Sri Lanka money laundering laws now allow investigators to freeze suspected illicit assets for 14 working days without prior court approval.
Sri Lanka money laundering laws now give investigators power to freeze suspected illicit assets for 14 working days without first obtaining a court order.
Parliament approved major amendments to three financial crime laws on July 9, 2026. The changes affect the Prevention of Money Laundering Act, Financial Transactions Reporting Act and Convention on the Suppression of Terrorist Financing Act.
The Prevention of Money Laundering Amendment Bill secured the required two-thirds majority. Meanwhile, Parliament passed the other two amendment Bills without a division.
The most significant provision allows law enforcement authorities to temporarily freeze assets allegedly linked to money laundering, drug trafficking and other unlawful activity without prior judicial authorisation.
Government officials argue that the measure closes a serious enforcement gap. Previously, suspects could allegedly move assets to relatives, nominees, shell companies or third parties while investigators sought court orders.
Sri Lanka Money Laundering Laws Allow 14-Day Freeze
Under the amended legislation, investigators can target more than property directly held by the primary suspect.
They may also freeze corresponding assets and property linked to relatives, nominees, associates or corporate entities when investigators suspect a connection to unlawful proceeds.
The 14-working-day period gives authorities time to prevent suspicious funds from leaving Sri Lanka or disappearing through layered corporate structures.
The Centre for Policy Alternatives said the proposed law permitted authorities to freeze suspected criminal proceeds and corresponding or untainted assets without prior judicial approval during the initial 14-day period. However, it warned that the power could interfere with legitimate property rights and businesses without adequate safeguards.
During the parliamentary debate, Industry and Entrepreneurship Development Minister Sunil Handunnetti referred to an alleged foreign exchange racket involving 105 Sri Lankan companies.
“Investigations uncovered a massive racket where 105 local companies utilised fraudulent telegraphic transfers for fake imports, illegally siphoning over US$85 million out of the country,” Handunnetti told Parliament.
A separate investigation reportedly identified illegal transfers exceeding Rs. 210 billion, equivalent to more than US$700 million, through similar corporate and shell-company arrangements.
The amendments also classify certain foreign exchange violations as predicate offences. This expands the range of alleged unlawful activities that can support a money laundering prosecution.
FATF Compliance and Tougher Banking Controls
The government says the reforms will bring Sri Lanka’s legal framework closer to standards established by the Financial Action Task Force.
FATF standards form the international benchmark for combating money laundering and terrorist financing. Compliance can affect investor confidence, correspondent banking relationships and the processing of cross-border financial transactions.
Commercial banks and other regulated financial institutions must therefore strengthen customer identification, recordkeeping and transaction-monitoring systems.
The Financial Intelligence Unit will also receive authority to prescribe several compliance requirements and thresholds through administrative directions.
Supporters say these powers will help regulators respond quickly to changing financial crime methods. However, critics argue that Parliament should define significant legal obligations directly instead of leaving them to future administrative decisions.
Opposition Raises Constitutional Concerns
Legal organisations and opposition lawmakers have questioned whether the legislation provides sufficient judicial oversight.
The Centre for Policy Alternatives warned that provisions compelling suspects to submit sworn affidavits or statements could affect the right against self-incrimination and the presumption of innocence.
It also raised concerns about surveillance powers, including access to digital systems, covert monitoring and intrusive investigative techniques. CPA argued that the Bill lacked adequate protections for private, privileged and confidential information.
“If a police officer feels that a particular asset has a link, even without enough evidence, that power is being given to freeze these assets without going to court,” ITAK MP Shanakiyan Rasamanickam said.
TNA MP Gajendrakumar Ponnambalam also criticised the use of administrative directions.
“Parliament is being asked to approve offences today while leaving the substance of the law to be determined tomorrow through administrative directions,” he said.
Both MPs voted against the Prevention of Money Laundering Amendment Bill. Several other opposition members, including representatives of the Samagi Jana Balawegaya, were absent during the vote.
Enforcement and Judicial Oversight
The Proceeds of Crime Investigation Division will play a central role in enforcing Sri Lanka’s expanded financial crime framework.
Authorities established the division under the Proceeds of Crime Act No. 5 of 2025. Senior Deputy Inspector General Asanka Karawita heads the unit, which works with 34 state institutions.
Existing proceeds-of-crime legislation provides for court-supervised freezing after an initial seizure or restraint. It requires investigators to apply to the High Court when seeking a judicial freezing order and sets procedures for notifying affected parties.
The new amendments are expected to strengthen investigations into suspicious assets, financial transfers and wealth allegedly concealed through third parties.
However, their success will depend on whether investigators use the expanded powers lawfully, consistently and with sufficient accountability. The central challenge will be stopping sophisticated financial crime while protecting legitimate businesses, property rights and constitutional safeguards.
