Drug trafficking tops SL’s money laundering threats as terror financing risk rises

Drug trafficking, fraud and trade-based money laundering are Sri Lanka’s most significant money laundering threats, while warning that terrorist financing risks have increased, the latest national risk assessment released by the Financial Intelligence Unit of Sri Lanka revealed.

The assessment, coordinated by the FIU of the Central Bank of Sri Lanka, found that Sri Lanka’s overall national money laundering (ML) risk remains at a medium level, unchanged from the previous review. However, the threat from drug trafficking has escalated to “high”, making it the most serious predicate offence generating illicit proceeds in the country.

The National Risk Assessment (NRA) 2024/25, Sri Lanka’s third such exercise, was conducted with the participation of 86 public and private sector institutions and around 200 experts, examining risks across 15 sectors and thematic areas ranging from banking and securities to virtual assets and environmental crimes.

According to the assessment, fraud and customs-related offences including trade-based money laundering (TBML) were rated medium-high threats, while crimes such as environmental offences, illegal fishing, human trafficking and tax crimes were assessed at medium threat levels.

The report also noted an improvement in bribery and corruption risks, with the threat level easing to medium from medium-high, supported by an improvement in Sri Lanka’s Corruption Perceptions Index score from 32 in 2024 to 35 in 2025.

However, the study flagged a worsening terrorist financing (TF) risk, which has risen to medium-high from medium in the previous assessment. The increase was attributed to evolving threats linked to extremist and separatist networks, potential diaspora funding, digital radicalisation and the use of informal or emerging financial channels, the FIU said.

Sector-wise, the report identified banks, finance companies, real estate businesses, casinos and dealers in precious metals and stones as among the sectors with medium-high money laundering risk, while informal money transfer services were also flagged as high-risk areas within the unregulated financial sector.

The assessment also introduced Sri Lanka’s first national risk evaluation of proliferation financing, which was rated medium, reflecting global risks and domestic vulnerabilities.

Authorities said the findings will guide 15 key policy recommendations, including an update to Sri Lanka’s National Policy on Anti-Money Laundering, Countering the Financing of Terrorism and Countering Proliferation Financing for 2026–2030.

The FIU said the report is intended to help regulators, financial institutions and other stakeholders strengthen institutional risk controls and allocate resources toward higher-risk sectors to safeguard the integrity of the financial system.