Sri Lanka

Last Updated: 20/03/2015
 


CENTRAL AUTHORITY FOR REPORTING

Financial Intelligence Unit.


ARE LAWYERS COVERED BY ANTI- MONEY LAUNDERING LEGISLATION?

Yes. Section 33 of the Financial Transactions Reporting Act No. 6 of 2006 (the “FTR Act”)states that “designated non-finance business” (DNFBP) include lawyers when they prepare for or carry out transactions for their clients in relation to any of the following activities:

(i)             buying and selling of real estate;

(ii)            managing of client money, securities or other assets;

(iii)           management of bank, savings or securities accounts;

(iv)          organisation of contributions for the creation, operation or management of companies; and

creation, operation or management of legal person or arrangements and the buying and selling of business entities


NAME LAWS REGARDING ANTI-MONEY LAUNDERING PROCEDURES

Convention on the Suppression of Terrorist Financing Act No. 25 of 2005 as amended by Acts of 2011 and 2013

Prevention of Money Laundering Act No. 5 of 2006 as amended by Act, No. 40 of 2011

No 6 of 2006.

Financial Transactions Reporting Act

Mutual Assistance in Criminal Matters Act, No 25 of 2002.

Extradition Law, No 8 of 1977.


ARE VISITING LAWYERS SUBJECT TO LOCAL LAWS REGARDING ANTI-MONEY LAUNDERING, AND, IF SO, TO WHAT EXTENT?

There are no specific provisions applicable to visiting lawyers in Sri Lanka.  However, the provisions applicable to lawyers generally will be applicable to visiting lawyers as well.


LIST ANY MONEY LAUNDERING GUIDANCE FOR LAWYERS (FOR EXAMPLE, LAW SOCIETY OR BAR ASSOCIATION GUIDELINES) CURRENTLY IN PLACE.

There are no specific guidelines available for lawyers.  


IS THE LAW SOCIETY/BAR ASSOCIATION INVOLVED IN SUPERVISING OR ENFORCING COMPLIANCE WITH ANTI-MONEY LAUNDERING REGULATIONS?

 

The position of the Bar Association of Sri Lanka is unclear. However, the Asia/Pacific Group Mutual Evaluation report dated 5 July 2006 (the “APG Report”) states that legal professionals, solicitors, and barristers in Sri Lanka are regulated by the Supreme Court, which determines eligibility for admission to the legal profession and issue rules on their conduct. The APG Report further states that discussions with the Bar Association of Sri Lanka indicated that it is an unincorporated society. However, the Judicature Act recognises the Bar Association, which acts as a Self-Regulatory Organization (SRO) for the profession. It has certain disciplinary roles and lays down modalities for calling to lawyers to the bar, taking of oaths and so on. The Bar Association also has role in continuing education program for the lawyers. However, ultimate power over members lies with the Supreme Court. 


DESCRIBE CLIENT DUE DILIGENCE REQUIREMENTS, INCLUDING WHEN IT MUST BE UNDERTAKEN BY LAWYERS.

The FTR Act in section 2 (2) provides that an institution shall, subject to any rules issued by the FIU, use any official document or other reliable and independent source document to verify the identity of the customer, in cases where the institution:

(a)   enters into a continuing business relationship, or in the absence of such a relationship, conducts any transaction, with any customer;

(b)   detects the carrying out of an electronic funds transfer by a customer, other than any prescribed transactions;

(c)   entertains a suspicion relating to the commission of an unlawful activity; or

(d)   entertains doubts about the veracity or adequacy of the customer identification and verification documentation or information it had previously obtained.   

 

Alternatively, section 2 (5) states that the provisions above do not apply:

(a)   if the transaction is part of an existing and regular business relationship with a person who has already produced satisfactory evidence of identity unless the institution has reason to suspect that the transaction is suspicious or unusual;

(b)   if the transaction is an occasional transaction not exceeding a prescribed sum unless the institution has reason to suspect that the transaction is suspicious or unusual;

(c)   if any person has been a customer of the institution prior to the enactment of the FTR Act, subject to a phase-in period which shall not exceed three years;

(d)   in such other circumstances as may be prescribed by regulations made in that behalf.

 

The client due diligence (“CDD”) requirements pursuant to section 4 (2) includes keeping records that identify:

(a)   name, address and occupation (or where appropriate business or principal activity) of each person:

                      i.     conducting the transaction; and

                     ii.     where applicable, on whose behalf the transaction is being conducted;

(b)   nature and date of the transaction;

(c)   type and amount of currency involved;

(d)   parties to the transaction;

(e)   the name and address of the employee who prepares the record; and

(f)    such other information as may be specified in rules issued by the FIU.

 

The IMF in Country report No 08/18 dated January 2008 (the “IMF Report”) highlights that there is no distinction in the application of the CDD, record keeping and suspicious transaction reporting obligations of the FTR Act, to institutions that are engaged in “finance business” and those engaged in “designated non-finance business”. The requirements will apply on a business relationship basis or a transaction basis, depending on the activities of the DNFBP.

 

Similarly, the IMF Report states that there is little awareness within the DNFBP sectors of the FTRA and CDD requirements. The authorities have not conducted consultation or outreach with these sectors regarding the FTR Act. There are no existing guidelines or mechanisms for monitoring and ensuring compliance of DNFBPs with AML/CFT requirements. The shortcomings in legal arrangements, regulations and guidelines and their implementation noted above in relation to financial institutions apply also to the DNFBP sector. This situation is exacerbated by the fact that there are insufficient supervisors or SROs to facilitate implementation of FTRA across the various DNFBP sectors.

 

The APG Report also reports that there is no requirement under the FTR Act to determine whether the customer is acting on behalf of another person and to identify that person. Nor is there a requirement under the FTR Act to understand the ownership and control of legal entities or identify their beneficial owners. Although it is a common business practice for financial institutions in Sri Lanka, there is no requirement under the FTR Act to obtain information on the purpose and intended nature of the business relationship. 

 


DOES YOUR COUNTRY FOLLOW A RISK-BASED APPROACH TO CLIENT DUE DILIGENCE BY LAWYERS?

Some risk-based elements of the CDD procedures are outlined in subsection 29(2) of the FTR Act. This subsection provides that regulations will be issued in respect of the identification of appropriate risk management systems consistent with the Recommendations of the Financial Action Task Force, including the categorization of customers and the manner in which senior management approval is to be obtained before establishing business relationships with high-risk customers. 


ARE THERE ENHANCED DUE DILIGENCE MEASURES FOR CERTAIN TYPES OF CLIENTS, FOR EXAMPLE, POLITICALLY EXPOSED PERSONS?

The legislation does not specify whether enhanced CDD and monitoring would be required for customer categorized as high-risk. Consequently, there are no specific measures in place for politically exposed persons. 


ARE THERE SIMPLIFIED DUE DILIGENCE MEASURES FOR CERTAIN TYPES OF CLIENTS, FOR EXAMPLE, LISTED COMPANIES?

 

There are no provisions in respect of low-risk customers or transactions.


ARE LAWYERS PERMITTED TO RELY ON THIRD PARTY DUE DILIGENCE?  IF YES, PLEASE DESCRIBE.

The FTR Act requires institutions to obtain and verify customer information, but does not specify whether these measures must in all cases be performed directly by the institution, as opposed to relying on another person or entity. In fact, the APG Report highlights that the FTR Act does not specify the application of the CDD requirements when business relationships are initiated through third parties and introducers.

 

The APG Report recommended that FTR Act or regulations spell out specific requirements that financial institutions should follow, in the absence of contractual arrangements, when they rely on a third party to perform CDD. The provisions should specify that financial institutions:

·         obtain the necessary customer information from the third party immediately upon the establishment of business relationship;

·         satisfy themselves that the third party is able to provide the CDD documentation to them on a timely basis upon request;

·         satisfy themselves that the third party is appropriately regulated and supervised and has measures in place to comply with the CDD requirements (e.g., it is located in a country that adequately applies the FATF Recommendations); and

·         remain ultimately responsible for the proper performance of CDD measures and compliance with the FTR Act.


WHEN IS A LAWYER UNDER AN OBLIGATION TO REPORT SUSPICIOUS TRANSACTIONS?

Under Section 5 of the PML Act, the duty to report is absolute. Therefore any person who knows or has reason to believe from information or other matter obtained by him in the course of any trade, profession, business or employment carried on by such person, that any property has been derived or realised from any illegal activity, shall disclose his knowledge or belief as soon as is practicable, to the Financial Intelligence Unit.

However, the effect of this absolute duty is whittled down by section 13 of the FTR Act which states:

Nothing contained in sections 4,5,6,7 or 8 of the FTR Act shall be construed as requiring a lawyer to disclose any privileged communication only if –

(a)   it is a confidential communication, whether oral or in writing, passing between –

  1. a lawyer or legal advisor in his or her professional capacity and another barrister, solicitor, lawyer attorney or legal advisor in such capacity; or
  2. a lawyer, or legal advisor in his or her professional capacity and his or her client, whether made directly or indirectly through an agent of either; and

(b)   it is made or brought into existence for the purpose of obtaining or giving legal advice or assistance; and

it is not made or brought into existence for the purpose of committing or furthering the commission of some illegal or unlawful act.


DOES ATTORNEY/CLIENT PRIVILEGE AND/OR DUTIES OF CONFIDENTIALITY PROVIDE A DEFENCE OR PARTIAL/TOTAL EXCEPTION TO THE REQUIREMENT TO REPORT SUSPICIOUS TRANSACTIONS? 

Section 13 of the FTR Act provides that a lawyer need not disclose any privileged communication of a confidential nature exchanged between a lawyer and a client, unless the communication was made for the purpose of committing an unlawful act.


DOES LOCAL LAW PROVIDE ANY CRIMINAL AND/OR CIVIL INDEMNITY TO A LAWYER WHO HAS REPORTED A SUSPICIOUS TRANSACTION?

Section 12 of the FTR Act states that no civil, criminal or disciplinary proceedings shall lie against:

 

(a)   an institution, an auditor or supervisory authority of an institution; or

a director, partner, an office, employee or agent acting in the course of that person’s employment or agency of an institution, firm or auditors or of a supervisory authority, in relation to any action by the institution, the firm of auditors or the supervisory authority or a director, partner, officer, employee or agent of such institution, firm or authority, carried out in terms of the FTR Act in good faith or in compliance with regulations made under the FTR Act or rules or directions given by the FIU. 


ONCE A SUSPICIOUS TRANSACTION REPORT HAS BEEN FILED, IS A LAWYER ALLOWED TO PROCEED WITH THE LEGAL ADVICE/TRANSACTION, AND, IF SO, MUST CONSENT FROM AUTHORITIES BE OBTAINED FIRST?

Sri Lanka law does not specifically provide for such a situation.  


IS THERE A TIPPING-OFF PROHIBITION?  IF YES, PLEASE DESCRIBE

Yes. Section 9 of the FTR Act states that a person shall not disclose to any other person that a report has been made. Similarly, section 6 of the PML Act prohibits tipping-off and prescribes a fine not exceeding fifty thousand rupees and/or imprisonment of a period not exceeding six months. 


DESCRIBE ANY RESTRICTIONS ON ACCEPTING A NEW CLIENT

There are no specific restrictions.  


ARE THERE ONGOING MONITORING REQUIREMENTS FOR EXISTING CLIENTS?  IF YES, PLEASE DESCRIBE

Section 5 of the FTR Act provides that an institution shall conduct ongoing CDD on the business relationship with its customer.  


DESCRIBE ANY OTHER WAYS IN WHICH LAWYERS ARE AFFECTED BY ANTI-MONEY LAUNDERING LEGISLATION

None


HAVE LAWYERS IN YOUR JURISDICTION BEEN IMPLICATED IN MONEY LAUNDERING, INCLUDING ANY TYPE OF COMPLAINT, ARREST OR PROSECUTION?

We are not aware of any such circumstances


HAS THE FINANCIAL ACTION TASK FORCE (FATF) OR A FATF-STYLE REGIONAL BODY CONDUCTED A MUTUAL EVALUATION OF THIS COUNTRY, AND, IF SO, WHAT WERE THE FINDINGS CONCERNING LAWYERS’ COMPLIANCE WITH THE FATF 40+9 RECOMMENDATIONS?

The Asia/Pacific Group is the FATF style regional body and it released the APG Report. The Report concluded that there is no specific offence for non-reporting or failure to conduct customer due diligence. Sri Lanka has yet to determine which regulatory body will be responsible for monitoring the compliance of DNFBPs with the FTR Act and imposing sanctions for non-compliance. Consequently, Sri Lanka should review its CDD requirements and educate institutions of their AML requirements.  


 

Information provided by:

Ayomi Aluwihare-Gunawardene,

FJ&G de Saram

E-mail: ayomi.aluwihare@fjgdesaram.com or fjgdesaram@fjgdesaram.com.