Cabinet Approves Amendment to Foreign Exchange Act to Criminalize Unauthorized Outward Fund Transfers

In a significant regulatory shift aimed at strengthening financial law enforcement, Sri Lanka’s Cabinet of Ministers has granted approval in principle to amend the Foreign Exchange Act, No. 12 of 2017. The proposed amendment will classify the unauthorized transfer of funds out of Sri Lanka as a criminal offense, addressing a crucial gap in the current statutory framework.

Under existing regulations, when an individual or entity remits funds overseas as an advance payment for importing goods but subsequently fails to bring the corresponding items into the country within a reasonable period, the transaction is recognized as an unauthorized foreign exchange transfer. However, under the current provisions of the Foreign Exchange Act, such illegal capital flights do not constitute criminal behavior, leaving law enforcement without the legal grounds necessary to initiate criminal prosecutions. The Central Bank of Sri Lanka is presently restricted to taking regulatory action solely through monetary penalties denominated in Sri Lankan rupees, equal to the value of the illicit remittance.

Recognizing that administrative fines are insufficient to deter trade-based capital flight and illegal fund transfers, the government has moved to establish criminal liability. Designating these illicit transfers as criminal offenses will grant law enforcement and investigative agencies the necessary statutory power to pursue formal criminal investigations and prosecutions against offenders.

The proposal was submitted by the President in his capacity as the Minister of Finance, Planning, and Economic Development. Following the Cabinet’s decision on August 17, 2026—which remains subject to formal approval at the next Cabinet meeting—legal draftsmen will formulate the specific legislative provisions to update Act No. 12 of 2017.