“No new significance” in Sri Lankan money laundering busts, say local police

Sri Lankan police are  investigating a large-scale money laundering case based in Colombo, that reportedly extends to the Maldives.

Local police representatives say no significant case has been filed with Maldivian authorities so far.

According to local media, money was being transferred from the Maldives to various illegal money transfer agents in neighboring Sri Lanka. The money is suspected to be used for such criminal activities as purchasing and distributing narcotics and other contraband.

Last week, Rs. 81.76 million (Rf11.4 million) was seized at Sri Lanka Customs, the largest amount of foreign currency to be detected at Bandaranaike International Airport (BIA). Haveeru reports that dollars from Australia, Canada and the US, as well as sterling pounds, Kuwaiti dinars, UAE Dirhams, Saudi Riyals, Swiss Francs and Euros were included in the stash.

Local police reported no case being lodged regarding the money laundering circuit in Colombo, and cautioned that the information that was given to local media regarding the transport of finances from the Maldives might not be reliable.

Officials did say that money laundering has been a problem in the Maldives. Police Sub-Inspector Ahmed Shiyam said that “the issue of money laundering in the Maldives is growing, and credit cards are being abused more.”

An official from the Fraud and Financial Branch said there have been suspicions of money laundering, but charges can not be pressed for that alone. “Individuals have been charged for drug possession, which might be related to money laundering, but we are currently unable to prosecute someone for money laundering alone. We plan to work on that in the future,” he said.

International Monetary Fund (IMF) reports state that money laundering became a bigger concern internationally post-9/11, when it became heavily linked to terrorism. Although many countries have since adopted IMF anti-money laundering (AML) policies, few have developed legislation to enforce these guidelines.

The latest IMF review of Sri Lanka, dated 2008, indicated that AML standards were adopted by signature but that legislation was not in place. A 2011 review of the IMF program found that international organizations were cooperative, but did not indicate that individual governments and banks had adopted AML procedures.

Sri Lankan police have conducted raids on unauthorized money transfer agencies in the past few weeks, reports Haveeru. Earlier this month the Colombo Fraud Bureau, an arm of the Sri Lankan police force, arrested several suspects and seized approximately Rs. 9 million (Rf1.25 million) in foreign currency, Haveeru reports.

Four key Maldivian narcotics peddlers who were busted by Maldivian authorities in June for their involvement in the smuggling of narcotics via Colombo to Male since 2005 had allegedly used a prominent money transfer agency in Colombo, reports Haveeru.


Sri Lanka’s US$10 million line of credit to build roads, relationships

A US$10 million line of credit for imported Sri Lankan goods has been established via Bank of Ceylon, President Mohamed Nasheed announced during his radio address yesterday morning.

The President said the agreement, which was signed by governments of Sri Lanka and the Maldives, will help those merchants importing goods from Sri Lanka, and reduce burdens caused by a shortage of foreign currency in the Maldives.

The President said that as part of the agreement, Sri Lanka will construct six   kilometer road in Addu City. This contribution will help the Maldivian government prepare for the SAARC Summit, to be held in Addu this year. The credit is also expected to finance additional high quality main roads in Feydhoo, Maradhoo and Maradhoo-Feydhoo of Addu City, the President reported.

President Nasheed said he is hopeful for improved mutual relations between the Maldives and Sri Lanka. Nasheed added that the Sri Lankan president has offered his full support in making the 2011 SAARC Summit successful.


Limitless money-changing licenses allow resorts to manipulate foreign currency market, says MMA source

Resorts in the Maldives are using their money-changing licenses to operate as defacto banks, creating an artificial demand for dollars that is undermining the government’s efforts to stabilise the economy, an informed source in the Maldives Monetary Authority (MMA), has claimed.

Figures from the country’s central bank show that of the country’s 306 licensed money changers, 95 are resorts while 211 are private.

The present system allows resorts to exchange unlimited amounts of currency, weakening the flow of dollars into the official banking system and allowing resorts to manipulate the market, the source claimed.

“Small resorts are operating like private banks, trading in rufiya and using cheques to do so in any amount of money, with no oversight from the banks or the MMA,” he said.

As a consequence, the government’s recent decision to float the rufiya within 20 percent of the pegged rate of Rf12.85 was unlikely to stabilise the currency until the underlying demand for dollars was addressed.

“The black market rate for the dollar was Rf14-15 before [the government’s decision to devalue the currency]. The reasoning is that now the official rate is Rf15.42, there shouldn’t be a black market. The fact that the black market rate is now Rf16.5 suggests this is not a problem with the economic fundamentals, but a problem of people manipulating the market.”

The source suggested that even if the market was given free reign and the rufiya reached Rf20 to the dollar, “resorts would still have the power to set the parallel market at Rf22.”

The source revealed that during its recent visit to the Maldives, the International Monetary Fund (IMF) had recommended that resort money-changing licenses be limited to changing cash, making it physically impractical to manipulate the market with large sums of money.

The theory, the source explained, was to force resorts to use the local banking system for foreign exchange and increase the flow of dollars through the official economy.

Most resorts presently charge customers in dollars (mostly via credit cards). With most large resorts banking overseas in financial hubs such as Singapore, beyond a fee taken by a local credit card operator such as Cyprea or the Bank of Maldives, very little of this passes through the Maldivian economy – approximately US$13 for every US$100 spent in the country.

“No other country allows another currency to divide the market,” the source said, noting that resorts earned 80 percent of the country’s foreign exchange.

“The taxis at Colombo airport are not permitted by law to accept US dollars, but here every corner shop does. There is a need for exchange control – our monetary regulation is from the 1980s and fits on a single piece of paper. You can see the problem.”

The MMA recently announced the enforcement of legal tender – rufiya – which will require a foreign currency transaction at the point-of-sale. Were resorts restricted to exchanging money by the physical limits of cash, they would be effectively be obligated to feed dollars into the local banking system, thus increasing the availability of foreign currency and greatly reducing the dollar shortage, the source suggested.

The Seychelles encountered similar problems with its exchange rate in late 2008, the source said, providing an IMF document showing that the country’s official exchange rate of 8 rupees to the dollar in late 2008 competing against a black market exchange rate of almost 14.

Following the Seychelles’ decision to float its currency, the rupee shot up to almost 18 to the dollar, but plunged to 10 a year later before eventually settling at 12.

Were foreign exchange controls passed in parliament and enacted, the Maldives could expect the dollar situation to stabilise “in less than a month”, the source predicted.

“This is why ministers are claiming the rufiya can potentially reach Rf10 – although if that stimulates excessive imports it is not necessarily a good thing.”


Local economist in a private consultancy Ahmed Adheeb said the Maldives’ economic situation was as much a problem of over-expenditure and high budget deficit.

“Successive IMF reports have raised real problems with the country’s expenditure,” Adheeb said. “You cannot just blame the resorts for manipulating the market.”

Low confidence in both the rufiya and the local banking system was a major concern, he explained, and forcing businesses into it could have wider ramifications.

“We have to build confidence in the financial system, otherwise we will just see black market banks emerge. Businesses need to be confident that their accounts will be protected and confidential, and that this will not be abused for political reasons,” he said.

“For instance, nowhere does a country’s Auditor General state a bank client’s name and debts in [publicly available] audit reports.”

The limited number of cross-currency transactions in local banks showed there was no confidence in the country’s financial system, Adheeb said, as businesses that banked in rufiya could not be confident of receiving dollars when required.

“The Finance Minister needs to provide reassurance that our banks are protected and regulated, and give confidence to businesses that bank confidentiality will be respected. In a small society like this, we have to listen to the entrepreneurs.”

Secretary General of the Maldives Association of Tourism Industry (MATI), ‘Sim’ Mohamed Ibrahim, said all resorts needed a foreign exchange license, and questioned the practicality of both enforcement and restricting these trades to cash: “Even small resorts trade in high volumes,” he said.

The government has meanwhile submitted five bills on taxation to parliament, part of an IMF-sanctioned economic reform package it hopes will radically boost the country’s earnings in future years.
The four bills include the General Goods and Services Tax Bill, Business Profit Tax Bill, Income Tax Bill, an Amendment Bill to Tax Administration Act and an Amendment Bill to the Maldives Import Export Act.