Crypto ATM / kiosk operator in Sri Lanka

The Prevention of Money Laundering Act, No. 5 of 2006 (PMLA): This Act criminalizes money laundering and establishes the legal framework for its prevention.

The Financial Transactions Reporting Act, No. 6 of 2006 (FTRA): This Act mandates reporting institutions (which would include regulated VASPs) to report suspicious transactions and sets out customer due diligence (CDD) and record-keeping requirements. It also established the Financial Intelligence Unit (FIU).

The Convention on the Suppression of Terrorist Financing Act, No. 25 of 2005 (CSTFA): This Act criminalizes terrorist financing and implements the international convention.

Financial Intelligence Unit (FIU) of Sri Lanka:

Role: The FIU acts as the central national agency for receiving, analyzing, and disseminating financial information concerning suspected proceeds of crime and terrorist financing. It is responsible for enforcing compliance with AML/CFT laws by reporting institutions.

Central Bank of Sri Lanka (CBSL):

Role: The CBSL has been involved in discussions regarding the regulation of VASPs and is expected to develop the licensing framework and supervise VASPs for both financial stability and AML/CFT compliance.

Identification and Verification of Customers:

Enhanced Due Diligence (EDD): Must be applied in higher-risk situations, such as:

Reporting Threshold: Any transaction (regardless of amount) or attempted transaction where there are reasonable grounds to suspect that it may be linked to money laundering, terrorist financing, or other criminal activities.

"No Tipping-Off": VASPs and their employees are prohibited from disclosing to the customer or any third party that a STR or related information is being or has been submitted to the FIU.

Ongoing Due Diligence:

Capital Requirements: No specific capital thresholds for VASP operations.

AML/KYC Requirements (Specific to VASPs): No specific AML/KYC regulations are tailored for VASPs under a licensing framework. However, any entity operating in Sri Lanka would still be subject to general anti-money laundering and combating the financing of terrorism (AML/CFT) laws, such as the Financial Transactions Reporting Act No. 6 of 2006 (FTRA), if their activities fall within the scope of "financial institutions" or "designated non-financial businesses and professions (DNFBPs)" and trigger reporting obligations for suspicious transactions. The applicability to purely virtual asset businesses without fiat gateways is a grey area in the absence of explicit VASP definitions in the FTRA.

Local Presence: While no specific VASP license mandates local presence, any company wishing to operate legally in Sri Lanka, regardless of its business type, would need to comply with the Companies Act No. 07 of 2007, which typically involves local incorporation or registration as an overseas company branch.

Regulator Name: Central Bank of Sri Lanka (CBSL), Financial Intelligence Unit (FIU)

Entity Targeted: The general public and financial institutions in Sri Lanka, as well as any individuals or entities considering or engaging in virtual asset services. Violation Type: Operating outside the regulated financial framework; promoting/engaging in high-risk, unregulated investments; dealing in non-legal tender. Penalty Amount: No specific monetary penalty associated with this advisory itself. The "penalty" is the declaration of illegality/unregulated status and the implied risk of legal action under existing financial or criminal laws if related to fraud or money laundering.

Date: 2021-07-28 (Issued a press release)

Outcome: Heightened public awareness of the CBSL's prohibitive stance. Discouragement of engagement with cryptocurrencies and virtual asset service providers (VASPs). Reiterated that VASPs are not licensed or regulated by CBSL.

Significance: This was a strong and clear warning, setting the tone for the country's approach to virtual assets. It emphasized that crypto falls outside the existing regulatory perimeter, making any related activities high-risk and potentially illegal under broader financial laws.

Date: 2022-04-12 (Issued a press release)

Outcome: Reiteration of the prohibitive stance. Further clarification that facilitating or promoting cryptocurrencies is a violation of current foreign exchange regulations (especially related to outward remittances for crypto purchases) and payment laws.

Significance: This further solidified the CBSL's position, clarifying that not only are cryptocurrencies unregulated, but engaging in transactions involving foreign exchange for crypto can violate the country's stringent foreign exchange laws. This acts as a stronger deterrent for financial institutions.