Transparency International

This Anti-Corruption Helpdesk brief was produced in response to a query from one of Transparency International’s national chapters. The Anti-Corruption Helpdesk is operated by Transparency International and funded by the European Union

Query

What are the primary destination countries for dirty money originating in Sri Lanka? What makes these jurisdictions attractive for those looking to transfer and spend ill-gotten gains abroad?

Summary

Although difficult to trace by their very nature, illicit financial flows (IFF) coming out from Sri Lanka have benefitted from secrecy and tax havens in various jurisdictions. In this report, some of the characteristics that make Seychelles, Thailand, Singapore, Bangladesh, Mauritius, India, the Maldives, Malaysia, Hong Kong and the British Virgin Islands attractive are presented, with a particular focus on how they rank in tax haven and secrecy scores, and how they have been misused in the past.

Main Points

  • Lax regulations that allow beneficial owners to remain hidden make jurisdictions attractive as they are able to create shell companies through which flow their funds and evade taxes or launder money.
  • Tax treaties that in principle should avoid double taxation and low tax rates make certain jurisdictions attractive for tax evasion purposes.
  • As Chinese involvement in Hong Kong grows, Singapore competes to become the main destination for IFFs in Asia.
  • Cryptocurrency opens new possibilities for IFFs to go undetected, but much remains to be studied regarding its use for this purpose.

Contents

  1. Introduction
  2. Sri Lanka and illicit financial flows (IFFs)
  3. The jurisdictions that attract IFFs from Sri Lanka
  4. IFFs and the South Asian region
  5. References

Caveat

There is little information available in public domain on the destination of illicit financial flows from Sri Lanka. As such, this Helpdesk paper uses Tax Justice Network’s Illicit Financial Flows Vulnerability Tracker, which lists Sri Lanka’s trading partners which are most vulnerable to IFFs, to map out most jurisdictions discussed under the third section. As this Helpdesk answer relies mainly on the Tax Justice Network’s tracker, it does not cover all types of illicit financial flows – in particular, flows connected to corruption and organised crime may not be adequately captured.

Authors

Gabriela Camacho, tihelpdesk@transparency.org

Date

18/08/2021

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