Strengthening Sri Lanka’s Anti-Money Laundering and Counter-Terrorist Financing Framework: Challenges and Opportunities in the Digital Age

Abstract

Sri Lanka’s anti-money laundering (AML) and counter terrorism financing (CTF) frameworks face significant challenges in the digital age, as emerging technologies like cryptocurrencies, digital transactions, and online banking outpace existing regulations. This study investigates these challenges, evaluates the effectiveness of Sri Lanka’s current policies, and suggests improvements based on international best practices. Specifically, it explores the impact of digital technologies on AML and CTF frameworks, focusing on their ability to detect and prevent financial crimes. The research draws on primary and secondary data, including literature reviews and case studies from countries like Singapore, the United Kingdom, and Australia, which have successfully adapted to digital financial crimes. Key recommendations include the establishment of a Digital Financial Intelligence Unit (DFIU) within Sri Lanka’s Financial Intelligence Unit (FIU), utilizing advanced data analytics and AI to monitor digital transactions. Additionally, it advocates for the use of blockchain technology to improve transaction traceability and calls for a formal public-private partnership to drive innovation in AML and CTF processes. The study also emphasizes the need for comprehensive training programs for law enforcement, regulatory authorities, and financial institutions to address emerging technological trends and financial crime techniques. By implementing these recommendations, Sri Lanka can enhance its AML and CTF frameworks, better adapt to digital threats, and strengthen financial security and stability in line with international standards.