Cryptocurrencies are the talk of the town today, following revelations that a Cabinet Minister has significantly declared crypto savings in an asset declaration. This comes in the wake of legal ambiguity about if cryptocurrencies are legal in Sri Lanka. Also, with Sri Lanka moving to expand local casino operations, concerns about the use of cryptocurrencies, and misuse are increasing. In March 2023, The Central Bank of Sri Lanka (CBSL) issued a statement which stated: “The public is reminded that cryptocurrencies are unregulated investment instruments which are not recognised as an asset-class in Sri Lanka. Further, cryptocurrencies are not considered as legal tender in Sri Lanka and have no regulatory safeguards relating to their usage in the country. As per the Directions No. 03 of 2021 under Foreign Exchange Act, No. 12 of 2017, Electronic Fund Transfer Cards (EFTCs) such as debit cards and credit cards are not permitted to be used for payments related to cryptocurrency transactions. Cryptocurrency operates through informal channels, and therefore, it does not contribute to the national economy and can also cause a loss of valuable foreign currency to the country.”
According to some UN agencies, the risk of cryptocurrencies being used for illicit activities including money laundering is high, and many nations have established task forces or legislation regarding such activities. Money laundering using cryptocurrencies follows the general pattern of placement-layering-integration but with some specific features. “Cryptocurrencies are anonymous at their point of creation therefore, the placement stage of the money laundering process is often absent. It only takes a few seconds to create an account (‘address’) and this is free of cost. It is only possible to use each account twice: to receive money and then transfer it elsewhere. It is possible to create a large money laundering scheme with thousands of transfers at a low cost and to execute it using a computer script. Due to rapid increases in exchange rates, with some cryptocurrencies showing 10,000% growth, it is very easy to justify unexpected wealth through cryptocurrencies,” the UNODC (United Nations Office on Drugs and Crime) stated.
In 2024, a report by the same UN agency, titled; ‘Casinos, Money Laundering, Underground Banking, and Transnational Organised Crime in East and Southeast Asia: A Hidden and Accelerating Threat’, revealed that casinos, junkets, and cryptocurrency have emerged as a critical piece of the underground banking and money laundering infrastructure in East and Southeast Asia, fuelling transnational organised crime in the region. “Casinos and related high-cash-volume businesses have been vehicles for underground banking and money laundering for years, but the explosion of underregulated online gambling platforms and crypto exchanges has changed the game,” UNODC Regional Representative for Southeast Asia and the Pacific Jeremy Douglas said, adding that: “Expansion of the illicit economy has required a technology-driven revolution in underground banking to allow for faster anonymised transactions, commingling of funds, and new business opportunities for organised crime. The development of scalable, digitised casino- and crypto-based solutions has supercharged the criminal business environment across Southeast Asia, and particularly in the Mekong.” The scale of the issue globally, and concerns are as such, that later this month, the UNODC and EUROPOL (European Union Agency for Law Enforcement Cooperation) will hold the 9th Global Conference on Criminal Finances and Cryptoassets at the UNODC headquarters in Vienna, Austria. The annual event brings together practitioners and experts to advance global efforts to counter criminal use of crypto.
Sri Lanka has given this Government a historic mandate to improve transparency, root out corruption and build accountability in the island. Thus far the Government has indicated that it has the political will to do so. However, the State must also be proactive and far thinking, with the ongoing drug trafficking and drug abuse crisis in Sri Lanka, and more information about corruption being revealed each day, they must move quickly to block, plug gaps in legislature or regulate technologies and industries which have been flagged for being complicit in organised crime, especially money laundering. The Government must start with improving transparency, leading the way by being transparent themselves, and enacting mechanisms to make every sector in the country comply with such laws. There is also a need to move quickly to build the required expertise and system to prevent such risks being exploited by criminals and other malicious actors.