• 105 companies allegedly sent Rs. 214 b abroad for goods that never arrived 
• Around 24,300 transfers moved through 227 accounts across 13 major banks
• Shell companies, dummy directors, forged invoices allegedly used to move foreign currency overseas
• Banks allegedly bypassed key safeguard by entering a single dot in mandatory reference fields
• FIU tells COPF that it warned of the risks as early as 2021
• Four bank officials and alleged scheme operator remanded until 3 September

Speaking in Parliament on 25 June in his capacity as Head of State and Minister of Finance, President Anura Kumara Dissanayake revealed that investigations were underway into nearly $ 1 billion systematically siphoned out of the country through fraudulent trade and banking channels since 2023.

The President told the House that funds generated through organised crime, drug trafficking, and corruption had been laundered overseas via Telegraphic Transfers (TTs) and advance payments for phantom imports, using fake import documentation and fictitious shell companies. No actual goods, he said, had ever arrived in the country.

“There is money earned from drugs, corruption, and organised crime. We have started investigations into this,” he said, adding that certain bank branches and bank managers were allegedly involved and that the same illicit activity had continued even after those managers had moved to other banks.

SDIG Karawita’s COPF statement

Following the President’s disclosure, Parliament’s Committee on Public Enterprises (COPE) summoned the relevant authorities in July and Senior Deputy Inspector General of Police (SDIG) Asanka Karawita provided a detailed statement on the scale of the Police investigation. He told the committee that the Police had queried and analysed corporate data for close to 500 suspicious companies through the Registrar of Companies (ROC).

Figures presented by the Public Security Minister showed 28,000 flagged transactions, of which 20,000 were assessed as highly suspicious and had slipped through standard verification. Investigators had identified 3,300 outstanding shell companies linked to the loophole, while commercial banks were found to have processed 24,000 outward transactions without matching Customs reference numbers.

SDIG Karawita also confirmed that a portion of the siphoned funds had moved through cryptocurrency channels. “The crypto side is that siphoning of funds has been actively taking place through USDT,” he told the committee, adding that Police and Customs had already mapped other active networks beyond those already charged. “We have identified a significant number of other companies and a large group of people who are currently actively engaged in this exact illegal business in Sri Lanka.”

Officials said the intention was to focus prosecutions on an estimated 105 ring-leaders rather than impose restrictions on the country’s roughly 18,000 legitimate importers, and that any bank branch or officer found to have knowingly facilitated the scheme – particularly where drug trafficking was involved – would be criminally prosecuted.

Arrests and court proceedings

Less than a month after the COPE session in July, the Financial Crimes Investigation Division (FCID) of the Criminal Investigation Department (CID) arrested four managers of four private commercial banks at their respective workplaces, in connection with an alleged $ 1 billion transfer carried out by a Colombo Fort-based money changer. Police said the arrests were believed to be the first of their kind in Sri Lanka for an investigation of this nature. The four were remanded until 20 August by the Colombo Magistrate’s Court.

Investigators told the court that the man behind the scheme, Jeffrey Mohamed, had made weekly payments to the four bank officials, ranging between Rs. 30,000 and Rs. 100,000 at different times, with one manager allegedly receiving approximately Rs. 1 million on a single occasion. Mohamed himself had been arrested separately and earlier by the FCID, in connection with the wider investigation; Rs. 1 million had reportedly been found in his possession at the time. 

Court records showed that 89 companies had allegedly remitted more than Rs. 190 billion in US Dollars overseas through his network, which investigators traced back to an institution known as Next Gen. Of those, 36 companies were found to have been used by individuals posing as company owners purely to open accounts for the scheme, moving Rs. 75 billion in US Dollars through 10,151 transactions.

The case also surfaced an alleged narcotics link. During the questioning of four suspects arrested over drug trafficking in the Negombo area, investigators say they uncovered information concerning an alleged drug trafficker known as ‘Konda Ranji’. Funds allegedly generated through drug trafficking, prosecutors told court, had been transferred from an account belonging to an individual identified as ‘Weli Chandana’ to an account held by A.Y. Investments – Mohamed’s company – with Senior State Counsel Oswald Perera informing court that around Rs. 6 million in US Dollars had subsequently been remitted overseas through it.

On 20 August, Mohamed and the four bank officials were produced together before Colombo Chief Magistrate Asanga S. Bodaragama and their remand was extended to 3 September. The FCID told court that steps were being taken to indict Mohamed before the High Court under the Poisons, Opium, and Dangerous Drugs Ordinance and the Prevention of Money Laundering Act, and that he had deposited more than Rs. 6.5 million into bank accounts in connection with drug trafficking. A separate case relating to alleged drug trafficking is pending against him before the Negombo Magistrate’s Court, which had remanded him until 2 September.

Investigators said that while 89 bank accounts had been registered in Mohamed’s name, only 36 companies had actually been used for transactions. Statements from the manager of the fifth suspect indicated that money had also been remitted through two further companies, in addition to six identified earlier. The FCID sought court permission to record statements from bank officials between 24 August and 2 September and said it was examining whether Mohamed had paid bribes to the other suspects – a line of inquiry that could be referred to the Commission to Investigate Allegations of Bribery or Corruption (CIABOC).

Defence counsel for the second suspect argued that his client had been suspended from duty during 2023–2024, the period during which the alleged fraud at his bank took place, and therefore had no access to the bank’s systems at the relevant time. Counsel for the third suspect rejected allegations that his client had accepted a bribe. Lawyers for the fourth and fifth suspects also sought bail. The Magistrate ordered investigators to determine whether senior bank officials had any involvement in the overseas remittances, to report on what action the banks concerned had taken, and to arrest and produce before court any further suspects identified.

Loopholes identified by COPF

The COPF examined the systemic failures behind the fraud at a sitting on 21 July chaired by Dr. Harsha de Silva. Statements of the officials there put the scale of the underlying problem well beyond either case already before the courts, with an estimated $ 40–50 billion in export proceeds said to be remaining outside the country.

The ROC was described during the sitting as compromised by outdated systems and weak verification, with a lack of data-sharing between the ROC, the Department of Inland Revenue, and the Ministry of Industry allowing shell companies to be registered with little oversight.

SDIG Karawita told the committee that dummy directors were routinely used to front these companies. “When we investigate these companies, we find directors who do not own shops or even work as three-wheeler drivers,” he said. “They are fronts for rings moving millions of dollars in foreign exchange.”

Such shell entities typically had no verifiable business address, forged registration papers that went unverified under the ROC’s manual processes, and near-identical names – such as ABC and A.B.C. – designed to frustrate reconciliation. The ROC’s ageing IT infrastructure, the inquiry heard, takes two to three days simply to process a single document upload, which rules out real-time verification.

A second failure centred on the Unique Reference Number (URN), a mandated protocol meant to reconcile every dollar sent abroad against physical goods actually received. The COPF was told that commercial banks – acting as delegated authorities – had been entering a single full stop into mandatory URN fields simply to force the system to accept payments without a valid reference code, bypassing the safeguard altogether.

Dr. de Silva questioned R.R.S. De Silva Jayatillake of the Central Bank of Sri Lanka’s (CBSL) Supervision Department on the matter; Jayatillake said the CBSL’s oversight operated on a macro-prudential basis, focused on capital and liquidity rather than individual transactions. Dr. de Silva said this had left the CBSL monitoring broad indicators while transaction-level abuse went unchecked. The inquiry also noted that bank managers implicated in these schemes had, in some cases, moved between institutions while retaining the same networks of clients.

A further loophole was identified in small-parcel courier shipments – through operators such as DHL and FedEx – which bypassed the scrutiny applied to sea freight. Customs officials acknowledged that the Automated System for Customs Data (ASYCUDA) did not fully integrate courier-shipped machinery parts into remittance-matching until 2023, creating a reconciliation lag. This meant importers could pay the correct duties to clear goods through Customs while the corresponding trade payment remained unverified and, in some cases, was inflated to facilitate capital flight.

What the FIU said

The Financial Intelligence Unit (FIU) told the committee that the risks had been flagged well before the fraud came to light. Its Director said red flags over trade-based money laundering had been issued to banks as early as 2021, with letters sent that year to the President’s Secretary, the Treasury, and the Central Bank Governor, warning specifically of the risk of siphoning through advance payments. 

Those warnings, the FIU said, had been largely unheeded. The committee pointed to Act No. 12 of 2025 on beneficial ownership, taking effect in September 2026, as a measure intended to unmask the true owners behind dummy directors and give investigators the means to pierce the corporate veil of shell companies.

What Customs said

Sri Lanka Customs told the Inspector General of Police, in three reports submitted on 20 January, 23 February, and 6 March 2026, that 89, four, and 12 companies, respectively – 105 in total – had remitted money abroad under the guise of importing goods that never arrived. Across these companies, Customs said, approximately Rs. 214.7 billion had been remitted via TT with no corresponding goods brought into the country. The CID opened its investigation on this basis.

Investigators later established that although 105 companies were involved, only 55 individuals had operated as directors or company secretaries across all of them, moving funds through 227 bank accounts and roughly 24,300 TT transfers between 1 January 2023 and March 2026, spanning 13 major public and private commercial banks. One suspect – presenting himself as the owner of 43 of the 105 companies – allegedly remitted around $ 43 million alone, obtaining forged invoices from local brokers before submitting them to banks with, investigators allege, the assistance of certain bank officers.

The investigation also traced a transnational dimension: funds belonging to an alleged drug trafficker operating from Dubai were allegedly channelled through the same network and two suspects were subsequently repatriated from Dubai through Interpol and remanded. 

A separate lead emerged from a routine Police check in the Kelaniya Police Division, where officers inspecting a three-wheeler discovered Rs. 30 million in cash intended for deposit into a company running an identical remittance scheme – a discovery that opened a further branch of the investigation, in which nearly $ 40 million had allegedly been smuggled out through one State bank and two private banks.

The COPF directed the Deputy Secretary to the Treasury to establish a joint statutory task force – comprising the Treasury, Customs, Police, CBSL, and the FIU – with two months to deliver a reform report addressing the ROC’s manual systems, the URN dot loophole, and the courier shipment gap, while also getting ahead of what officials described as the likely next channels for capital flight: unregulated cryptocurrency transfers and casinos.

Practical situation

A senior official at the internal audit department of one of Sri Lanka’s leading banks, speaking to The Sunday Morning on condition of anonymity, explained in detail how the fraud worked within routine trade finance processes.

He said telegraphic transfers were primarily used for foreign currency payments outside Sri Lanka. “While domestic rupee transactions are handled via the Central Bank’s Common Electronic Fund Transfer Switch (CEFTS) system, 99% of TTs are for foreign exchange payments – such as imports, medical treatments, or foreign university tuition fees.” In international trade, he explained, the bank served as a vital intermediary to bridge the trust gap between buyer and seller. “The importer needs assurance that the goods will actually arrive, while the exporter needs guarantee of payment.”

There are four standard payment methods used in such transactions, he said: open accounts, advance payments, documentary collections, and Letters of Credit (LCs). Under an open account, money is transferred directly between partners who share a long-standing, deep trust – he cited major garment manufacturers sending funds directly to suppliers in China or South Korea. In an advance payment arrangement, a portion of the funds is sent upfront and the remainder settled after cargo clearance documents, such as bills of lading and goods receipt notes, are verified. 

Under documentary collections, the exporter sends shipping documents directly to the bank, which are released to the importer either immediately upon payment or upon a promise to pay within 60–120 days. Under an LC, the importing bank is legally bound to pay the exporter once compliant documents are presented – even if the importer later claims the goods are damaged or of poor quality, since payment cannot be withheld under international governing rules if the documents themselves are in order.

It was the advance payment system, he said, that fraudsters in the current had exploited according to the available information: funds were sent upfront, and forged cargo documents were then used to release the remaining balance, reportedly with the assistance of colluding bank staff. He noted that the CBSL had strict guidelines requiring that any import transaction not settled within 90–180 days be reported immediately, since unreconciled foreign currency outflows were treated as a serious regulatory matter. Even so, he said, verification had clear limits: banks can check that documents are authentic using tools such as QR code scanning, but cannot physically verify the goods themselves.

“Even if bank officers visit the port, we can only see the locked containers. Only Customs has the authority to open them. Bank staff often lack the technical expertise to inspect and verify complex industrial equipment,” he added.

Box

Illicit forex outflows fuel inflation, crime and investor concern

University of Colombo Department of Economics Professor Priyanga Dunusinghe told The Sunday Morning that illicit foreign exchange outflows could have far-reaching consequences for Sri Lanka’s economic recovery, affecting the exchange rate, inflation, investor confidence, and the country’s ability to combat financial crime.

“When an economy is going through a severe foreign exchange crisis, every dollar is critical. Taking foreign exchange out of the country under such conditions is highly detrimental to our recovery. This is not simply about losing a certain amount of dollars. It directly affects the exchange rate. As the rupee depreciates, the prices of essential imported goods increase, driving inflation and affecting every citizen. Such practices run completely counter to the national effort to recover from the economic crisis,” he said.

Prof. Dunusinghe warned that the implications extended beyond the immediate loss of foreign currency, potentially damaging Sri Lanka’s credibility among international investors. “Allowing foreign exchange to be drained from the country also sends a highly negative message to the international community. It suggests that money can easily be moved out of Sri Lanka through various means, including false import declarations. Legitimate investors will hesitate to invest when they see such weaknesses. Sri Lanka risks being perceived internationally as a country where black markets and a shadow economy can operate with relative ease, severely damaging our economic reputation.”

He said weaknesses in the system could also make Sri Lanka attractive to international criminal networks and facilitate the movement of proceeds generated through illegal activities. “This lack of control can make Sri Lanka a breeding ground for scams. We have seen international fraudsters, including groups previously operating from countries such as Cambodia, coming to Sri Lanka to conduct fintech-based scams. They are attracted by weaknesses that allow illicitly earned money to be transferred abroad through seemingly legitimate channels.

“In other countries, such operators may have to rely on informal and illegal mechanisms such as hawala. But if weaknesses in our formal system allow them to transfer funds abroad, it effectively provides them with a legal-looking pathway. The same vulnerabilities can facilitate illegal domestic activities, including drug trafficking, bribery, and pyramid schemes, because criminals know that their proceeds can be moved and parked overseas.”

According to Prof. Dunusinghe, illicit capital flight is not a new problem for Sri Lanka. He pointed to previous research estimating that the country had lost billions of dollars through illicit financial outflows over the years. 

“An independent study of Global Financial Integrity found that over a cumulative 10-year period (2013–2022), Sri Lanka lost $ 36–40 billion due to trade misinvoicing and unrepatriated export proceeds. For example, an import actually worth $ 100 could be invoiced at $ 500, allowing the additional $ 400 to be transferred out of the country. Systematic illicit financial flows of this nature are among the factors that can severely weaken economies such as ours and contribute to external sector crises. This is one of the factors that contributed to countries like us moving towards bankruptcy.”

Prof. Dunusinghe stressed that preventing such transactions could not be the responsibility of the CBSL and other State authorities or the Government alone, arguing that commercial banks and other financial institutions must strengthen their own compliance and monitoring mechanisms. 

“We cannot simply attribute these incidents to a few corrupt individuals. The management of financial institutions bears a significant responsibility for ensuring that adequate controls are in place. Where large-scale illicit transactions are allowed to pass through the formal financial system, serious questions must be raised about institutional oversight and whether there has been a failure of duty,” he noted.