REVIEW OF COMPLIANCE WITH INTERNATIONAL RECOMMENDATIONS ON ANTI-MONEY LAUNDERING AND COUNTERING THE FINANCING OF TERRORISM IN SRI LANKA

Abstract

The Financial Action Task Force (FATF) promulgates forty recommendations on anti-money laundering and countering the financing of terrorism (AML/CFT) as soft laws. To align with international recommendations, it is essential to examine how the financial sector and designated non-financial sector comply with these recommendations, as these will determine the overall compliance of a country. Public criminal labelling, which is based on the premises of the Labelling Theory has been implicitly accepted as a form of punishment, although it was not a part of the substantive law. It claims that less powerful individuals are more likely to be labelled for their deviance (primary deviance), and once labelled, it is more likely to cause further deviance (secondary deviance). The concept of labelling has been applied as a method of law enforcement, but little attention has been paid to understanding how the theory can be implemented on legal persons, creating a research gap. The Financial Intelligence Unit of Sri Lanka (FIU) has imposed penalties and other administrative actions on financial institutions and publicly named and shamed the concerned financial institutions through the official webpage. This research paper followed content analysis, and accordingly, administrative penalties imposed by the FIU from 2019 to 2024 have been examined. If labelling is considered as a method of correction, then, the punishment needs to be proportionate and also adhere to the principles of natural justice. Raising suspicious transaction reports and complying with UNSCRs are the core principles of the AML/CFT framework, as they facilitate the identification of offences related to money laundering and terrorism financing. If the AML/CFT framework is not robust enough to identify suspicious activities, having such a system is questionable, as it does not fulfil the objectives of the FIU. The findings of this research have significant implications as this study advances the application of Labelling Theory to legal persons to fill the highlighted research gap and also to ascertain whether it is justifiable to label a legal person for their procedural non- compliances.