Sri Lanka Country Summary

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 faces significant challenges in combating corruption, with weak enforcement of existing laws and a focus on minor cases by the Bribery Commission. Despite the introduction of a Right to Information Act and a new anti-corruption bill, transparency remains an issue, and political interference hampers progress on serious allegations. Additionally, the country grapples with various criminal activities, including human trafficking, drug trade, and financial crimes, exacerbated by a struggling economy and ineffective governance.

Sri Lanka is a lower middle-income country with a population of about 22 million, currently recovering from an economic crisis that led to significant political upheaval in 2022. The economy contracted by 2.3 percent in 2023, but signs of recovery are emerging, with real GDP growth of 1.6 percent year-on-year in the third quarter of 2023, marking the first expansion in six quarters. Despite these improvements, many Sri Lankans continue to face challenges related to food security, education, and transport, while elevated poverty levels and income inequality persist.

Sri Lanka's investment climate is currently challenging due to ongoing economic reforms and political uncertainty. Despite the government's commitment to attracting foreign direct investment (FDI) and implementing reforms, issues such as high transaction costs, bureaucratic inefficiencies, and a lack of transparency hinder investor confidence. In 2023, foreign investment was approximately $730 million, with significant interest in sectors like tourism and telecommunications, but the overall investment environment remains affected by governance and accountability concerns.