Treasury and Central Bank trade blame over $715M foreign exchange scam

Mounting institutional friction between the Central Bank of Sri Lanka (CBSL) and the Finance Ministry over regulatory accountability has come to the fore following revelations of an alleged USD 715 million foreign exchange fraud.

The dispute surfaced during recent proceedings before Parliament's Committee on Public Finance (COPF), where lawmakers examined how 105 shell companies managed to transfer vast sums overseas through 13 commercial banks between January 2023 and March 2026 without delivering physical goods to the country.

Both institutions have engaged in mutual blame over legislative loopholes, while public scrutiny intensifies regarding how such large-scale capital flight continued undetected through the formal banking sector.

CBSL officials defended their regulatory stance before the parliamentary committee by pointing to enforcement constraints created by the Foreign Exchange Act of 2017.

They argued that the repeal of the previous Exchange Control Act removed criminal sanctions for major foreign exchange violations, forcing law enforcement officers to pursue cases indirectly through money laundering and organised crime legislation.

In response to these claims, the Finance Ministry confirmed that it is drafting legislative amendments to restore criminal penalties for deliberate foreign exchange fraud involving false documentation.

Meanwhile, details presented by the Criminal Investigation Department (CID) revealed a highly sophisticated network encompassing 55 individuals, 227 bank accounts, and nearly 24,300 telegraphic transfers.

Investigators alleged collusion among commercial bank officers and traced international links to Dubai-based narcotics syndicates, noting that a single primary suspect controlled 43 entities responsible for remitting USD 43 million abroad.

The policy clash between the central bank and the treasury underscores severe systemic vulnerabilities in state oversight mechanisms at a time when Sri Lanka is attempting to rebuild its foreign reserves.

The Finance Ministry is expected to present the proposed legal amendments to Parliament in the coming months, while law enforcement authorities continue tracing overseas assets and preparing formal indictments against the primary suspects.