As Sri Lanka attracts major casino investment, historic tax arrears, illegal online gambling and financial crime vulnerabilities are testing the country’s ability to regulate a rapidly expanding industry.
Colombo’s gambling industry is entering a new phase, driven by major international investment and the government’s ambition to develop Sri Lanka into a destination for high-value tourism.
Yet behind the expansion lies a more complicated regulatory challenge involving tax collection, financial transparency, money-laundering risks and the rapid growth of unauthorised online gambling.
The opening of City of Dreams Sri Lanka, the US$1.2 billion integrated resort developed through the partnership between John Keells Holdings and Melco Resorts & Entertainment, has significantly strengthened Colombo’s presence in the regional casino and luxury tourism market.
The project, which officially opened in August 2025, combines gaming facilities with hotel accommodation, retail outlets and other hospitality infrastructure.
Its arrival reflects the potential economic benefits of large-scale tourism investment.
However, it also increases the importance of ensuring that Sri Lanka’s gambling sector operates under effective financial supervision and transparent regulatory arrangements.
Historic Tax Arrears Raise Questions About Revenue Collection
Sri Lanka’s casino industry has previously faced scrutiny over substantial unpaid tax liabilities.
In June 2022, The Sunday Times, citing Inland Revenue Department information, reported that Bally’s Casino Colombo had outstanding tax liabilities of approximately Rs. 575 million.
The same report identified approximately Rs. 760 million associated with Marina Colombo.
Together, the two figures amounted to Rs. 1.335 billion.
According to that reporting, the companies had undertaken or agreed to make payments towards settling the relevant liabilities.
These figures are historical and should not be interpreted as confirmed outstanding balances in 2026 without updated Inland Revenue Department records.
Nevertheless, the episode illustrates the challenges tax authorities have faced in collecting revenue from operators in an industry where substantial sums can be generated through gaming activities.
The supplied account also refers to approximately Rs. 1.1 billion being tied up in legal proceedings. That figure requires confirmation from current court or tax records before it can be treated as an established amount.
The broader concern remains significant.
Where tax assessments become entangled in prolonged disputes, the state may face delays in recovering revenue that could otherwise support public services.
Effective enforcement requires accurate assessments, transparent recovery procedures and consistent treatment of all licensed operators.
Money Laundering Risks Extend Beyond Casino Floors
Tax enforcement is only one aspect of the regulatory challenge.
Casinos operate within a sector internationally recognised as vulnerable to money laundering because of its reliance on high-value financial transactions, gaming instruments and, in some cases, substantial cash movements.
Sri Lanka’s Financial Intelligence Unit (FIU), operating under the Central Bank, has identified elevated money-laundering risks associated with the casino sector.
The country’s 2024/25 National Risk Assessment classified the threat associated with casinos and certain other designated non-financial businesses as a significant supervisory concern.
Internationally, criminals may attempt to disguise the origin of illicit funds by introducing money into gambling facilities, conducting limited gaming activity and subsequently presenting the proceeds as legitimate winnings.
Such methods can involve intermediaries acting on behalf of the true owners of funds.
The supplied account raises concerns about money entering Sri Lanka from India through proxy gamblers before being moved out again under the appearance of casino winnings.
That allegation should be treated as a potential laundering method rather than an established description of transactions at any particular Sri Lankan casino unless supported by investigative records.
The distinction is important.
Recognised financial crime vulnerabilities provide grounds for stronger supervision, but they do not establish that a named licensed casino has participated in money laundering.
Digital Payments Add Another Layer of Complexity
Financial crime risks are increasingly influenced by digital technology.
Online fraud networks can use bank accounts controlled by intermediaries, commonly called mule accounts, to receive and transfer funds obtained through unlawful activity.
Virtual assets, including stablecoins such as Tether’s USDT, may also feature in attempts to move value across borders.
The potential difficulty for investigators lies in tracing the original source of funds when transactions pass through multiple accounts, payment services or digital-asset platforms.
Where such funds are subsequently introduced into gambling operations, investigators may need to examine both conventional banking records and digital transaction trails.
However, the use of cryptocurrency or digital payment systems is not itself evidence of criminal activity.
Any allegation linking a specific casino, gambling operator or individual to the laundering of illicit funds must be supported by transaction records and independently assessed evidence.
For Sri Lankan regulators, the practical challenge is to ensure that established anti-money-laundering obligations remain effective as payment technologies evolve.
Thalawathugoda Raid Highlights Illegal Online Gambling
The threat from unlawful gambling activity extends beyond licensed casino premises.
In October 2026, police arrested eight Indian nationals following a raid on a house in Thalawathugoda over allegations of involvement in online gambling operations.
According to police information reported by News 1st, officers seized six computers, 39 mobile telephones and additional computer accessories.
The suspects were aged between 22 and 51.
The arrests were part of an ongoing investigation, and the allegations against those detained should not be presented as findings of guilt.
The incident nevertheless demonstrates the difficulties authorities face when gambling operations can be conducted from residential premises using internet-connected devices.
Unlike traditional gaming establishments, such activities may not require publicly identifiable commercial premises or conventional casino infrastructure.
This makes detection, licensing enforcement and financial monitoring more complex.
Authorities Move Against 146 Unlicensed Gambling Websites
Sri Lankan authorities have also taken action to restrict access to unauthorised online gambling platforms.
During 2026, the Telecommunications Regulatory Commission of Sri Lanka (TRCSL) instructed telecommunications service providers to block access to a total of 146 unlicensed gambling and betting websites.
The action involved an initial group of 24 websites, followed by another 122.
The restrictions were implemented as part of enforcement measures associated with the country’s gambling regulatory framework.
Online gambling is not categorically prohibited in Sri Lanka, but operators are required to comply with applicable licensing and legal requirements.
The distinction between authorised and unauthorised platforms is therefore central to the enforcement process.
Blocking websites may reduce access to identified operators, but it does not eliminate the wider challenge posed by rapidly changing domain names, cross-border payment systems and digital platforms operating outside Sri Lanka.
A sustainable enforcement strategy requires cooperation among telecommunications authorities, financial regulators, police investigators and licensing bodies.
New Gambling Law Strengthens Regulatory Powers
Sri Lanka introduced the Gambling Regulatory Authority Act, No. 17 of 2025, to establish a unified framework for supervising gambling activities.
The legislation came into operation on 1 December 2025.
It provides for a central regulatory authority covering casinos, betting and online gambling, replacing a fragmented framework based on several older laws.
Under Section 42, conducting gambling activities without the required licence is an offence.
A person convicted may face:
- A fine not exceeding Rs. 10 million.
- Imprisonment for a period not exceeding two years.
- Both a fine and imprisonment.
The legislation also contains provisions concerning licensing, regulatory supervision and enforcement.
Separately, amendments to the Betting and Gaming Levy legislation increased the casino entrance levy applicable to Sri Lankan citizens to US$100.
These measures represent an effort to strengthen public oversight while securing greater revenue from the gambling industry.
However, the effectiveness of the framework depends on how consistently its provisions are implemented.
Regulatory Delays Remain a Concern
Although the Gambling Regulatory Authority Act has taken effect, delays in finalising supporting regulations have raised questions about the pace of implementation.
The authority initially aimed to introduce regulations by June 2026.
That timetable was not met.
By early November, reports indicated that a revised deadline of 31 December 2026 had been set for publishing regulations covering casino and online gambling activities.
Such delays matter because an effective regulator requires detailed operating standards, reporting requirements and compliance procedures.
The legal establishment of an authority is only the beginning.
Operators and enforcement agencies also need clear rules governing licensing, financial monitoring, inspections and disciplinary action.
Without those mechanisms, weaknesses may persist even where the underlying legislation provides substantial powers.
Stronger Financial Intelligence and Enforcement Needed
The expansion of Sri Lanka’s gambling industry calls for an equally substantial improvement in regulatory coordination.
No single agency can address every financial, technological and criminal risk associated with modern gambling operations.
A more integrated supervisory approach should involve:
1. The Financial Intelligence Unit: Strengthening the detection and analysis of suspicious financial transactions, including those involving intermediaries and digital assets.
2. The Inland Revenue Department: Ensuring timely assessment, collection and transparent recovery of gambling-related taxes.
3. Sri Lanka Customs: Monitoring relevant cross-border movements of cash and other reportable financial instruments.
4. The Police and specialist cybercrime investigators: Investigating unlicensed gambling operations, online fraud and suspected criminal financial networks.
5. The Gambling Regulatory Authority: Establishing clear licensing standards, conducting inspections and ensuring consistent compliance across physical and online operators.
6. The banking and payment-services sector: Applying effective customer due diligence, beneficial-ownership checks and suspicious transaction reporting requirements.
Coordination among these institutions would help investigators follow suspicious financial activity across conventional and digital channels.
It would also enable legitimate casino operators to function within a clearer and more credible regulatory environment.
Investment Growth Must Be Matched by Regulatory Credibility
Sri Lanka has legitimate economic reasons to attract major international hospitality and entertainment investments.
Integrated resorts can generate employment, support tourism, increase demand for local services and contribute tax revenue.
However, the financial benefits of casino expansion depend partly on the public’s confidence that operators are properly supervised.
Historic tax disputes, financial crime vulnerabilities and unauthorised online gambling all highlight areas requiring sustained attention.
The challenge is not simply to impose stricter penalties.
It is to build an enforcement system capable of identifying risks early, collecting revenue efficiently, protecting consumers and ensuring that suspected criminal activity is investigated according to law.
With Colombo developing into a more prominent regional gaming destination, Sri Lanka’s reputation will increasingly depend on the integrity of its regulatory framework.
Tourism growth and financial accountability should reinforce each other.
A successful gambling industry must therefore be measured not only by the investment it attracts, but also by the transparency, compliance and public revenue it delivers.
