• Majority of betting activity shifts to untaxed digital platforms
• Police, public servants among those affected by addiction concerns
• Regulatory authority delayed despite repeated commitments
• Port City entities, crypto add layers of complexity
• No safeguards for minors or vulnerable users 

The rapid expansion of the digital economy has introduced a new layer of complexity to Sri Lanka’s regulatory landscape, exposing weaknesses in the island nation’s legislative and institutional framework.

As smartphone penetration and internet accessibility continue to rise, an unregulated digital gambling ecosystem has embedded itself across the island. Operating predominantly from offshore jurisdictions, these platforms have moved far beyond the confines of traditional casino environments, infiltrating households, educational spaces, and State institutions.

At a time when Sri Lanka is navigating the aftermath of its most severe economic crisis in decades, the implications are acute. Following a sovereign default, the Government implemented rigorous austerity measures and substantially increased taxes to meet the fiscal consolidation targets mandated by the International Monetary Fund (IMF). 

While citizens bear the brunt of these economic recovery efforts, the State is losing billions of rupees in potential tax revenue to unregulated platforms. Enforcement agencies remain constrained by legal limitations, and delays in operationalising the Gambling Regulatory Authority have left the country exposed.

In addition, there are reports that public servants and Police officers who play a critical role in regulating and curbing such activities are also engaging in gambling and, in the worst cases, are addicted.

Police officers as victims

The scale of the issue was brought into focus by Inspector General of Police (IGP) Priyantha Weerasooriya.

He said: “I want to emphasise that if a Police officer becomes addicted to or engages in such behaviour, it will be detrimental to both their career and professional responsibilities. We have identified several such cases and have taken prompt and strict action. As a law enforcement agency, we do not engage in rehabilitation in these instances. When such conduct is identified, officers will not be given the opportunity to return to service. They will be removed permanently.”

This admission points to a crisis extending beyond internal disciplinary concerns. The proliferation of online gambling has penetrated multiple layers of Sri Lankan society, including the institutions responsible for enforcing the law. Operators function without implementing safeguards such as age verification, responsible gaming limits, or transparency protocols.

This creates a significant institutional vulnerability. Officers burdened by gambling addiction or severe financial distress risk becoming susceptible to coercion by organised criminal networks, raising the possibility of compromised investigations and deliberate procedural failures within the justice system.

Weerasooriya noted: “Some officers are also found to be struggling with drug addiction. Whether it is drug or gambling addiction, we do not reinstate them after rehabilitation. While rehabilitation programmes are appropriate for the general public, they are not applicable to Police officers.”

The CIABOC mandate

With concerns mounting over the potential for severe financial debt, which could compromise public officials, questions have been raised regarding the role of anti-corruption mechanisms. Commission to Investigate Allegations of Bribery or Corruption (CIABOC) Chairman Justice Neil Iddawela clarified the current status of such investigations within the public sector.

“While the CIABOC remains vigilant regarding emerging trends in corruption, we have not recorded a significant increase in complaints specifically linking bribery solicitations to the settlement of unregulated online gambling debts at this time. The CIABOC continues to monitor all reports involving law enforcement and civil service personnel to ensure any shift in corruption patterns is addressed promptly,” he said.

Addressing whether the commission was coordinating with the Ministry of Public Security to establish early warning mechanisms, Iddawela provided clarity on interagency protocols: “At present, there is no established direct coordination mechanism with the Ministry of Public Security specifically focused on early warning systems for gambling-related vulnerabilities. While the commission maintains a broad mandate to prevent corruption, current interagency protocols primarily focus on the investigation and prosecution of active bribery and corruption cases as defined under the relevant act.”

The scope of the CIABOC remains strictly focused on financial crimes rather than internal disciplinary matters or broader social behaviour. 

Iddawela explained: “The CIABOC’s primary role is to investigate and prosecute the offence of bribery and corruption. The underlying personal motivations such as gambling addiction or debt are generally considered matters of internal administrative discipline and human resources management within the respective departments. 

“Proactive early warning mechanisms to identify vulnerable officers based on their lifestyle or mental health typically fall under departmental supervision rather than a criminal investigative commission. The CIABOC intervenes when that vulnerability translates into a specific act of corruption or an illicit accumulation of wealth, rather than monitoring the social behaviour of public servants.” 

Regarding the proactive use of the Anti-Corruption Act provisions to identify public sector employees accumulating unexplained debts, the CIABOC utilises mandatory asset declarations but maintains strict confidentiality over its methods.

Iddawela noted: “The CIABOC utilises the robust framework provided by the new Anti-Corruption Act to scrutinise asset and liability declarations for any irregularities. However, specific operational methodologies and the internal criteria used to flag financial anomalies or debt patterns are not revealed to the public. Maintaining the confidentiality of these investigative processes is essential to ensuring the integrity and effectiveness of our proactive monitoring systems. 

“While the electronic assets and liabilities declaration system is a powerful tool for transparency, its legal purpose is to identify unexplained wealth and conflicts of interest. Using these declarations as a diagnostic tool for gambling addiction would likely require specific legislative amendments, as the current focus remains strictly on identifying the proceeds of corruption.” 

He further delineated the boundaries between anti-corruption efforts and general law enforcement operations regarding the digital gaming space: “The regulation and policing of unregulated online gambling itself is a matter for the Police and telecommunications regulators. Unless these activities are directly tied to the solicitation of bribes, the operational aspects of gambling control are outside the CIABOC’s legislative scope.” 

Law enforcement agencies are simultaneously constrained in their ability to respond to the broader issue. The absence of operational regulations means that existing gambling laws cannot be directly applied to offshore digital platforms. 

IGP Weerasooriya explained: “In the Sri Lankan context, offshore gambling is not regulated, and online gambling must be brought under proper regulation. Section 15 of the Gambling Regulatory Authority Act, read with Section 39, clearly requires that regulations be formulated before enforcement can take place. Without these regulations, the law cannot be effectively implemented. At present, we rely on other applicable laws, such as fraud statutes, to address related offences where possible.”

Historical context and legislative paralysis

Sri Lanka’s current regulatory crisis is rooted in the historical evolution of its gambling laws. The Betting and Gaming Levy Act No. 40 of 1988 established a structure for taxing physical operations, while the Casino Business Regulation Act No. 17 of 2010 introduced stricter licensing controls for land-based casinos. These legislative frameworks were designed entirely for a pre digital era. Consumers migrated from physical establishments to online platforms, leaving regulators struggling to adapt.

Efforts to modernise oversight through a centralised Gambling Regulatory Authority have been repeatedly delayed. The Cabinet initially approved the regulator in 2023, but subsequent administrative changes required renewed approvals.  

Committee on Public Finance (COPF) Chairman Dr. Harsha de Silva noted: “It is both ironic and difficult to explain. This Government has been in place for over a year-and-a-half, and since 2022 I have documented 37 instances where commitments made by the Treasury have not been fulfilled. The Treasury gave a firm undertaking that the regulator would be operational by 30 June 2026. This timeline has now been pushed to November 2026, which is unacceptable.”

The procurement controversy

In an attempt to accelerate the regulatory process, the authority engaged an international technical expert already based in Sri Lanka. This decision triggered scrutiny regarding institutional transparency. The expert was originally contracted by the Central Bank of Sri Lanka (CBSL) to support the Financial Intelligence Unit (FIU) on anti-money laundering and counter-terrorism financing matters, rather than for specialised expertise in global gambling regulation.

During the COPF proceedings, members questioned the absence of a transparent procurement process. Dr. de Silva argued that the mandate of the FIU differed significantly from the requirements of designing a comprehensive gambling regulatory framework.

Ministry of Finance Department of Legal Affairs Acting Director General Gaya Adhikari defended the decision, noting: “Engaging an international technical expert through standard procurement procedures would take a minimum of three months. For international procurement, there is also a mandatory period of at least 42 days to open bids. Given the urgency, we adopted this as an interim solution by utilising the services of the expert already engaged by the Central Bank under an existing contract. However, this individual will not function as the sole adviser. We also intend to recruit local legal experts to support the process.”

Economic haemorrhage and tax evasion

The economic consequences of the unregulated digital gambling sector are substantial. Capital is flowing out of Sri Lanka through offshore betting platforms, contributing to foreign exchange losses. A significant portion of traditional casino revenue has shifted online, creating a structural imbalance. While land-based operators remain subject to taxation and oversight, digital operators frequently operate outside the tax net.

Dr. de Silva stated: “Every delay in establishing regulations is leading to serious consequences, both socially and economically. Online gambling is a massive industry, encompassing sports betting and casino operations, yet not a single cent in tax revenue is being collected. We estimate that at least 60% of casino revenue is now generated online, with no contributions being made. At a time when the Government is taxing essential goods such as food, fuel, electricity, and gas, it is remarkable that this substantial daily turnover remains entirely untaxed.”

Parliamentary data indicates that only 29 companies currently contribute tax revenue linked to online gambling, while numerous others operate entirely outside regulatory oversight. Concerns have also been raised regarding entities registered within the Port City Colombo under information technology classifications. Authorities suspect that some of these entities may be conducting gambling-related operations while benefiting from preferential tax regimes.

Policymakers have proposed aligning with international best practices. One model under discussion involves requiring operators to physically host servers within Sri Lanka, ensuring regulatory visibility and tax compliance. The Inland Revenue Department (IRD) confirmed that future regulations would mandate local incorporation for all operators. 

An IRD official, speaking at the COPF sittings, clarified: “As stipulated under Section 16 of the newly enacted Gambling Regulatory Authority Act, any operator, whether digital or land-based, must establish an incorporated entity within Sri Lanka. This will be a mandatory requirement.” 

Global benchmarks illustrate the scale of missed revenue opportunities. On this, Dr. de Silva noted: “In the United Kingdom, taxation on online casino gaming is set to increase from 21% to 40%.”

Technological constraints and cryptocurrency

Enforcement of future regulations faces technological limitations. The Telecommunications Regulatory Commission of Sri Lanka (TRCSL) currently lacks the legal authority to block unauthorised gambling websites. The mandate of the TRCSL is confined to spectrum allocation and telecommunications infrastructure regulation.

The emergence of cryptocurrency adds a complex layer. The COPF examined whether cryptocurrency transactions fall within the definition of gambling. While digital assets are not inherently classified as gambling, their use as a medium for betting introduces regulatory ambiguity, given the position of the CBSL that cryptocurrencies remain neither fully legal nor illegal in Sri Lanka.

A threat to youth and society

The societal impact of unregulated online gambling is pronounced among younger demographics. Platforms increasingly employ gamified mechanics such as in game purchases, randomised rewards, and progression-based payments. Without enforceable safeguards, minors face unrestricted exposure. 

Dr. de Silva noted: “Many of these online platforms are deliberately targeting children. They are designed in a way that does not immediately appear to be gambling. For example, a user might be playing a flight simulation game where they are shot down, and to continue, they must make a payment. There are numerous such operations being run from within Sri Lanka, yet there is no regulatory oversight.” 

Consumers remain unprotected in cases of fraud or non-payment, as offshore operators fall outside the jurisdiction of Sri Lankan civil law.

The regulatory response

In response to pressure from Parliament and the public, the Ministry of Finance initiated steps to operationalise the Gambling Regulatory Authority. An interim staff has been approved, office space has been acquired at the BMICH, and recruitment for a permanent director general is underway.

Adhikari said that the process was progressing cautiously due to the complexity of establishing a new regulatory regime.

“We expect to receive the first set of draft regulations by the end of next month. These will likely constitute the core mandatory provisions required to operationalise the authority and implement its statutory responsibilities. While concerns regarding delays are valid, it is important to note that this is a new and evolving regulatory domain, and we are still in the process of developing the necessary institutional and structural frameworks.” 

When questioned on whether the forthcoming regulatory framework would specifically address gambling-related vulnerabilities among State sector employees and extend oversight to State-run entities such as the National Lotteries Board (NLB), Adhikari indicated that these concerns would be taken into account. Acknowledging the complexity of the task, she emphasised that the authority remained in the early stages of institutional development.

“The ecosystem itself is still developing and officials are in the process of assessing and establishing appropriate long-term institutional structures,” she explained.

Sri Lanka has initiated technical cooperation with international regulators, including Singapore, to study enforcement frameworks. Direct adoption remains challenging due to differing policy environments, as Singapore strictly prohibits digital casinos.

Adhikari said: “We are currently engaging with Singapore and exploring avenues for technical cooperation. While their regulatory model cannot be adopted in full due to differences in policy, there are valuable lessons and best practices that can be applied in specific areas.” 

The proposed regulatory framework will encompass all operators, including State-run lotteries transitioning into digital platforms, ensuring uniform oversight. The COPF has strongly urged immediate interim measures to stem revenue losses.

“There is a substantial amount of revenue being lost on a daily basis. If interim measures can be introduced to capture even a portion of this leakage while the full regulatory framework is being developed, it would have a meaningful impact,” Dr. de Silva pointed out.

Sri Lanka stands at a critical juncture. Years of regulatory delay have enabled the emergence of an unregulated digital gambling economy. The coming months will determine whether the State can successfully reassert control, protect its vulnerable populations, and transform a major source of economic leakage into a highly structured and sustainable revenue stream.