As Sri Lanka investigates an alleged US$715 million foreign exchange fraud involving shell companies, fake import documentation and international money laundering networks, an equally significant battle is unfolding within the Government itself one over responsibility.
The controversy has laid bare growing tensions between the Ministry of Finance and the Central Bank of Sri Lanka (CBSL), with each institution pointing to legislative shortcomings while critics question whether regulatory failures allowed one of the country’s largest alleged foreign exchange leakages to continue largely undetected.
According to the Criminal Investigation Department (CID), approximately US$715 million was transferred overseas through 105 companies between January 2023 and March 2026 using import transactions that never resulted in goods entering Sri Lanka. The investigation encompasses 55 individuals, 227 bank accounts and nearly 24,300 telegraphic transfers handled by 13 commercial banks.
The scale of the operation has shocked policymakers because the transactions reportedly occurred through the formal banking system rather than underground financial channels.
The CBSL has argued before Parliament’s Committee on Public Finance that the principal obstacle has been the Foreign Exchange Act of 2017, which replaced the Exchange Control Act and removed criminal sanctions for many foreign exchange violations. Without those provisions, investigators have been forced to pursue offences indirectly through money laundering and organised crime legislation instead of prosecuting the foreign exchange offences themselves.
Recognising the gap, the Finance Ministry has announced plans to amend the legislation and restore criminal penalties for deliberate foreign exchange fraud involving false documentation and fraudulent advance import payments.
However this legislative reversal inevitably raises difficult questions.
If regulators now concede that criminal sanctions are essential, why were adequate safeguards not introduced sooner after weaknesses became apparent? How did tens of thousands of transactions involving shell companies proceed through multiple banking institutions without triggering effective intervention? And were existing compliance systems sufficiently robust to identify suspicious patterns before hundreds of millions of dollars left the country?
Investigators have further alleged collusion involving banking officials while tracing elements of the network to Dubai-based narcotics traffickers. One suspect is alleged to have controlled 43 companies responsible for approximately US$43 million in overseas remittances, highlighting how sophisticated corporate structures may have been used to disguise illicit financial flows.
Committee Chairman Dr. Harsha de Silva observed that investigators face legal constraints under the present framework, reinforcing concerns that legislative reform has lagged behind increasingly sophisticated financial crime.
Supporters of the proposed amendments argue that restoring criminal liability for serious foreign exchange offences will strengthen enforcement without reversing Sri Lanka’s liberalised exchange regime. Administrative breaches would continue to attract civil penalties while deliberate fraud would once again become a criminal offence.
However, the affair has evolved beyond a debate over legal technicalities. It has become a referendum on regulatory vigilance, institutional coordination and governmental accountability.
For a country still rebuilding depleted foreign reserves after an unprecedented economic crisis, the investigation serves as a reminder that safeguarding foreign exchange requires not only modern legislation but also effective supervision, rapid enforcement and seamless cooperation among every institution entrusted with protecting the nation’s financial integrity.
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