FATF status

Sri Lanka is no longer on the FATF List of Countries that have been identified as having strategic AML deficiencies

Latest FATF Statement - 18 October 2019

The FATF welcomes Sri Lanka's significant progress in improving its AML/CFT regime and notes that Sri Lanka has strengthened the effectiveness of its AML/CFT regime and addressed related technical deficiencies to meet the commitments in its action plan regarding the strategic deficiencies that the FATF identified in November 2017. Sri Lanka is therefore no longer subject to the FATF’s monitoring process under its ongoing global AML/CFT compliance process. Sri Lanka will continue to work with APG to improve further its AML/CFT regime.

Compliance with FATF Recommendations

The last Mutual Evaluation Report relating to the implementation of anti-money laundering and counter-terrorist financing standards in Sri Lanka was a follow-up to the APG evaluation that took place in 2021. According to the Evaluation, Sri Lanka was deemed Compliant for 7 and Largely Compliant for 25 of the FATF 40 Recommendations. It remains Highly effective for 0 and Substantially Effective for 1 of the Effectiveness & Technical Compliance ratings.

Sri Lanka has established laws to combat corruption, but their enforcement is often weak, hindering foreign investment and large-scale infrastructure projects. The Commission to Investigate Allegations of Bribery or Corruption is seen as ineffective, focusing primarily on minor cases while significant allegations remain unaddressed due to political interference and lack of resources. Despite signing international anti-corruption agreements, the country struggles with high levels of corruption, particularly in public procurement, and enforcement of existing laws is limited by various challenges.

Sri Lanka is a lower middle-income country with a population of approximately 22 million, currently recovering from an economic crisis that led to political turmoil in 2022. The economy showed signs of recovery with a 1.6% growth in real GDP in the third quarter of 2023, although it contracted by 2.3% for the entire year. Key challenges include high poverty levels, income inequality, and a weak balance of payments, exacerbated by reduced earnings from major exports like apparel and ongoing debt restructuring negotiations.

Sri Lanka's investment climate is currently challenging due to ongoing economic reforms and political uncertainty. The government has introduced significant financial reforms, including tax hikes and privatization of state-owned enterprises, while aiming to attract $5 billion in foreign direct investment by 2025. However, issues such as governance, bureaucratic inefficiencies, and a lack of transparency continue to deter foreign investors, compounded by the upcoming presidential elections in 2024 which may impact the reform agenda.