Central Bank Roadmap : NGO's and INGO's to be monitored by CBSL

The Central Bank of Sri Lanka has published a Monetary & Financial Road Map for 2014 and beyond.

Its a peculiar document, part propaganda and part paen to the mighty. I'm still trying to make sense of it but buried on page 150 was the announcement that the Financial Transactions Reporting Act (link to act here) was to be extended to cover NGO's and INGO's.

The Act in question is supposed to identify terrorism financing, money laundering or other crimes and is currently applicable to deposit taking institutions. The reporting follows the broad trend in banks worldwide that has taken place over the last decade or so.

Not that money laundering or financial fraud, both growth businesses in Sri Lanka are of any concern-as long as they are being done by known parties. The CSE has listed Ponzi schemes, laundries and various scams running (see for example this old article here) but no gives a damn.

The Act results in customers and banks having to fill in a lot of forms and supplying documents when it comes to opening accounts or when transacting business internationally.

The Act specifically prohibits the divulging information on the reports sent to the Financial Intelligence Unit (the section of the CBSL that does the monitoring). The CBSL already monitors NGO's/INGO's bank accounts and requests periodic reports from the banks on the nature of transactions, the identity of the people involved etc. All this has been occurring without the knowledge of the customer concerned.

Now it appears that the CBSL will start monitoring the institutions directly. The question is why?

As far as the stated purposes of the Act are concerned all its requirements can be met the monitoring of the banks, so this is probably designed to probe a lot deeper.

It may also provide a convenient tool for the bashing of NGO's. Financial compliance is tricky, the banks already have a hard time working through the thicket of regulations (principally exchange control but some others as well). This is despite having good systems and dedicated compliance teams. The regulations are byzantine (there is a need to refer to various acts, circulars and guidelines, some of which date from the 1960's) and where there is a high volume of transactions it is easy to make a mistake.

Mistakes have been seized upon by Central Bank auditors and the banks penalised. Those that are out of favour report frequent audits and heavy penalties.

For NGO's, especially those not used to stringent financial reporting, this could prove to be a problem. Errors could easily result in fines or imprisonment. Compliance will add costs (they may be required to appoint full time compliance officers and may also have to set up better data storage systems) that will strain budgets.

My advice to NGO's would be to start talking to people with experience in compliance and start thinking about how they store data and documents. They should study the standards reports/templates being used by banks and develop similar ones for their own use.