Chandra J writes to President on weakening the ring of corruption around governance structure

28 November 2016

President Maithripala Sirisena,

President of Sri Lanka,

Presidential Secretariat,

Janadhipathi Mawatha,

Colombo 1.

Dear Mr. President,

The Ring of Corruption around the Governance Structure Can be Significantly Weakened

During your presentation at the ‘Ravaya Anniversary’ event, you were realistic to acknowledge that the ring of corruption that strangled Sri Lanka before 8 January 2015 was yet not fully dismantled. You regretfully accepted that a ring of influential persons were holding back the good governance commitments of the Government, under your leadership, from being effectively implemented. Yet, you were farsighted and confident to commit, that over time, you will weaken the stranglehold corruption and other rings have over the prevailing governance structures and this weakening will lead to the effective delivery of good governance.

You will certainly be able, to significantly weaken these operating unscrupulous rings and deliver on your promise of good governance, by implementing with leadership commitment, the following reforms and restructures of the governance processes, over the next six months to an year;

1. Establish parallel Court systems dedicated to hear corruption related cases, with daily hearings to a finish, operating on a two shift basis (9 a.m.-1.30 p.m. and 2.30 p.m.to 7 p.m.) facilitated by electronic interfaces and communications, where evidence, network facilitations and witness connectivity will be enabled via remote access technology options. (Refer a live Indian example https://www.youtube.com/watch?v=oaBTUJBfBEI)

2. Establish an independent, new investigation special case work support unit, with competent resources, dedicated to deal with specialised needs arising from investigations conducted by the Financial Crimes Investigations Department (FCID,) the Criminal Investigations Department (CID,) Bribery and Corruption Commission (CIABOC ) and the Financial Investigations Unit (FIU), including support in investigating

a. The recovery of proceeds of crime and follow up with asset recovery in investigations handled by the law enforcement agencies

b. Forensic accounting

c. Cyber crimes 

d. Organised crimes

e. High value white collar crimes

3.    Enact a new comprehensive Proceeds of Crimes Act – A new enactment bench marking the 

a. The Australian “Proceeds of Crime Act 2002”, and 

b. The Canadian “Proceeds of Crime (Money Laundering) and Terrorist Financing Act”

4.    Require  FIU of the Central Bank to regularly share with the FCID, CID and CIABOC

a. All suspicious transactions reports of the FIU

b. Details of Cash Deposits and Cash Withdrawals in excess of Rs. 10 million in a single transaction

5. Restructure the organisation structures of FCID, CID and CIABOC,  whereby

a. They set up separate units to progress the investigation of complaints/events before 2015 and those after January 2015, allowing  these investigations  to proceed concurrently

b. They have within their organisation structures, dedicated independent network facilitations units, with competent  resources , representing the 

i. The Special Case Work Unit (Referred to in 2 above)

ii. Attorney General’s Department

iii. Inland Revenue Department

iv. Customs Department

v. Excise Department

c. The following key ministries and public institutions to have designated senior officers, with duly assigned accountability to provide information, assistance and arrange network facilitation services in the conduct investigations;

i. Finance Ministry

ii. Sri Lanka Accounting and Auditing Standards Monitoring Board

iii. Securities and Exchange Commission

iv. Central Bank

v. Registrar of Companies

vi. Board of Investments

vii. Ministry of Public Administration

6. Require the Board of Investments, the Inland Revenue Department and the Customs Department to conduct Post Audit Reviews of effective compliance by all entities granted special tax holiday status and/or general exemptions from Customs duty/Income Tax/( including VAT and other levies) and Excise Duty over the last seven years and submit the relevant reports to the Public Accounts Committee, Committee on Public Enterprises, the Finance Ministry, FCID, CID and CIABOC

7. Amend the applicable laws dealing with the declaration of Assets and Liabilities in Sri Lanka to;

a. Expand the scope of application to include all statutory boards and State-owned public enterprises, including all subsidiaries and sub subsidiaries established by these entities, where the effective shareholding of the State is equal or higher than 30 % or where the interests of the state in the assets in custody of an entity exceeds 30%;

b. Require the persons covered by the enactment to make detailed disclosure of conflicts of interests and related party transactions

c. Revise and enhance the level of disclosure and scope of coverage of the format of annual declaration and enhance the management and follow up capabilities by the interface of information technology

d. Remove the present restrictions applicable in the disclosure of the contents of any declarations formally obtained by public from the CIABOC 

e. Promote and encourage State and private sector officials, professionals and citizens to provide the Commission (CIABOC) with information regards declarations of any persons or instances where the declarations made by any person under the Assets and Liabilities Law defers from or misrepresents the actual assets and liabilities of such person

8. Require all state officials, directors and officers of business entities (including those in financial and other services) and all persons engaged in professional practice, including auditors, lawyers, bankers, estate agents, valuers, insurers, financial advisors, trustees, money and financial brokers, and financial service providers, etc. to disclose to the FCID, CID and/or CIABOC, any acts of money laundering, bribery, corruption, possession of and transacting in proceeds of crime, and/or any material noncompliance with laws and regulations (including tax, customs duty and excise duty laws and regulations), which have come to their knowledge in the course of their official/professional functions, duties and or professional practices;

9. Empower and require the Financial Intelligence Unit of the  Central Bank to impose  penal sanctions against any banks, finance companies, primary dealers, leasing companies, share/money/exchange brokers, insurers, fund managers and deposit taking and saving institutions and other financial services providers 

a. For failing to comply with laws, rules and regulations dealing with

i. Know Your Customer Rules

ii. Financial Action Task Force 40 Recommendations

iii. Financial Intelligence Unit promulgated other regulations

iv. Retaining or assisting in transacting through formal sources Proceeds of Crime

v. Any other key regulations dealing with money laundering and terrorism financing

b. For facilitating transactions involving proceeds of crime, or money laundering including temporarily holding proceeds of crime, where during such periods of holding of funds the relevant intermediaries are deemed to have enjoyed or derived a benefit/profit estimated at 25% per annum as the yield on the funds so held 

10. Require the Sri Lanka Accounting and Auditing Standards Monitoring Board to expand the list of Specified Business Undertakings covered by the relevant Act to include;

a. Licensed Primary Dealers

b. Licensed pawning businesses

c. Licensed savings and deposit taking institutions

d. Any business undertaking or trust accepting public funds by way of deposits, premiums, contributions for savings, thrift, or other designated purposes

e. Accepting public funds locally and international fund transfers by way of Charitable donations, grants and or endowments

f. All statutory corporations and State-owned public enterprises, including any subsidiaries and sub subsidiaries of statutory corporations and State-owned public enterprises

And further clarify that any business undertaking or company satisfying any one or more of the under noted classifications will be deemed to be a specified business undertaking;

1. Which has a turnover in excess of Rs. 500 million;

2. Which at the end of the previous financial year had shareholder equity in excess of Rs. 100 million;

3. Which at the end of the previous financial year had  gross assets in excess of Rs. 300 million;

4. Which at the end of the previous year had liabilities banks and other financial institutions in excess of Rs. 100 million;

5. Which have a staff in excess of 1,000 employees

11. Amend the definition of “State Property” to include all statutory corporations and State-owned public enterprises, including any subsidiaries and sub subsidiaries of such statutory corporations and state owned public enterprises, including all subsidiaries and sub subsidiaries, where the interests of the state exceeds 30% of the assets of the undertaking

12. Require the chambers of commerce and industry, institutes/associations of directors and managers, and professional institutes/associations, to include and adopt within their codes of governance, ethics and conduct, provisions requiring members to commit to (with penal sanctions for violation of such commitments) 

a. combating money laundering, terrorism financing, bribery, corruption, possession of and transacting in proceeds of crime; cybercrimes, organised crimes and white collar crimes;

b. avoidance of material noncompliance with laws and regulations ( including tax, customs duty and excise duty):

c. avoid engaging in transactions with material and or unmitigated nondisclosure of conflicts of interests and related party transactions;

d. strengthening governance, promoting and adopting principles for good regulation , best practices and acceptable standards (including international standards for accounting, auditing and assurance, professional ethics and education, and public sector accounting)  in order to create a more consistent and effective regulatory environment.

e. avoidance of any misrepresentations and/or nondisclosure of material information and public warnings of risks of goods and services provided

f. restoring public trust and integrity

13. Require practicing accountants and auditors, as an integral part of the annual assurance reports of specified business undertakings to specify that;

a. They have duly complied with the Provisions of the Company Law and have no direct or indirect connection or relationship with the duly appointed Company Secretary of the entity;

b. They have no conflicts of interest or related party connections whatsoever, with the entity and its directors and officers; 

c. They have declared in their report all material non compliances with laws and regulations, and suppressions of minority rights, that have come to their attention during the course of the audit, including any suspicious transactions connected with purported acts of bribery, corruption, money laundering, terrorism financing, tax, custom duty and excise evasion, fraud and use of and transacting in proceeds of crime ; as well as any assets or shares held in trust or by nominees; assets held as bearer instruments or investments or financial instruments registered in tax havens and/or in orbit or in the clouds;

d. To the best of their knowledge and belief that the financial statements make an accurate disclosure of

i. appropriate accounting policies and standards, including where appropriate standards dealing with consolidation of accounts, impairment assets ( including assets impaired by bribery and corruption)and valuation of liabilities, including accurate disclosure of contingent liabilities and capital commitments

ii. the going concern status

iii. conflicts of interests, related party transactions, ultimate parent company and 

iv. the composition of the largest shareholders and confirm that there are to the best of the knowledge and belief  no nominee holdings and/or shares of the entity registered and or held in offshore trust holdings

e. That a copy of the audited financial statements have been submitted to the Accounting and Auditing Standards  Monitoring Board, where such entity as duly audited relates to a specified business undertaking within the meaning of the relevant enactment

14. Require the Sri Lanka Accounting and Auditing Standards Monitoring Board and the Institute of Chartered Accountants of Sri Lanka to jointly establish an agreed a transparent procedure, to review and deal with the following on a regular basis; and take such appropriate action as deemed necessary in upholding the quality and accuracy of the financial statements and assurance processes of specified business undertakings and the processes followed by practicing accountants concerned in compliance with set accounting and auditing standards;  and where necessary to impose such penal sanctions against any offending entity and or the public accountant and auditor responsible for violation of the set accounting and auditing standards and the provisions of the applicable laws and regulations;

a. Specified business undertakings failing to  submit audited financial statements

b. Observations made on review of financial statements and letters of observations issued

c. Undertakings obtained

d. Observations on audit reviews

e. Observations that require disclosure to revenue authorities  (Income Tax/Customs and Excise)

f. Observations that require to be disclosed to law enforcement authorities

g. Transparent prominent public communications as a good governance practice

15. Require the Sri Lanka Accounting and Auditing Standards Monitoring Board and the Institute of Chartered Accountants of Sri Lanka to jointly establish an agreed secure communications facility including via a website for any person to register in confidence, a complaint or an observation 

a. against any specified business undertaking or

b. professional accountants (PAs) (including as appropriate auditors, other PAs in public practice, PAs in business who are in senior-level roles—directors, officers, or senior employees in their employing organisations and other PAs in business),

 who may have failed in their accountability in terms of

nSri Lanka Accounting and Auditing Standards Monitoring Board Act and/or 

nthe Code of Professional Practice, Ethics and Conduct binding any member of the Institute of chartered Accountants 

nFailure in effectively responding to commitments under Non Compliance with Laws and Regulations (NOCLAR) procedure,

I am sure you will recognise that any investments and spends made in implementing these recommendations will be more than compensated by the consequential additional revenue.

I appeal that these recommendations be reviewed and implemented early in the interest of delivering on the promise of good governance and assuring economic growth and prosperity.

Yours sincerely,

Chandra Jayaratne

cc. Prime Minister

Minister of Finance

Minister of Justice

Auditor General    

Governor Central Bank 

Attorney General 

Chairman PAC

Chairman COPE 

President ICASL

DIG CID

DIG FCID

DG CIABOC

Chairman CCC

Chairman SLAASMB

DG FIU