Exchange controls extended by another 6 months

• Foreign exchange controls on outward remittances extended by another 6 months
• Move aimed at preserving foreign reserves and supporting local currency 
• Rolls back relaxing of certain regulations on inward remittances over money laundering and terrorist financing fears

Cabinet of Ministers has approved to extend foreign exchange controls on outward remittances for another six months to limit outflows to preserve foreign currency reserves while rolling back relaxing of certain regulations on inward remittances amid concerns over money laundering and terrorist financing.

Prime Minister Mahinda Rajapaksa, as the Minister of Finance, Economic and Policy Development submitted the proposal to the Cabinet this week. 

Accordingly, a fresh a gazette is expected to be issued extending the earlier gazette issued under Section 22 of the Foreign Exchange Act, No. 12 of 2017 on 2nd of April this year, which is set to expire on July 2nd by a further six months. 

The government imposed these restrictions on outward remittances with the view of preserving the country’s foreign currency reserve position and minimizing the existing pressure on the exchange rate while considering the possible negative impact to the economy by the COVID-19 outbreak.

As per the initial gazette notification issued in April, outward remittances on capital transactions were suspended for three months, which mainly included the general permission granted to make outward remittances for investments and the outward remittances through Business Foreign Currency Accounts (BFCAs) or Personal Foreign Currency Accounts (PFCAs) held by persons in Sri Lanka other than for the remittances on 
current transactions.

Further, the imposed foreign exchange controls limit the eligible migration allowance for emigrants who are claiming the migration allowance for the first time up to a maximum of US$ 30,000.

At end of May, Sri Lanka’s gross official reserves declined by US$ 715.92 million from a month earlier to US$ 6,493.6 million, according to the Central Bank (CB). 

Meanwhile, the State Information Department also announced that the earlier gazette issued on April 8, relaxing certain foreign exchange controls to encourage foreign currency remittances into the country across foreign currency deposit accounts, would be revised to address the concerns over money laundering and 
terrorist financing.

“Issuance of a new gazette notification revising the existing notification dated 08.04.2020 comprised of orders under section 29 of the Foreign Exchange Act No.12 of 2017 for the minimizing of issues erupted due to the provisions existing in the laws applicable to foreign exchange law, money laundering and investment money on terrorist activities when implementing the methodologies introduced for encouraging the remittances of foreign exchange into the country through foreign exchange deposit accounts,” the Department stated. 

The CB introduced ‘Special Deposit Accounts’ (SDA)’ with almost no foreign exchange control regulations to attract foreign inflows to the country. 

However, concerns have arisen in connection to funds possibly tied with money laundering and terrorist activities coming into the country.

The Financial Action Task Force (FATF), the global policy setter on anti-money laundering and countering financing of terrorism (AML/CFT), last October delisted Sri Lanka from its ‘Grey List’ after placing the country in the list in 2017 due to deficiencies in implementing the AML/CFT regime.

The global policy setter is scheduled for another evaluation of the country’s AML/CFT regime next year.