As part of a broader effort to tackle financial crimes and improve the country’s legal framework, the Government is set to introduce significant reforms, particularly in the areas of illicit asset recovery and insolvency.
Minister of Justice Harshana Nanayakkara recently announced in Parliament that three bills were to be presented in Parliament, namely the Proceeds of Crime Bill, amendments to the insolvency law, and amendments to the Audit Act.
The Proceeds of Crime Bill, which will be gazetted at the beginning of January 2025, is due to be presented in Parliament during the first quarter of 2025, a senior official attached to the Legal Division of the Ministry of Justice informed The Sunday Morning.
Addressing a legal lacuna
The Proceeds of Crime Bill, one of the more anticipated pieces of legislation of the three, is designed to address the growing issue of assets derived from criminal activities.
The senior official attached to the Ministry of Justice, who wished to remain anonymous, explained the notable lacuna in the law to address income derived from properties that have been confiscated on grounds of suspicion.
“There are many offenders who gain properties and assets utilising illicit means and they derive an income from it. They continue to derive an income even after confiscation of the assets, because there has been no law until now to address the issue,” the official said.
The official explained that cases pertaining to financial fraud could sometimes last for extended periods, resulting in the profits generated from the confiscated property continuing to be retained by the suspects. The lacuna needs to be addressed through a law.
“This bill will close the gap in the law by providing a comprehensive framework to manage and dispose of seized assets,” explained the official.
“Currently, criminals can continue to profit from their illicitly gained properties, but when the new law comes into force, we aim to ensure that the assets are used in a manner that benefits the country. The proceeds of the source of that income will then be acquired by the State.”
When pressed whether the bill, if enacted, will be capable of being applied retrospectively to ongoing cases, the source replied in the affirmative. “Of course, as soon as the law is in effect, it would become applicable to ongoing cases and the proceeds of assets seized can be acquired by the State,” the official said.
While the bill focuses primarily on domestic illicit assets, the source highlighted that the existing money laundering laws were aimed at dealing with the international movement of illegal funds, particularly those linked to foreign assets.
Key features of Proceeds of Crime Bill
The Proceeds of Crime Bill represents a pivotal step in Sri Lanka’s efforts to combat financial crime by addressing gaps in the legal system that allow criminals to retain control over illicitly obtained assets.
The bill empowers authorities to trace, freeze, and seize property linked to unlawful activities while establishing mechanisms for their management and eventual disposal. By introducing judicial oversight and enhanced investigative tools, the legislation ensures a balance between robust enforcement and the protection of individual rights.
Its retrospective provisions further bolster its impact, enabling the recovery of illicit assets even in cases predating its enactment.
Key features of the bill include the establishment of designated officers and investigation teams tasked with identifying proceeds of crime, utilising advanced investigative methods such as forensic audits and digital analysis.
These officers are granted powers to issue restraining and preservation orders, freeze suspect assets, and conduct fact-finding missions in coordination with local and international authorities. The bill also emphasises safeguarding the value of frozen or seized property, ensuring that legitimate businesses and economic activities tied to these assets are not unduly disrupted.
Human rights concerns have also been addressed in the bill, with safeguards to prevent misuse of investigative powers and ensure fair treatment of individuals under investigation. Surveillance activities, for instance, require prior judicial authorisation unless urgency demands immediate action.
Provisions for managing assets, such as profits from seized properties, mandate court approval to maintain transparency and accountability. By harmonising law enforcement objectives with due process, the Proceeds of Crime Bill seeks to strike a delicate balance between justice and civil liberties, marking a transformative shift in Sri Lanka’s legal framework.
Overhauling insolvency laws
In a parallel effort, the Government is also working to overhaul the country’s insolvency laws. “Currently, Sri Lanka’s legal approach to insolvency is fragmented, with parts of it covered under the Companies Act and other sections in the outdated Insolvency Ordinance,” the senior official said.
The new law seeks to create a more comprehensive and modern insolvency regime. “We aim to provide a unified approach to insolvency, which will offer clearer guidelines and ensure a more effective process for both businesses and creditors. There are gaps in the insolvency law that will be addressed through the new law,” the official remarked.
More information on the proposed bill will be revealed when the bill has been presented in the Order Paper.
The Government is also focused on improving its financial auditing mechanisms. “According to the International Monetary Fund (IMF), Sri Lanka’s current audit system has several deficiencies that need urgent attention. These issues, if left unresolved, could hamper the country’s financial transparency and its efforts to combat corruption,” the official said.
“We are working to address the deficiencies identified by the IMF in our audit systems. This will not only improve transparency but also bolster public trust in Government financial management,” the official emphasised.
The Government has set an ambitious timeline for these reforms, with plans to introduce the Proceeds of Crime Bill and the new insolvency law within the first quarter of 2025. The goal is to have these laws fully implemented by the fourth quarter of 2025, ensuring that the legal framework is in place to tackle financial crime and corporate insolvency effectively.
‘Goal is to ensure a robust legal framework’
Former Minister of Justice Ali Sabry weighed in on the Proceeds of Crime Bill, defending its objectives while acknowledging concerns raised about potential human rights implications.
Sabry, who spearheaded the drafting of the bill during his tenure, noted that the initial proposal had received Cabinet approval and was subsequently gazetted. However, following its publication, the IMF provided recommendations that prompted further refinements to the draft.
Addressing criticisms, Sabry emphasised that the legislative process for the Proceeds of Crime Bill was consultative in nature, allowing for input from various stakeholders, including civil society and the legal fraternity. He stressed the importance of striking a balance between addressing crime and safeguarding human rights.
“There are concerns relating to human rights,” Sabry acknowledged. “These are not unusual for bills of this nature. It is a consultative process and suggestions can be made when the bill is placed on the Order Paper. Ultimately, this is about fighting crime, not for personal gain but for the country.”
Sabry encouraged critics and legal experts to address their concerns through appropriate channels, including judicial review. “If somebody wishes to challenge the bill on grounds of human rights, they are free to do so,” he said, adding that the Supreme Court played a critical role in ensuring the constitutionality of laws.
As a seasoned lawyer, he reiterated the necessity for laws to be created with the best interests of the country in mind. “The idea is to fight crime. For the Government, the bill represents the needs of the people. We believe we have done something meaningful,” he said.
Sabry underscored the Government’s intent to combat financial crime while respecting fundamental rights. “Ultimately, no one is making laws for personal benefit,” he stated. “The goal is to deliver a robust legal framework that addresses the gaps in the system while ensuring the final product is a result of collective consultation.”