Vichara

In December last year the Governor of the Central Bank appealed to exporters to repatriate export proceeds in full within the stipulated period. He does not want to bring in regulations to force them to do this on the argument that will deter foreign investment. A think tank of Peradeniya University has pointed out that with an expected annualised export income of $ 16.3 billion in 2022 ($ 13.3 billion in merchandise exports and $ 3 billion in services exports) the country is being deprived of a staggering $ 6.8 billion in 2022 alone. But the Governor CBSL continues to be lenient on rogue exporters.

In an interview with the Aruna News Paper in December 2022, Dr. Wijeyadasa Rajapakshe, Minister of Justice has said inter alia that අපනයන ව්‍යාපාරිකයෝ බොහෝ ගණනක් මේ රටේ සල්ලි ඉතාමත් භයානක ලෙස පිටරට රඳවාගෙන එහෙ ව්‍යාපාර කරනවා කියලා. අපේ මිනිස්සු දුක්විඳලා ලේ දහඩිය හෙළලා හම්බකරගත්ත දේපළ පිටරට යවලා පවුල් කීපයක් දෙතුන්දෙනෙක්ගේ සුඛ විහරණය වෙනුවෙන් ඒ සල්ලි එහෙ පාර්ක් කරගෙන ඉන්නවා.සංඛ්‍යා ලේඛන ඇතුව ඉදිරිපත් කළේ ඩොලර් මිලියන පනස්තුනකට වැඩි ප්‍රමාණයක් වංචනිකව රඳවා තබා ගැනීම නිසා තමයි අපේ රටේ විදේශ විනිමය අර්බුදය ආවේ. මුළු විදේශ ණය ගත්තත් ඩොලර් බිලියන පනස්දෙකයිනෙ තියෙන්නෙ. ඊට වැඩි මුදලක් මේ අවුරුදු දොළහෙ රඳවා ගෙන තියෙනවා ඒ අය. මේ අපිට සොයාගත හැකි මුදල පමණයි. නමුත් මගේ තක්සේරුව ඊට වැඩිය දෙගුණයක්. අපේ රටේ අපනයන නීති ඉතාමත් ලිහිල් කර තිබුණා. ඒ වගේම කියන්න ඕන මහ බැංකුව කියන එක අර පිටකොටුවෙ දුම්කොළ කඩයක් තරමටවත් පාලනයක් තිබුණ තැනක් නෙමෙයි.

This scam was a focus of the debate in Parliament on 23.8.23 where Dr. Wijeyadasa Rajapakshe, Minister of Justice repeated that according to a Global Integrity Report d during the last 22 years export proceed that should have been repatriated back to the country but not sent back was USD 53.5 billion. He said that in 2017 a new Exchange Control Act was enacted where penalties on violations of the provisions of the ACT were reduced and some removed. He suggested that the Ministry of Finance should bring in a new Act or amend the present Act.

The Central Bank and the Ministry of Finance have been evasive on why no action is being taken to ensure that this vast sum which is more than the total amount of our foreign debt of 36 billion USD. The State Minister of Finance merely stated that the Central Bank Governor has given an assurance that the funds that should be brought back to Sri Lanka will be brought back. He added that the government can look into later what happened in the past but what is important now is to stabilize the economy.

It is unlikely that the present Exchange Control Act will be replaced soon. Neither will the export proceeds deposited abroad be brought back. The real reason why it will not happen is with the covenant the government has agreed with the IMF. These conditions are in the Attachment I. to the Letter of Intent dated March 6,2023 signed by both President Wickremesinghe and the Governor of the Central Bank Nandalal Weerasinghe in the Memorandum of Economic and Financial Policies.  AT Page 98 of the IMF Staff Report 23/116, it is stipulated at Article 21:

21. We will phase out the administrative measures imposed to support the balance of payments, including those introduced on an emergency basis, once conditions allow. These measures include import restrictions, exchange restrictions, multiple currency practices (MCPs), and capital flow management (CFM) measures.

While the mentioned import restrictions, exchange restrictions, MCPs and CFMs could help mitigate FX shortages in the near term, we believe they should not be a substitute for the comprehensive policy package and ongoing macroeconomic adjustment. We are committed to phasing these measures out as the balance of payments stabilizes. To this end, by June 2023, we will prepare a plan for the phased removal of these measures during the program period as we make progress with achieving macroeconomic stability, particularly with respect to the exchange rate, debt sustainability, and financial stability, improved market access.

Reference foot note 36 the main CFM measures introduced or tightened in 2020-2022 and currently in force include: (i) a repatriation requirement for exports of goods and services; (ii) a surrender requirement for exporters on proceeds from exports of goods; (iii) a surrender requirement for banks on purchases of export proceeds; (iv) a surrender requirement for banks on purchases of inward worker remittances; (v) suspension of outward remittances on capital transactions; (vi) restrictions on purchases of Sri Lankan ISBs by local bank”.

https://www.google.com/url?sa=t&rct=j&q=&esrc=s&source=web&cd=&ved=2ahUKEwighJ7535KBAxVGxDgGHYMEASgQFnoECBEQAQ&url=https%3A%2F%2Fwww.imf.org%2F-%2Fmedia%2FFiles%2FPublications%2FCR%2F2023%2FEnglish%2F1LKAEA2023001.ashx&usg=AOvVaw3NGzDMfT1ZZ8MkPxixjTym&opi=89978449

It is incomprehensible why the IMF forced these conditions on the Sri Lanka Government and why the government agreed to them. One can understand the embarrassment in accepting these iniquitous and pro racketeer conditions and the reluctance to reveal them. Was it because if even a part of these funds were repatriated there was no role for the IMF in Sri Lanka? And was the government wanted the IMF in the country to drive it back to neo liberal policies?

These deposits held abroad are earned with the sweat of our workers and with the scarce import finance released by the State in foreign currency. A government with a backbone would have made the non-repatriation of export proceeds in full within a specified period a criminal offence and used the measures adopted by Felix Dias in the case of innocuous foreign exchange violations when leading businessmen were held in custody in Paget Road. Now the agreement with the IMF prevents any action taken for the recovery of these funds. It is a mystery why before declaring the country bankrupt in April 2022 no attempt was made to recover at least part of these funds. This conduct of the government has encouraged conspiracy theories.

That 51.3 billion USD loot is only on export proceeds not repatriated. This is swindle is more transparent. In December last year I wrote on Facebook (22.12.2023) that Global Financial Integrity’s 2021 report had found Sri Lanka’s importers and exporters are using bogus customs declarations to illegally move billions of US dollars out of the country.

I mentioned that the extent of this swindle amounted to US$ 36.833 from 2009 to 2017. The plunder had increased from $ 2.650 in 2009 to 5.026 in 2017. If an average of $ 5 billion was spirited away during the next 4 years amounting to another $20 billion, the total loss from 2009 to 2021 would be $ 50.833 billion. This is almost equal to the total foreign debt of the country. This is the fraud which takes place day by day at the Customs by misinvoicing with collusion from customs officials.

MP Champika Ranawaka who had done a study on the issue revealed in the Parliament on 23.8.2023 that the loss on misinvoicing is around 20 percent.  On this basis on the total value of trade from 2018 to 2022 (5Years) of 156 billion USD -estimated loss for the 5 years at 20% is equal to 31 billion USD or an average loss of 6 billion dollars each year. This is more than the sum of dollar earnings expected from both tourism and foreign employment repatriation in the next few years.

Misinvoicing takes place through 4 main forms. They are.

1.   Import Under-Invoicing
2.  Export Over-Invoicing –
3.  Import Over-Invoicing-(the highest leakage of dollars takes place through this subterfuge)

Trade misinvoicing is done with the connivance of customs officials.  The Government must carry out at least random checks of these transactions and the assets of the officials involved. Here again misinvoicing should be made a criminal offense subject to heavy penalties.

Vichara

Note.

Global Financial Integrity (GFI) is a Washington, DC-based think tank focused on illicit financial flows, corruption, illicit trade and money laundering. Through high-caliber analyses, fact-based advocacy to promote beneficial ownership and a cloud-based database to curtail trade fraud, GFI aims to address the harms inflicted by trade misinvoicing, transnational crime, tax evasion and kleptocracy. By working with partners to increase transparency in the global financial system and promote trade integrity.