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Sri Lanka - Corruption

Corruption remained a significant and continuing problem, including at the highest levels of government. Sri Lanka’s track record on combatting corruption remains dubious at best, which may undermine the effectiveness of financial reforms to attract foreign investments. International companies frequently reported requests for bribes on matters ranging from customs clearances to government procurement. While Sri Lanka has laws and regulations to combat corruption, enforcement is often weak or non-existent. U.S. and other global firms note corruption as a major limiting factor in securing large scale infrastructure projects as well as foreign investment. Unsolicited proposals and tenders designed to favor a particular company are routine even if prohibited by law. Projects geared toward exports face fewer problems, although government officials often solicit favors to facilitate such projects.

In July 2023 parliament passed, by unanimous consent, new anti-corruption legislation. This was a required structural benchmark of the International Monetary Fund program. The legislation expanded the mandate of the Commission to Investigate Allegations of Bribery or Corruption (CIABOC) and changed both the way CIABOC was funded and how it could recruit investigators in order to provide greater independence. The law required politicians to publicly declare assets. The law also expanded and created new criminal offenses for corruption, including recognizing the demand for sexual favors as a criminal form of corruption, and increased the fines for offenses.

Numerous civil society groups criticized the law for insufficient whistleblower protections and for insufficient protection of the right to information, but overall they welcomed the law as a step in the right direction. Civil society and the private sector saw a window of opportunity to address endemic corruption in the country but were concerned the government and CIABOC lacked the capacity and political will to do so. There was long-standing and widespread impunity for government officials accused of corruption, and police and the judiciary lacked training in addressing complicated cases of financial crimes.

In March 2023 the Colombo High Court ordered charges dropped against former parliamentarian Sajin Vass Gunawardena, who was accused of misappropriating nearly 883 million rupees ($2.7 million) while he was the CEO of state-owned airline Mihin Lanka. CIABOC had filed the case against Gunawardena in 2016. Corruption in the health sector regarding the procurement of medicines and medical equipment attracted significant attention during the year after multiple deaths and serious injuries were reported at state hospitals, allegedly due to substandard drugs. CIABOC reported it received 1,749 complaints of corruption from January through July 2023. During this period, CIABOC filed 42 corruption cases, and the courts convicted eight individuals of corruption (all low-level officials).

CIABOC is widely considered ineffective and has made little progress pursuing cases of national significance. The law says a public official’s offer or acceptance of a bribe is a criminal offense and carries a maximum sentence of seven years imprisonment and a fine. Thus far, the Bribery Commission has focused on minor cases such as bribes taken by traffic police, wildlife officers, and school principals. These cases reportedly follow a pattern of targeting low-level offenses, with prosecutions occurring years after the offense followed by the imposition of sentences not always proportionate to the conduct (i.e., sometimes overly strict, other times overly lenient).

Government procurement regulations contain provisions on conflicts of interest in awarding contracts or government procurement. While financial crime investigators have investigated a few cases involving the misappropriation of government funds, these cases have often not moved forward due to lack of political will, political interference, and lack of investigative capacity. Sri Lanka signed and ratified the UN Convention against Corruption in March 2004 and the UN Convention against Transnational Organized Crime in 2006. Sri Lanka is a signatory to the OECD-ADB Anti-Corruption Regional Plan but has not joined the OECD Anti-Bribery Convention.

According to a 2001 survey by Transparency International (TI), nearly 50% of Sri Lankans believed that the police and political parties in the country were the most corrupt institutions in the country. Out of those who were interviewed 23% said they had to pay a bribe in order to obtain a particular service.

Public sector corruption, including bribery of public officials, remains a significant challenge for firms operating in Sri Lanka. While the country has generally adequate laws and regulations to combat corruption, enforcement is weak and inconsistent. US firms identify corruption as a constraint on foreign investment, but, by and large, it is not a major threat to operating in Sri Lanka – at least once a contract has been won. Corruption appears to have the greatest effect on investors in large projects and on those pursuing government procurement contracts.

There is a consensus that corruption is rampant in Sri Lanka. In Transparency International's Corruption Perception Index for 2010 Sri Lanka ranks 91st with a score of 3.2 out of a possible 10 points, a slight improvement from a score of 3.2 in 2009. The World Bank Control of Corruption Index, which ranges from -2.5 to +2.5, has deteriorated to -0.36 in 2009 from -0.16 in 2004. In a 2006 USAID Democracy and Governance assessment, anecdotal evidence from the private sector indicated that the percentage of a public sector contract paid in bribes nearly tripled.

According to Transparency International, corruption is perceived as most pervasive in political appointments to government institutions and in government procurement awards, as well as in high frequency/low value transactions. The police force and the judiciary are perceived to be the most corrupt public institutions. Corruption is also a persistent problem in customs clearance and enables wide smuggling of certain consumer items, to the detriment of legitimate manufacturers and importers.

In 2008-2009, the Supreme Court, examining public interest litigations against the sale of three government properties, faulted a former President and the Secretary to the Treasury for wrongdoing. Both were fined. The Supreme Court also reversed the sales. Also in 2008, the Supreme Court removed the Secretary to the Treasury from his position and ruled that he could not hold any public office in the future. However, in 2009 the Supreme Court chaired by a new Chief Justice allowed the former the Treasury Secretary to resume his duties, thereby reversing the 2008 decision.

The tendering and procurement process for government contracts was not transparent, leading to allegations of corruption by the losing bidders. Senior officials served as corporate officers of several quasi-public corporations, including Lanka Logistics and Technologies, which the government established in 2007 and designated as the sole procurement agency for all military equipment. Critics alleged that large kickbacks were paid during the awarding of certain defense contracts. In 2007 the government used state pension funds to set up a new budget airline, Mihin Air, with many of the same officials serving as corporate officers. In May 2009 Mihin Air went bankrupt, but the 2009 budget allocated several million dollars to restart operations and continue leasing planes for the airline. Parliamentarians from the Janatha Vimukthi Peramuna (People's Liberation Front) complained in session that the airline's officials did not follow proper tender procedures in acquiring the planes.

In 2008 the Supreme Court found then treasury secretary P.B. Jayasundera guilty of a violation of procedure in the awarding of a large contract for the expansion of the Port of Colombo. The court barred him from holding the treasury position. In June 2009, after President Rajapaksa named a new Supreme Court chief justice, the Supreme Court allowed Jayasundera to proceed with a fundamental rights case protesting the original decision. The Supreme Court then overturned the previous decision and allowed Jayasundera to be reinstated as secretary of the treasury.

Although members of parliament are asked to complete financial disclosure reports upon their election, there was no follow-up to ensure compliance, and little or no reporting ultimately was done.

Sri Lanka ratified the UN Anti-Corruption Convention in 2004. Sri Lanka has signed but not ratified the UN Convention against Transnational Organized Crime. Sri Lanka became a signatory to the OECD-ADB Anti-Corruption Regional Plan in May 2006.

The Bribery Commission, the main body responsible for investigating allegations of bribery and corruption, has been rendered inactive since March 2010 after the expiry of the term of office of the previous commissioners. In early 2011 the government of Sri Lanka also transferred 56 police officers assigned to the Bribery Commission, and appointed 56 new officers who have not been screened or trained in anti-corruption work.

The function of the Commission, under Act No 19 of 1994, is to investigate allegations brought to its attention and to institute proceedings against responsible individuals in the appropriate court. The law states that a public official's offer or acceptance of a bribe constitutes a criminal offense and carries a maximum sentence of seven years imprisonment and a fine at the discretion of the courts. A bribe by a local company to a foreign official is not covered by the Bribery Act.

Several other government entities try to address corruption, the most important being the Auditor General's Department. However, there is confusion regarding mandates, with these institutions frequently interpreting their mandates narrowly and thus inhibiting their effectiveness.

The business community claims that corruption has the greatest effect on investors in large projects and on those pursuing government procurement contracts. Some claim that the level of corruption makes it difficult to compete with bidders not subject to the U.S. Foreign Corrupt Practices Act. Projects geared toward exports face fewer problems. Local investors say internal controls do exist, although they are weak. The new government created new departments and agencies to investigate corruption allegations, mostly from the previous regime, and granted new resources to existing anticorruption departments. It also appointed the local head of Transparency International as a senior advisor on anticorruption matters. The government has introduced a Right to Information Act in Parliament to increase transparency.

In 2016 a parliamentary panel, the Committee on Public Enterprises, launched an investigation against then central bank governor Arjuna Mahendran amid allegations that Mahendran had given his son-in-law insider information and they had both benefited from sovereign bond sales. Mahendran was also accused of multimillion rupee spending on his government credit card. Mahendran denied the allegations and an earlier investigation cleared him. The government had yet to take action against Mahendran by the end of 2016, despite the parliamentary panel’s conclusion in October 2016 that Mahendran acted improperly.