Sri Lanka Races Against Time to Avoid International Grey Listing as Government Intensifies Financial Crime Reforms

President Anura Kumara Dissanayake has launched an urgent, high-level monitoring initiative aimed at shielding Sri Lanka from the heavy financial sanctions and economic limitations that accompany international grey listing. Authorities are currently working to close serious gaps in both legislative structures and institutional staffing in order to satisfy the strict standards set by the Financial Action Task Force. By accelerating these reforms, the government hopes to safeguard the national economy from reputational harm and the higher transaction costs that typically follow a negative global compliance assessment. Officials warn that failing to meet international benchmarks could result in limited access to global capital markets and a sharp drop in foreign investor confidence.

The administration has elevated preparations for the country’s Third Mutual Evaluation to the highest national priority. This review, conducted by the Asia Pacific Group on Money Laundering, functions as a full-scale examination of Sri Lanka’s capacity to detect, prevent, and prosecute financial crimes. President Dissanayake has stressed that the country must demonstrate not only technical compliance with international guidelines but also real-world operational effectiveness. To ensure this, a dedicated operational committee has been formed to track the progress of more than twenty-five state institutions. The central objective is to prevent a repeat of previous failures that resulted in Sri Lanka being placed on the Financial Action Task Force watch list. The direct involvement of the presidency reflects a stronger push toward accountability and a tougher stance on financial integrity.

Government agencies are operating under strict timelines to eliminate long-standing administrative inefficiencies that have historically weakened anti-money laundering enforcement. The President has ordered that all outstanding legislative amendments be accelerated so domestic laws fully align with global requirements. Particular attention is being given to the eleven immediate outcomes defined by international regulators, which measure how effectively laws are implemented in practice. These benchmarks evaluate areas such as the performance of financial intelligence units, the success rate of criminal investigations, and the recovery of illicit assets. By presenting this effort as an issue of national security and economic survival, the leadership aims to overcome bureaucratic delays that typically slow complex legal reforms.

Engagement with the private sector has become another crucial pillar of the preparation process. Financial institutions, casinos, and real estate firms are being reminded of their responsibilities to report suspicious transactions and maintain strict customer due diligence records. Authorities recognize that strong legislation alone is insufficient if reporting entities fail to enforce daily monitoring obligations. As a result, the central bank has intensified its supervisory oversight to ensure reporting entities fully understand the seriousness of the upcoming evaluation. Any shortcomings within the private sector could be interpreted by international assessors as systemic weaknesses, potentially triggering the penalties Sri Lanka is working to avoid.

The possibility of grey listing presents significant risks for a developing economy seeking stable growth. Such a designation signals to the international community that a country has strategic weaknesses in combating money laundering and terrorist financing. For Sri Lanka, this could mean increased scrutiny for every international transfer or foreign investment project, leading to delays and higher costs. The President has emphasized that the country must move beyond cosmetic reforms and instead pursue deep structural changes. A major focus is ensuring that the Financial Intelligence Unit of the Central Bank has sufficient resources and operational independence to function without political interference.

Recent high-level discussions involving the Attorney General, the Inspector General of Police, and the Central Bank Governor have underscored the need for coordinated action against financial crime. A major issue identified is the shortage of specialized professionals capable of managing complex forensic accounting work and legal prosecutions. To counter this, the government is considering bringing back experienced retired experts to strengthen investigative agencies. There is also an effort to ensure that officers trained in financial crime investigations remain in their specialized roles rather than being transferred to unrelated departments. The strategy is intended to create a lasting pool of expertise capable of meeting the demanding standards of international evaluators.

Alongside staffing improvements, investigative agencies are undergoing major technological upgrades. Modern money laundering operations increasingly rely on digital assets and complex shell company networks, requiring advanced data analysis tools to detect. The government is exploring new software platforms capable of tracking cross-border financial flows in real time. By digitizing surveillance capabilities, authorities aim to shorten the time needed to identify high-risk actors and begin legal proceedings. These technological enhancements are also meant to demonstrate to the Asia Pacific Group that Sri Lanka can address modern financial crime threats that extend beyond traditional banking systems.

Sri Lanka’s regulatory history serves as a warning against complacency. Weaknesses highlighted in evaluations conducted in 2006 and 2014 eventually resulted in the country being grey listed in 2017, an outcome the current government is determined to prevent. Current reform efforts involve extensive coordination between the Ministry of Justice, the Ministry of Finance, and multiple law enforcement agencies. The President has instructed the Legal Draftsman’s Department to give top priority to all financial integrity legislation to eliminate technical loopholes that could jeopardize a positive evaluation. These legal reforms are designed to equip prosecutors with stronger tools to trace illicit financial flows and dismantle criminal networks that facilitate money laundering.

The government is also working to strengthen international cooperation frameworks to improve information sharing with foreign jurisdictions. Since money laundering often involves cross-border activity, effective collaboration between international law enforcement agencies is essential. By speeding up responses to mutual legal assistance requests and improving information exchange quality, Sri Lanka aims to demonstrate its commitment to global anti-crime efforts. An upcoming Special Task Force report is expected to provide a detailed action plan identifying remaining compliance gaps and recommending immediate corrective measures ahead of the final evaluation scheduled for November.

Judicial efficiency has become another focal point of the reform drive. Historically, financial crime prosecutions have faced lengthy delays in the court system, often stretching over several years. International monitoring bodies frequently view such delays as evidence of ineffective anti-money laundering enforcement. To address this, authorities are examining the possibility of establishing specialized courts or dedicated judicial benches focused solely on financial crimes. Accelerating the legal process is intended both to deter criminal activity and to show international observers that Sri Lanka has the political determination to prosecute offenders effectively.

Securing a positive evaluation from international regulators is viewed as essential not only for legal compliance but also for long-term economic recovery. A transparent and stable financial system is critical for attracting high-quality foreign direct investment and maintaining strong relationships with global lenders. The President has linked anti-money laundering success directly to broader principles of good governance and transparency. By strengthening financial sector integrity, the government aims to create a business environment where legitimate companies can compete fairly without being undermined by illicit operators. This emphasis on transparency is expected to improve the country’s risk rating among global credit agencies and international financial institutions.

The months leading up to the evaluation are expected to involve intense, coordinated efforts across government institutions. Authorities have been instructed to resolve conflicts of interest and ensure leadership positions in key agencies are filled by qualified professionals. The use of one-year contracts for retired experts and accelerated promotions within the public sector are tactical steps designed to ensure that the most capable personnel are focused on achieving compliance. As the November deadline approaches, the government is signaling its willingness to take all necessary measures to maintain credibility within the global financial system. Ultimately, success will be measured not only by the evaluation outcome but also by the long-term strength and reliability of the national economy.

The broader objective is to build a financial regulatory system strong enough to withstand international scrutiny without requiring constant presidential oversight. The combined focus on legislative reform, human resource strengthening, and technological modernization is intended to form a durable foundation for this goal. By treating the upcoming evaluation as a national priority, Sri Lanka is attempting to move beyond its past reputation and position itself as a responsible participant in the global financial system. The coming months will determine whether these comprehensive reforms are sufficient to convince the international community that the country has made genuine progress in combating financial crime.

A Special Task Force report outlining final compliance requirements is expected within two weeks. President Dissanayake is directly supervising preparation efforts for the third mutual evaluation in an effort to prevent grey listing. The government is rapidly advancing legal and administrative reforms to meet the forty recommendations established by global regulators. Staffing shortages within investigative agencies are being addressed by re-engaging experienced retired professionals. Failure to secure a positive evaluation could result in higher cross-border transaction costs and reduced foreign investment inflows.

By fLEXI tEAM