number of banks and finance companies faced fines for not submitting Cash Transaction Reports (CTRs) or Electronic Fund Transfer (EFT) reports for transactions exceeding Rs. 1 million in the required timeframe.
For instance, LB Finance PLC was penalized Rs. 1 million for its failure to report nine transactions, while Cargills Bank PLC received a Rs. 2 million fine for missing 18 EFT transactions and for not keeping an up-to-date list of individuals designated by UN Security Council resolutions. Similarly, LOLC Securities Limited and Janashakthi Finance PLC were each fined Rs. 1 million for comparable reporting deficiencies.
Indian Overseas Bank was penalized Rs. 1 million for several compliance failures, which included unreported transactions, insufficient customer verification for wire transfers, and delays in updating sanctions screening procedures.
More concerning were instances involving actual connections to designated individuals. Citizens Development Business Finance PLC faced the highest penalty of Rs. 3 million for failing in customer screening and ongoing monitoring and for maintaining business relationships with three individuals identified under UN regulations. The company also neglected its obligation to freeze assets and inform authorities within the mandated 24-hour period.
Sanasa Life Insurance Company PLC was fined Rs. 2 million for a series of lapses, which included issues related to politically exposed persons (PEPs) and inadequate maintenance of sanctions lists.
Within the DNFBP sector, jewelry retailers, often considered high-risk due to the ease of converting valuable goods, were particularly affected. Swarnamahal Jewellers Ltd. was fined Rs. 2 million for serious shortcomings in customer due diligence, beneficial ownership identification, record-keeping, risk assessment, and sanctions screening. Other companies, including Colombo Jewellery Stores, Zay’s (Pvt) Ltd., and Harbour Village (Pvt) Ltd., also faced penalties for inadequacies in risk assessment and compliance with targeted financial sanctions.
This latest round of fines, which will contribute to the Consolidated Fund, exposes systemic weaknesses in transaction reporting, customer due diligence, sanctions screening, and record-keeping. Such deficiencies not only threaten the integrity of Sri Lanka’s financial system but also increase the risk of money laundering and terrorist financing activities.
These actions come as Sri Lanka aims to avoid being placed on the Financial Action Task Force’s (FATF) grey list for the third time. The country is undergoing a vital mutual evaluation by the Asia/Pacific Group on Money Laundering (APG) on behalf of the FATF in the first half of this year, with ongoing concerns surrounding Sri Lanka’s capability to enforce strict AML/CFT measures.
The FIU has noted that in various cases, although direct connections to designated entities were not always identified, systemic deficiencies created opportunities for exploitation. Issues such as delays in updating screening tools, failure to promptly verify customers against UN lists, and insufficient oversight from senior management indicate deeper cultural and operational issues in the AML/CFT framework.
Weak control measures undermine trust in Sri Lanka’s banking and financial sectors, potentially prompting international correspondent banks to adopt a de-risking approach. This trend has historically led to increased transaction costs, delays in remittances, and diminished access to global finance—critical factors for Sri Lanka’s economy, which heavily relies on imports and remittances.
Given Sri Lanka’s strategic position along key shipping routes in the Indian Ocean and its history of internal conflict, the country is particularly vulnerable to risks associated with terrorist financing. Ongoing weaknesses signal to criminals and terrorists that certain institutions may be easier targets.
Previous episodes of grey-listing by the FATF have resulted in decreased foreign direct investment, currency instability, and elevated borrowing costs. Research on jurisdictions that have been grey-listed indicates declines in cross-border payments, foreign direct investment, and overall capital inflows. For Sri Lanka, which is still recovering from an economic crisis, renewed international scrutiny could deter potential investors and complicate access to development assistance.
Experts caution that grey-listing extends beyond reputational damage; it also necessitates increased due diligence from foreign banks and counterparties, thereby raising compliance burdens for legitimate Sri Lankan enterprises and hindering economic recovery. In severe cases, this may lead to de-risking, rendering entire regions or sectors unbankable on the international stage. (Colombo/July 20/2026)
