Sri Lanka Corruption Report

Last updated: August 2020

Snapshot

There is a moderately high risk of corruption for businesses in Sri Lanka. The most common forms of corruption include facilitation payments paid to avoid bureaucratic red tape, bribe solicitation by government officials, nepotism and cronyism. There is a high-level of corruption in the public procurement sector. The main anti-corruption laws are the Penal Code and Bribery Act, which criminalize corruption and attempted corruption in the form of extortion, and active and passive bribery. No clear distinction between bribery and facilitation payments is made, but gifts given with a corrupt intent are prohibited under the Prevention of Corruption Act. While Sri Lanka’s government has started to enforce the anti-corruption laws, enforcement remains constrained by a lack of resources and technical expertise, and powerful political elites often go unpunished for committing corruption crimes.

Risk key
Low
MODERATELY LOW
MODERATE
MODERATELY HIGH
HIGH

Judicial System

There is a high risk of corruption in Sri Lanka’s judiciary. Businesses do not have sufficient confidence in the judiciary’s independence and its ability to efficiently settle disputes and challenge government regulations (GCR 2016-2017). Irregular payments and bribes in return for favorable judicial decisions are not uncommon (GCR 2015-2016). Only one in twenty Sri Lankans perceive most or all judges and magistrates as corrupt (GCB 2015). The judiciary is subject to corruption and manipulation due to political appointments at every level and the intimidation and transfer of judges (BTI 2016). Corruption and political interference are especially problematic in lower courts (FitW 2017). Sri Lanka’s record in handling investment disputes is problematic, and court procedures can be time-consuming (ICS 2017). All commercial matters fall under the jurisdiction of the Commercial High Court of Colombo (ICS 2017). Disputes often become politicized and the stability of contracts could be improved upon (ICS 2017). Enforcing a contract in Sri Lanka takes longer than the regional average, but the costs are lower (DB 2017).

India is a signatory to the 1958 New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards, and it is also a member state to the International Centre for the Settlement of Investment Disputes (ICSID).

Police

There is a moderate risk of corruption when dealing with Sri Lanka’s police. Police impunity is a problem in Sri Lanka (HRR 2016). Companies lack confidence in the reliability of police services to protect businesses from crime (GCR 2016-2017). A third of Sri Lankans believe the police is corrupt (GCB 2015). There are reports that police officers bribe or pay off people to refrain from submitting complaints; making it difficult to establish the level of corruption in the system (HRW, Oct. 2015).

Public Services

Companies face a moderate risk of corruption in Sri Lanka’s public services sector. Companies indicate that irregular payments or bribes in connection with public utilities only sometimes occur (GCR 2015-2016). Inefficient government bureaucracy is ranked among the most problematic factors for doing business in Sri Lanka (GCR 2016-2017). About a quarter of Sri Lankans consider most or all local government officials to be corrupt (GCB 2015). Corruption is embedded at every level of the state’s administration (BTI 2016).

The Sri Lankan government has made starting a business significantly easier in recent years; the number of steps, time, and costs required to start a business are below regional averages (DB 2017). Getting electricity is significantly less time-consuming and cheaper than elsewhere in the region (DB 2017).

Land Administration

There is a moderately high risk of corruption in Sri Lanka’s land administration. Property rights are protected by law, but corruption and undue influence on the judiciary sometimes restrict the enforcement of rights (BTI 2016). Overall, businesses assess the protection of property rights in Sri Lanka as moderately effective (GCR 2016-2017). Foreigners are not allowed to own land, with a few exceptions (ICS 2017). The government may grant land leases to investors on a 50-year basis, but occasionally 99-year leases have also been approved (ICS 2017). Most investors say acquiring land is often the biggest challenge for new businesses (ICS 2017). Many land titles were lost during the Sri Lanka Civil War in the 1980s, leading to significant disputes particularly in the North and East of the country (ICS 2017). The 2011 Revival of Underperforming Enterprises and Underutilised Assets Act allows for the expropriation of assets belonging to companies the government considers underperforming and increases investor uncertainty as well as corruption risks in Sri Lanka (ICS 2017). The Land Access Forum estimates that a total of 36,371 hectares of land have been acquired illegally in Sri Lanka (Land Access Forum, Feb. 2016). State institutions play a large role in land grabbing, while political affiliations provide opportunities for land grabbing in the private sector (Land Access Forum, Feb. 2016).

Registering property takes three more steps than the regional average, but only requires about half the amount of time it takes elsewhere in the region (DB 2017).

Tax Administration

There is a moderate risk of corruption in Sri Lanka’s tax administration. Companies view tax regulations as a major constraint to business in Sri Lanka (GCR 2016-2017). Irregular payments and bribes when making tax payments are common (GCR 2015-2016). One in ten Sri Lankans consider most or all tax officials to be corrupt (GCB 2015). The total number of tax payments foreign companies have to make in Sri Lanka significantly exceeds the regional average of South Asia (DB 2017).

Customs Administration

Interacting with Sri Lanka’s customs administration involves a high risk of corruption. Companies indicate that irregular payments and bribes are common when trading across borders in Sri Lanka (GETR 2016). Sri Lanka’s import regime is among the most complex and protectionist in the world (ICS 2017). The efficiency of customs clearance and the time-predictability of the process are rated as poor (GETR 2016). Businesses cite burdensome import procedures and corruption at the border as two of the most problematic factors for importing in Sri Lanka (GETR 2016). Costs and time-requirements associated with border compliance in Sri Lanka are generally well below regional averages (DB 2017).

Demands for bribes from postal workers are common; the worker will indicate that they are willing to release the shipment at a lower customs rate ‘for a fee’ (Echelon, Nov. 2016). Rent-seeking opportunities are made possible by arcane laws governing customs procedures; they place a lot of power in the hands of customs officers, including the power to put any suspect into custody and demanding penalties of up to three times the value of unpaid or evaded duties (Echelon, Nov. 2016). An example of this is the case of Steel Impex, an Indian company shipping duty-free spare parts to the Sri Lanka Transport Board (SLTB). The company faced arbitrary investigations and harassment, which two customs directors proposed to settle with a LKR 150 million bribe (Echelon, Nov. 2016).

Public Procurement

Risks of corruption in the public procurement processes are high. Public procurement is notoriously open to bribery, posing a significant challenge to investors bidding for government contracts (BTI 2016, ICS 2017). Companies report that irregular payments and bribes in the process of awarding government contracts are common (GCR 2015-2016). Some claim the level of corruption makes it difficult to compete with bidders not subject to the US Foreign Corrupt Practices Act (ICS 2017). President Sirisena has publicly claimed that half of Sri Lanka’s public procurement contracts are tainted by corruption (Indian Express, Dec. 2016). Diversion of public funds is common and favoritism often taints the decisions of officials when awarding government contracts (GCR 2016-2017). Government procurement must be advertised publicly; unsuccessful bidders have one week to complain to the Procurement Appeal Board, which may then launch an investigation. More detailed information is available at the World Bank.

The government of Sri Lanka has launched a criminal investigation into widespread corruption at the state-run national airline, Sri Lankan Airlines. Major irregularities in the 2013 purchase of ten aircraft for the price of USD 2.3 billion recently came to light; the investigation into conflicts of interest, abuse of office and bribery allegations is ongoing (BBC News, Apr. 2015). The airline canceled the purchase of the planes at a cost of USD 115 million while the investigation is ongoing (NDTV, Oct. 2016).

Natural Resources

There are moderately high risks of corruption in Sri Lanka’s natural resources sector. Illegal sand mining continues to be a problem (News First, Feb. 2017). Sri Lanka does not adhere to the Extractive Industries Transparency Initiative’s standards (ICS 2017).

Legislation

Acts of corruption are criminalized under Sri Lanka’s Penal Code, but there are deficiencies in the legislation. The Bribery Act criminalizes, among others, active and passive bribery, embezzlement, abuse of function, and illicit enrichment. The definition of bribery includes “offering, undertaking, and promising”. According to Sections 2(1) and (2) of the Public Bodies (Prevention of Corruption) Act, it is an offense for any person to corruptly give any loan, fee or reward to a public body and for any public body to corruptly take a gift, loan, fee or reward. There is no threshold for gifts, but any gift can be regarded as a gratification unless a defendant can prove the contrary (UNODC 2016). The bribery of foreign officials is not covered by the Act, nor is bribery in the private sector (UNODC 2016). Trading in influence is not explicitly prohibited in Sri Lanka’s legislation (UNODC 2016). The Declaration of Assets and Liabilities Law stipulates that public officials must annually declare their assets, but in practice, there is little enforcement of these declarations (BTI 2016). The protection of whistleblowers is not addressed by law (TI 2014). The anti-corruption legislative framework is supported by the Prevention of Money Laundering Act.

Sri Lanka has ratified the United Nations Convention against Corruption.

Civil Society

Sri Lanka’s constitution provides for freedom of expression, but a number of laws are frequently used to harass and inhibit the press (FotP 2016). Press freedom has improved markedly under President Sirisena; journalists cover sensitive topics more frequently (FotP 2016). Self-censorship among journalists is common due to government harassment, and those previously harassed report further self-censorship to avoid future harassment (HRR 2016). A journalist named Freddy Gamage has been subject to threats and beatings by supporters of a local politician, after Gamage reported on the politician’s alleged corruption and links to organized crime (Amensty International 2016-2017). Impunity for attacks on members of the media persists; at least 44 people have been killed since 2004 (Amnesty International 2016-2017). The state controls significant portions of the news media; a degree of criticism is tolerated in the English-speaking press, which is read by only ten percent of the population (BTI 2016). A law granting public access to government information is set to come into effect in 2017 (HRR 2016). Sri Lanka’s press is classified as ‘partly free’ (FotP 2016).

Opposition parties and civil society groups critical of the government were frequently targeted by the administration of former President Rajapaksha (BTI 2016). There is an active national Transparency International chapter in Sri Lanka. The situation has improved dramatically since the installment of the new Sirisena government; official harassment and interference in the work of NGOs has decreased (FitW 2017).

Sources

World Bank: Doing Business 2017.
Freedom House: Freedom in the World – Sri Lanka 2017.
US Department of State: Investment Climate Statement 2017.
News First: “Yan Oya Illegal Sand Mining Continues Despite Warning”, 11 February 2017.
Bertelsmann Foundation: Transformation Index 2016.
Amnesty International: Sri Lanka Report 2016-2017.
World Economic Forum: Global Competitiveness Report 2016-2017.
World Economic Forum: Global Enabling Trade Report 2016.
Freedom House: Freedom in the World 2016.
Freedom House: Freedom of the Press 2016.
US Department of State: Human Rights Practices Report 2016.
UNODC: Sri Lanka UNCAC Implementation Review 2016.
The Indian Express: “Half Sri Lanka’s Public Procurement Contracts Are Corrupt: President Maithripala Sirisena”, 9 December 2016.
Echelon: “Sri Lanka Customs: Judge & Jury”, 17 November 2016.
NDTV: “Sri Lanka To Pay USD 115 Million For Canceling Planes: Source”, 5 October 2016.
Land Access Forum: “Land Grabbing in Sri Lanka: Current Status and Trends”, February 2016.
World Economic Forum: Global Competitiveness Report 2015-2016.
Transparency International: Global Corruption Barometer 2015.
Human Rights Watch: “Lack of Accountability for Police Abuse in Sri Lanka”, 23 October 2015.
BBC News: ‘Sri Lankan Airlines accused of ‘culture of corruption’, 4 April 2015.
Transparency International: Sri Lanka National Integrity System Assessment 2014.