 |
Sri Lanka Country Profile |
 |
General InformationThe Political ClimateIn 1948, when the island state of Sri Lanka (then called Ceylon) attained independence, the country already had a democratic system. However, the Sinhalese ethnic majority soon adopted political measures that favoured the Sinhalese and discriminated against the Tamil minority, leading to a radicalisation of Tamil groups and subsequent ethnic conflict that fuelled the 1983-2002 civil war. Although the two warring groups laid down their weapons in 2002, the peace agreement broke down in August 2006 and the government and the military resumed and intensified the fight against the Tamil Tigers (Liberation Tigers of Tamil Eelam, LTTE). In May 2009, the government officially declared a victory over the LTTE after having allegedly killed its leader. In November 2009, President Rajapaksa announced that presidential elections would be held in January 2010, almost two years prior to the end of his term, thus seeking a fresh mandate in the wake of the military defeat of the LTTE. Rajapaksa gained a new term in office, winning 57% of the votes, while the opposition's candidate General Fonseka, a former commander of the Sri Lankan army who is also associated with bringing an end to the civil war and defeating LTTE, received 40% of the votes. While the presidential election took place peacefully, the pre-election period was characterised by violence, including the killing of political activists, and gave rise to international concern. Moreover, several sources, such as Transparency International Sri Lanka, reported on the governing party's misuse of state resources for election campaigning. Irregularities such as violence and violation of election laws also marred the parliamentary elections, which took place in April 2010 and gave President Rajapaksa's United Peoples Freedom Alliance (UPFA) a landslide victory, with the party winning 144 of 225 seats in Parliament.
Despite the civil war, Sri Lanka has managed to maintain its democratic institutions and sustain a relatively stable level of economic development. The country has developed a strong market economy and a liberal free trade and investment regime. However, political corruption remains a large problem in Sri Lanka, resulting in irregularities in the use of public funds and politically influenced allocations of resources. Poverty is further exacerbated by corruption and anti-poverty programmes reportedly suffer from financial irregularities and a lack of transparency. Corruption is estimated to cost the country 2% of its annual GDP.
According to the Committee on Public Enterprises First Report (2nd Session) 2007, many state institutions and state-owned companies are plagued with corruption, wasteful spending and general mismanagement. Political life and government institutions in Sri Lanka are marked by cronyism and nepotism. In an attempt to combat these practices, all appointments, transfers, promotions as well as disciplinary action within the public service have been assigned to the Public Service Commission (PSC). However, the President and his advisors appoint PSC members, meaning that the so-called independent commission is composed of members that owe their position directly to the President. The appointment of a new Attorney General in December 2008 with close relations to the present administration is yet another example of the politicisation of state institutions. Politicised appointments have resulted in high-ranking public positions being awarded to candidates who lack the required qualifications to fill the positions. Moreover, there are no stipulations to secure asset declarations for public officials, nor are there any rules on conflict of interest. Corruption is carried out with a sense of impunity, and it is worth noting that no high-ranking official or politician has been prosecuted for corruption or abuse of power while serving in office. Since 2008, however, the Supreme Court has demonstrated increased independence from the government, adopting a more proactive line against corruption and abuse of power, and making several rulings against arbitrary executive actions.
Another aspect of corruption stems from the fact that Sri Lanka has been a war-based economy since 1983. Hence, military expenses are not only high, but are also protected from the Auditor General's scrutiny through the enactment of the Official Secrets Act and other legislative enactments. Military procurement is reportedly rigged through commissions, and often involves low quality goods. In 2001, the Minister of Justice admitted that corruption existed at the highest levels in a USD multi-million weapons transaction. However, the law prevented a full investigation. In addition, several banks have been exposed as operating in a questionable manner. For example, the Central Bank has neglected to retrieve LKR 7 billion that was granted to bankrupt finance companies, and the Bank of Ceylon has granted illegal loans amounting to LKR 314 million and made overdrafts worth LKR 300. According to Transparency International's Global Corruption Report 2005, petty corruption strains Sri Lankan household economies. According to the report and supported by the cases posted on the website of the Commission to Investigate Allegations of Bribery or Corruption, bribes are commonly extorted by middle and lower-ranking officials in education, health, land administration, police and the judiciary. Business and Corruption Political power in Sri Lanka has been increasingly concentrated in the executive since 2006. According to Freedom House 2009, President Mahinda Rajapaksa has introduced a more authoritarian and centralised rule with the majority of decisions being made by him and a small group of trusted advisors. This has raised concerns over the lack of transparency in policy formulation and decision-making - a point which is also highlighted by business exeuctives in the World Economic Forum Global Competitiveness Report 2009-2010 as a competitive disadvantage. Sri Lanka was formerly committed to a policy and process of privatisation of public companies and made some progress in privatisation, including part of the national airline and some hotels. However, according to reports, privatisation was conducted in a corrupt manner, which is estimated to have cost Sri Lanka USD 1.3 billion. Since an administrative change in 2004, the government has returned to the policy of trying to make public companies self-sufficient without privatising them. However, according to the World Economic Forum Global Competitiveness Report 2009-2010, favouritism in government decisions and wastefulness in government spending are highly problematic. In some cases, the government has subsidised inefficient state-owned companies at a loss. An illustration of this is the Mihin Air case. In 2007, the Sri Lankan government used state pension funds to set up a budget airline, Mihin Air, which turned out to be running at a loss. Employed as corporate officer were senior officials. In 2008, the airline went bankrupt, but nevertheless, in the 2009 budget, USD millions were assigned to restart its operations. Such subsidies combine with favourable treatment for some companies in other areas, distorting competition.
It is further noted in the World Economic Forum Global Competitiveness Report 2009-2010 that corruption poses one of the major constraints on business operations. The level of corruption is reportedly high, although it is still considered relatively moderate when compared to other countries in South and Southeast Asia. According to the World Bank & IFC Enterprise Surveys 2004, nearly 17% of companies cite corruption as a major constraint. More than 16% of companies expect to make informal payments to public officials to get things done, and 18% percent of companies surveyed stated that they expect to give gifts in order to acquire an operating licence. However, according to the World Bank & IFC Investment Climate Surveys 2004, medium-sized companies are most affected - about 25% stated that they expected to give gifts when dealing with public officials in connection with obtaining business licences. Companies seeking to contract agents to facilitate business transactions on their behalf, whether planning to invest in or already doing business in Sri Lanka, are strongly recommended to conduct extensive due diligence to avoid contracting potentially corrupt agents.
The level of corruption is markedly high in public procurement. Business executives in the World Economic Forum Global Competitiveness Report 2009-2010 report that favouritism of government officials when deciding upon policies and contracts, as well as the diversion of public funds to companies, individuals, or groups due to corruption are fairly common. It is estimated that the percentage of a public sector contract paid in bribes has tripled in recent years. One of the reasons for this is insufficient legislation. For instance, the law on declaration of assets does not require political parties and parliamentary candidates to declare the sources of their funding, thus obscuring potential biases politicians may hold towards bidders. Political bribery has reportedly reached considerable proportions, and it is reported that in order to obtain large contracts, commissions and bribes are often paid overseas and in hard currency. The situation regarding public procurement leaves honest companies in a predicament if they want to do business with the public sector. Therefore, companies are recommended to develop, implement and strengthen integrity systems and conduct extensive due diligence during the procurement process when planning to invest in or when already doing business in Sri Lanka. Regulatory Environment According to the World Economic Forum Global Competitiveness Report 2009-2010, Sri Lanka's inefficient government regulations and political instability are significant, problematic factors for doing business. The country's political instability and frequent policy shifts create uncertainties among companies, impeding their ability to make a proper business risk assessment. Nevertheless, according to the World Bank & IFC Doing Business 2010, starting a business in Sri Lanka has become simpler and quicker, now requiring 4 procedures and taking an average of 38 days. The costs, when calculated as a percentage of income per capita are very low (only 5.9 %) and there are no requirements for minimum capital. According to the US Department of State 2009, there is no apparent discrimination against foreign companies. The Board of Investment (BOI), a government agency that is responsible for foreign investments, functions as a one-stop shop for investors. The BOI is quite effective in helping investors who intend to set up business in the BOI-established industrial processing zones, which also offer better infrastructure and reliable public supplies and utilities. However, the US Department of State 2009 maintains that the BOI is less effective in assisting investors seeking to operate outside these zones. Some of the operating difficulties cited by companies pertain to difficulties in clearing supplies and equipment through customs, finding a factory location, and obtaining approvals for operations.
The Sri Lankan tax regime is characterised by a cumbersome bureaucracy, and companies spend a considerable amount of time every year on tax inspections as well as in meetings with tax authorities. Tax rates and regulations are identified by companies as major business constraints. Attempts have been made to reduce red tape by introducing standard tariff rates and in order to minimise corruption and attract more foreign investment to Sri Lanka, and uniform administrative procedures have been introduced. According to the World Bank & IFC Enterprise Surveys 2004, senior management can expect to spend 3.5% of its time dealing with the administrative burden of government regulations. The total tax rate paid by companies has decreased, but the World Bank & IFC Doing Business 2010 reports that it still amounts to 64% of profits, with the result being that many companies attempt to avoid paying taxes.
Companies should be aware that resolving disputes in the courts may be a lengthy process because the procedures allow for one party in the dispute to prolong the case indefinitely. This has resulted in an alarmingly low number of companies (less than 1.5%) settling payment disputes in court, although 33% of companies report overdue payments, according to the World Bank & IFC Investment Climate Surveys 2004. The number is a bit higher if one includes all business disputes. Nevertheless, only 6% of managers would reportedly take a business dispute to a Sri Lankan court. To avoid being caught in a time-consuming trial, some companies prefer to resolve disputes out of court. The Arbitration Act of 1995 recognises foreign arbitration awards. Arbitral awards made outside Sri Lanka can be enforced in Sri Lanka, and similarly, awards made in Sri Lanka are recognised and enforceable abroad. The Institute for the Development of Commercial Law and Practice (ICLP) arbitration centre has been established to facilitate settlement of commercial disputes. If the Sri Lankan government is party to the dispute, which is often the case when foreign companies are involved, the ICLP is unlikely to become involved in the dispute. However, Sri Lanka is a member of the International Centre for the Settlement of Investment Disputes (ICSID) and has ratified the New York Convention 1958. Access the Lexadin World Law Guide for a collection of legislation in Sri Lanka. Judicial SystemIndividual Corruption
According to a survey of judges in the Transparency International Global Corruption Report 2007, the largest group of court personnel taking bribes are court clerks. Bribes are paid to influence the issuance of court summons and trial dates. Others who benefit from bribes are public prosecutors, police and lawyers. Business Corruption
The judiciary is perceived to be the most corrupt institution in Sri Lanka. The courts are subject to political influence and they do not always render impartial verdicts. These factors combined with the knowledge that court procedures are very time-consuming because their procedures are such that one party in a dispute can prolong the cases indefinitely result in companies avoiding taking commercial disputes to court. As the court system is deemed unreliable and cannot be depended on for upholding the sanctity of contracts, companies often prefer to resolve matters out of court, such as through arbitration.
According to the US Department of State 2009, if the Sri Lankan government is one party in a business dispute it is even more difficult for a company to secure impartial judgement from the court, hence investors often seek out-of-court settlements. However, the Supreme Court made several rulings against the government in 2008. Political Corruption
According to the Transparency International Global Corruption Report 2007, judges who do not adhere to the political line are warned, and if that does not provide the desired result, they are often dismissed on some pretext. 'Uncooperative' judges are frequently intimidated and/or transferred. On the other hand, judges who toe the political line can act with impunity, even if there is evidence of bribe-taking or soliciting sexual favours from litigants or junior staff.
The US Department of State 2009 states that the Supreme Court has demonstrated more independence from the government since 2008, and made decisions against the arbitrary actions of the executive. It has adopted a more proactive line against corruption and abuse of power. As an example, the Attorney General's Department was discredited when it was accused by the Supreme Court of presenting false charges. The Supreme Court demonstrated significant independence from the government in several decisions with regard to various actions of the executive that it deemed arbitrary, and in the public eye it was seen as making a concerted effort to clean up the government and its employees. The Supreme Court has made many orders against corrupt civil servants, and the Commission to Investigate Allegations of Bribery or Corruption has been directed by the Supreme Court to take direct action against corrupt officials. Frequency
The World Bank & IFC: Doing Business 2010:
- In order to enforce a commercial contract, a company must on average go through 40 procedures, taking 1,318 days at an average cost of 23% of the claim (most of it being attorneys' fees).
World Economic Forum: The Global Competitiveness Report 2009-2010:
- Business executives give the independence of the judiciary from influences of members of government, citizens, or companies a score of 4.5 on a 7-point scale (1 being 'heavily influenced' and 7 'entirely independent').
- Business executives give both the efficiency of the legal framework for private companies to settle disputes and to challenge the legality of government actions and/or regulations a score of 3.9 on a 7-point scale (1 being 'extremely inefficient' and 7 'highly efficient').
Transparency International: Global Corruption Report 2007:
- Out of 441 litigants and professionals, 84% perceived the judiciary not always being fair and impartial, of which 20% maintained that it was never fair and impartial.
- Among judges, lawyers and court personnel, 83% claimed that the judicial system was corruptible.
Transparency International: Global Corruption Report 2005:
- The judiciary was perceived by households to be the two most corrupt institutions in Sri Lanka.
The World Bank & IFC: Investment Climate Surveys 2004:
- 33% of companies report overdue payments from buyers/suppliers/customers, but only 6% take commercial disputes to court.
- 69% of companies have confidence in the legal system to enforce contract/property rights in disputes. PoliceIndividual Corruption
Observers report that citizens are frequently harassed by corrupt police officers who act with impunity. As an example, police demand free tickets from bus drivers and meals from shopkeepers, using threats and intimidation and even making up false charges against them if these free services are refused. On the other hand, private bus operators reportedly bribe traffic police in order to escape traffic citations.
The websites of the Commission to Investigate Allegations of Bribery or Corruption and the Asian Human Rights Commission 2006/2008 also reveal that corruption in the police is a problem, as many of their cases pertain to corrupt practices by the police, such as extortion, making false charges against citizens who refuse to pay.
Police are suspected of being involved in organised crime by offering protection to organised crime figures, smugglers and brothels. Political Corruption
According to the Transparency International Sri Lanka Sri Lanka Governance Report 2008, the police are used by the government to suppress criticism. According to news on TamilNet 1 July 2007, members of the government opposition claim that if they make allegations about corruption within government institutions they will be subject to police harassment.
News reports from UPI Asia reveal that the Supreme Court of Sri Lanka has made several decisions against police officers for abusing their powers of arrest and torturing people purely to obtain bribes, but the rulings are ignored. This adds to the general perception of police impunity. Frequency
World Economic Forum: The Global Competitiveness Report 2009-2010:
- Business executives give the reliability of Sri Lanka's police services to enforce law and order a score of 3.5 on a 7-point scale (1 being 'cannot be relied upon at all' and 7 being 'can always be relied upon').
Transparency International: Global Corruption Report 2005:
- The police were perceived by households to form one of the two most corrupt institutions in Sri Lanka. Licences, Infrastructure and Public UtilitiesIndividual Corruption
Citizens in Sri Lanka commonly encounter bribery when dealing with applications for documentation and registrations, such as birth certificates and marriage certificates. Business Corruption
According to the World Bank & IFC Enterprise Surveys 2004, companies in Sri Lanka are subject to demands for bribes when seeking to obtain necessary permits and licences, such as operating licences and construction permits. In construction projects, it is not uncommon for building materials for construction projects to be transferred to private markets or private pockets.
Furthermore, connecting to public utilities, such as water or electricity, often entails demands for bribes. Political Corruption
According to reports, widespread corruption exists in infrastructure projects. Both local as well as high-ranking politicians and ministers demand bribes to ensure that a company receives a particular project. The bribe is often demanded in foreign currency. Politicians have allegedly also received kickbacks from companies as payment for ignoring substandard work.
One example of misappropriation of public funds is the deficit of the Ceylon Electricity Board (CEB) which accumulated a debt of approximately LKR 600 billion. According to the Committee on Public Enterprises First Report (2nd Session) 2007, the CEB's management conducted fraud when it routinely introduced procedures that covered up its corrupt practices. Frequency
The World Bank & IFC: Doing Business 2010:
- Constructing a warehouse requires a company to go through 22 procedures taking 214 days at an average cost of astounding 1,459% of per capita income.v
World Economic Forum: The Global Competitiveness Report 2009-2010:
- Business executives give the government administrative requirements (permits, regulations, reporting) in Sri Lanka a score of 3.1 on a 7-point scale (1 being 'extremely burdensome' and 7 'not burdensome at all').
The World Bank & IFC: Enterprise Surveys 2004:
- 25% of companies expect to give gifts to obtain a construction permit.
- 18% of companies expect to give gifts to obtain an operating licence.
- 27% expect to give gifts in order to obtain a water connection.
- 13% of companies expect to give gifts to attain an electrical connection.
- 2% of companies expect to give gifts to attain a telephone connection. Land AdministrationIndividual Corruption
In order to speed up procedures, such as to issue a deed, bribes are paid to officials in the land registration offices. Land transactions have allegedly favoured the family and friends of politicians. Eighty percent of Sri Lanka's agricultural land is state-owned and only leased to farmers. There are some concerns because peasant rights to the land are not well-defined, although there has been some progress in land registration, land rights reform as well as the rights to sell and lease land. However, peasants still have to bribe in order to obtain proper documentation on land lease. Business Corruption
In principle, property rights are secured within the industrial and service sector, and foreign investments are guaranteed protection by the constitution. Most problems with the guarantee of property rights involve locals rather than foreign companies, e.g. with land entitlements. Eighty percent of all land in Sri Lanka is state-owned.
According to the US Department of State 2009, foreign investors are permitted to buy land from private sellers, but the government has introduced a 100% transfer tax for foreigners. Companies can lease land. Most plantations are located on state-owned land, but are normally leased to the private sector on 50-year term leases. Companies should be aware that concerns have been raised as to the proper definition of property rights. Furthermore, companies may encounter corruption when dealing with land registration officials.
Although the property registration pertaining to land ownership is said to be quite reliable, the forging of documents and fraud have also been registered. The government has taken steps to address these problems. Political Corruption
According to the Transparency International Sri Lanka Sri Lanka Governance Report 2008, the former President Chandrika Kumaratunga had appropriated a wetland area near Parliament for public purposes, but then decided instead to give the land to a private developer to create a golf course and luxury housing. The Supreme Court ruled that this constituted abuse of power and betrayal of public trust, and the President was fined approximately USD 30,000. This was the first time a former President had been indicted and convicted in Sri Lanka.
According to the Transparency International Global Corruption Report 2008, when the Mahaweli Dam was constructed, corruption was one of the reasons why the government neglected to provide resettled households with compensation, which was otherwise agreed upon with the donors of the project. Frequency
The World Bank & IFC: Doing Business 2010:
- It takes 8 procedures and 83 days to register property at an average cost of 5% of the property value.
World Economic Forum: The Global Competitiveness Report 2009-2010:
- Business executives give the protection of property rights in Sri Lanka, including financial assets, a score of 4.4 on a 7-point scale (1 being 'very weak' and 7 'very strong'). Tax AdministrationBusiness Corruption
According to the World Economic Forum Global Competitiveness Report 2009-2010, companies view the tax system as a major constraint for doing business in Sri Lanka. The tax regime is characterised by an enormous amount of red tape, encouraging corrupt behaviour. Although Sri Lankan authorities have simplified procedures by reducing the number of tariffs, companies still have to make many payments each year and spend a great deal of time with tax officials.
For more information on tax administration, see 'Regulatory Environment' in the General Information section. Political Corruption
Officials in the Sri Lankan tax department have great discretionary power, which leaves room for corrupt practices. This seriously hampers the country's economy. According to Global Integrity 2007 and the Transparency International Sri Lanka Sri Lanka Governance Report 2008, the biggest scandal in Sri Lanka's recent history was the Value Added Tax (VAT) scam that involved the Sri Lankan Inland Revenue Department. The estimated loss of tax revenues amounted to close to USD 4 billion. This is a substantial amount when considering that the total annual tax revenue in Sri Lanka is a mere USD 3.5 billion. The scam involved collusion between a number of businesspeople and officials in the Tax Department. The fraudsters obtained VAT refunds for fabricated VAT payments in relation to nonexistent goods and companies. The scam was exposed in 2006 due to an audit by the Auditor General's Department. Frequency
The World Bank & IFC: Doing Business 2010:
- A medium-sized company must make 62 payments to the tax authorities each year, spending 256 hours each year on preparing, filing, and paying taxes.
- The total tax rate is estimated to be almost 64% of profit.
The World Bank & IFC: Enterprise Surveys 2004:
- Nearly 3% of companies expect to give gifts to in meetings with tax officials.
- Companies are subject to 5 visits or required meeting with tax officials a year on average. Customs AdministrationBusiness Corruption
Sri Lankan customs are generally characterised by cumbersome bureaucratic procedures. Large and medium-sized companies, in particular, feel that customs and trade regulations are major constraints. The heavy bureaucracy in customs creates a fertile ground for corrupt behaviour. Companies report that corruption is a constant problem in customs clearance. According to the World Bank & IFC Enterprise Surveys 2004, nearly one out of every five companies reports having to give gifts in order to obtain an import licence.
Corrupt customs officials are allegedly involved with organised crime and are said to deliberately close their eyes to the smuggling of consumer goods. Frequency
The World Bank & IFC: Doing Business 2010:
- Exporting a standardised shipment of goods requires a company to prepare 8 documents, taking an average of 21 days at a cost of USD 715 per container.
- Importing a standardised shipment of goods requires a company to prepare 6 documents, taking an average of 20 days at a cost of USD 745 per container.
World Economic Forum: The Global Competitiveness Report 2009-2010:
- Business executives give the efficiency of customs procedures (formalities regulating the entry and exit of merchandise) in Sri Lanka a score of 3.7 on a 7-point scale (1 being 'extremely inefficient' and 7 'extremely efficient').
The World Bank & IFC: Enterprise Surveys 2004:
- Nearly 19% of companies expect to give gifts to obtain an import licence.
- Nearly 15% of companies identify customs and trade regulations as a major constraint. Public Procurement and ContractingBusiness Corruption
The US Department of State 2008 reports that public procurement processes in Sri Lanka are plagued by corruption. The public tender process is hampered by corruption and nepotism at every phase of the process. The negotiation phase is hampered because politically appointed individuals or cronies of politicians are those who negotiate the terms of payment and the commissions of the public procurement contracts. Observers also report that a company will often be forced to pay a 'decision-level' bribe (i.e. a bribe to a minister or high-ranking officials) to obtain an infrastructure tender.
Business executives in the World Economic Forum Global Competitiveness Report 2008-2009 report that favouritism of government officials when deciding upon policies and contracts, as well as the diversion of public funds to companies, individuals or groups due to corruption are fairly common.
That the implementation phase is plagued by corruption is evident from the numerous examples where construction projects suffer from large amounts of building material being pilfered, implying that several people receive bribes to ignore the theft. Through bribes, contractors also ensure that substandard work is tolerated and violations overlooked.
See more on public procurement under 'Public Anti-Corruption Initiatives' in the Initiatives section. Political Corruption
The government procurement process is frequently carried out in an irregular manner. There are examples of huge projects being awarded to companies outside the tender process. According to the US Department of State 2008 and the Transparency International Sri Lanka Sri Lanka Governance Report 2008, military procurement process is laden with corruption. It is common knowledge that weapons deals are rigged, with huge commissions at the highest levels. However, laws like Emergency Regulations and Official Secrets Acts prevent these irregularities from being investigated. It is a common feature that senior officials are in charge of public and semi-public companies, such as the Lanka Logistics and Technologies which the government set up in 2007 to be the sole procurer of all military equipment. In 2006, a deal was signed for the procurement of several MiG-27 aircrafts. It was the largest military deal in Sri Lanka but it was exposed that it was wrought with irregularities and fraud. It was supposed to be a government-to-government deal between Sri Lanka and a Ukrainian state-owned company, but the MiG-27s were to be delivered to a 'go-between' company registered in the UK. The Sri Lankan Air Force furthermore agreed to pay a much higher price than what they had paid for other MiG-27s. When irregularities were revealed the case was handed over to the Commission to Investigate Allegations of Bribery or Corruption for further investigation but investigations are still pending.
The privatisation process is also plagued by corruption. Politicians and high-ranking administrative officials are paid huge bribes by prospective buyers who want to ensure their purchase of a publicly-owned company.
See more on public procurement under 'Public Anti-Corruption Initiatives' in the Initiatives section. Frequency
World Economic Forum: The Global Competitiveness Report 2009-2010:
- Business executives give the diversion of public funds to companies, individuals, or groups due to corruption a score of 3.3 on a 7-point scale (1 being 'very common' and 7 'never occurs').
- Business executives give the favouritism of government officials towards well-connected companies and individuals when deciding upon policies and contracts a score of 2.9 on a 7-point scale (1 being 'always show favouritism' and 7 'never show favouritism').
The World Bank & IFC: Enterprise Surveys 2004:
- Just over 2% of the companies surveyed claim that they are expected to give gifts to secure a government contract.
- The value of the gift expected to be paid to secure a government contract amounts to 0.03% of the value of the contract. Environment, Natural Resources and Extractive IndustryBusiness Corruption
The Commission to Investigate Allegations of Bribery or Corruption webpage on 'Detections and Raids' cites cases of corruption in the Forest Conservation Department, where officials will, through bribes, for example draft documents that recommend the opening of a business, such as a quarry, a lumberyard etc, in a forest conservation area. Public Anti-Corruption InitiativesLegislation: Sri Lanka ratified the United Nations Convention against Corruption in March 2004. Anti-corruption related legislation in Sri Lanka is based on the Bribery Amendment Act 1954, and Declaration of Assets and Liabilities Law, No. 1 1975 which stipulates that public officials must annually declare their assets in order to enhance transparency, and to ensure that public officials are not enriching themselves illegally while in office. Although it is a criminal offence to ignore this demand, only 5% of the parliamentarians in 2003 had declared their assets. Not only is it a minority of public officials who declare their assets, but declarations are not followed by independent auditing, and there is no right for public access to this information due to the absence of a freedom of information act. Sri Lankan legislation does not include whistleblower protection. A more recent legal anti-corruption initiative is the Prevention of Money Laundering Act No. 5 of 2006. In 2001 the 17th Amendment to the Constitution was passed. The 17th Amendment was made with the purpose of depoliticising the public sector and creating truly independent commissions. Under the 17th Amendment, a Constitutional Council was to be appointed. The Council would be responsible for appointments to key posts and to the independent commissions. Access the Lexadin World Law Guide for a collection of legislation in Sri Lanka. Government Strategies: Sri Lanka has taken some basic steps to curb corruption, and with the ratification of UNCAC and the ADB & OECD Anti-Corruption Initiative for Asia Pacific Anti-Corruption Action Plan, as well as the collaboration with USAID, to work out an anti-corruption programme to rectify some of the flaws in their governance system. The country has demonstrated political will internationally. However, more steps need to be taken. Most significantly, Sri Lanka has set up the legal framework for curbing corruption but still needs to implement more efficient enforcement of all the anti-corruption measures they have initiated - most notably the law on declaration of assets by parliamentarians and public officials should be rigorously upheld instead of being ignored as is currently the case. The President failed to appoint the Constitutional Council, which is required under the Constitution, and in this way obstructing the appointment of independent representatives to important public entities such as the Bribery Commission, Police Commission and the Judicial Service Commission. The Constitutional Council is also meant to appoint key people such as the Attorney General, the Auditor General, the Inspector General of Police, the Ombudsman and the Secretary General of Parliament to make sure they are independent from the executive. Instead Sri Lanka has a situation where the President is making personally and politically motivated appointments to these bodies that are supposed to oversee the government. Anti-Corruption Agencies: The Commission to Investigate Allegations of Bribery or Corruption (CIABOC) is supposedly an independent body functioning under the Bribery Amendment Act No. 19 1994. The CIABOC may investigate corruption cases, but it does not possess any powers to carry out proactive investigations. Rather, it must await a complaint from the public. Instead, it focuses on corruption prevention and holds corruption awareness courses for politicians and officials etc. The CIABOC has been largely inefficient in curbing corruption and no major cases of corruption have resulted in conviction. This might be a result of the fact that most of the CIABOC investigators have poor experience in the practice of law. The three commissioners are recruited among retired judges, police or auditors, leaving no room for younger and more dynamic anti-corruption commissioners to assume office. Another indication of the weakness of the CIABOC is that its financial status is quite problematic because the Treasury has the authority to withhold its funding allocated by the Parliament. Finally, as the CIABOC cannot initiate investigations, the Commission is dependent on the public. However, it is a huge disincentive for people to lodge a corruption complaint as there is no whistleblower protection. On the CIABOC website, cases of corruption detection and raids in which the Commission has been involved are posted. Yet the website reveals no large-scale corruption cases. The independence of the CIABOC was further damaged in 2008, when the President interfered with the staffing of the CIABOC. While overseeing the controversial MiG deal and the COPE report, the Director General was asked to resign. Upon refusing, he received word that he had been replaced by an acting director. This has paralysed the activities of the CIABOC while being in the midst of politically sensitive investigations as only a permanent Director is mandated to sign indictments. The Auditor-General: The Auditor General Department monitors all government units at the national, provincial and local levels to ensure transparency. The department is an independent body and the Auditor General is appointed by the President. According to Global Integrity 2007, overall the AG Department has a strong foundation with increased transparency as their reports are posted online at the Auditor General's website, but not much action is taken. The audit reports were previously referred to two committees, the Committee on Public Accounts (COPA) and the Committee on Public Enterprises (COPE), which were supposed to take action on the audit reports. However, the government has interfered with the work of the two committees after they reported on widespread corruption and waste of resources and money in state-owned companies. This step has left the Auditor General Department and its anti-corruption work in a weak state. An illustration of this is, as mentioned in the Transparency International Sri Lanka Sri Lanka Governance Report 2008, that in 2007 more than 7,000 audit queries never received an answer from public institutions. According to news reports, the Treasury Secretary is further trying to intimidate and weaken the Auditor General Department. This has raised concerns for the continued independence of this department. Committee on Public Enterprises: The Committee on Public Enterprises (COPE) was established in 1979 in order to ensure that financial discipline was upheld in public corporations and semi-governmental organisations where the government is a financial stakeholder. The COPE is obliged to report to Parliament on financial procedures, performance and management of the corporations. COPE has so far published two reports, both in 2007 that show massive corruption and financial malpractice in public enterprises and state institutions. After a few months one of the members stepped down from the COPE and the President's brother joined. After debating for a long time, Parliament decided to refer the corruption cases of 16 public institutions that the COPE had investigated to the Commission to Investigate Allegations of Bribery or Corruption (CIABOC) which then its chairman transferred out of the CIABOC, and replaced by an ally of the President. In 2008, when the President suspended Parliament it meant that the COPE lapsed, and when the Parliament reconvened a month later, the COPE had been appointed a new chairman, who incidentally also was a cabinet minister. Public Accounts Committee: The Public Accounts Committee (PAC) was established with the objective to oversee and ensure managerial efficiency and financial discipline of the government, ministries and provincial and local authorities. In November 2007, PAC published a report on government tax revenue that reveals VAT fraud. Mandatory Code of Corporate Governance: According to Transparency International Global Corruption Report 2009, a new Mandatory Code of Corporate Governance for Licensed Banks came into force by January 2008. The code was set up by the Central Bank of Sri Lanka. The implementation of the code is expected to improve the soundness of the banking system, which is vital to the maintenance of the financial system's stability. Ombudsman: The Ombudsman is called the Parliamentary Commissioner for Administration and investigates complaints against government departments, institutions, officials and government maladministration, as well as corporations regarding infringements of rights. The Ombudsman does not investigate allegations of corruption, complaints about appointments, or transfers and promotions. The Ombudsman is appointed by the President. However, according to the constitution, the Ombudsman should be appointed by the Constitutional Council. E-Governance: E-governance in Sri Lanka is still in its infancy. The Government of Sri Lanka Official Web Portal is quite useful, although citizens might have the most use out of what is hidden behind the button GIC - 1919 at the bottom of the page, which leads to the government Information Centre. Generally the official websites are one-way, top-down communication. Please be aware that the Government of Sri Lanka Official Web Portal as mentioned above is different from the Official Website of the Government of Sri Lanka. For companies, the situation is improving constantly. The Board of Investment website features much business and investment information. This is a more interactive site where one can make payments online, download documents, post comments etc. The National Procurement Agency website may be consulted for procurement queries (see 'Public Procurement' below). Public Procurement: The Procurement Guidelines 2006 stipulate that government procurements are to be advertised publicly, stating the specifications and timeframes of the tender. Unsuccessful bidders have a week upon being informed of who got the contract to complain to the Procurement Appeal Board, which will then launch an investigation. The National Procurement Agency (NPA), which supervises and administers the tender process, has a list of blacklisted companies that are barred from bidding on contracts. A manual and all relevant documents may be found on the NPA website. The tender-awarding process is very time-consuming because most procurement must not only go through tender evaluation committees, but must also be approved by Cabinet. The NPA has a mandate to address corruption issues, but the agency is not very effective because they often interpret their mandate very narrowly. Furthermore, according to Transparency International Global Corruption Report 2009, the National Public Procurement Agency (NPA) merged with the Treasury as the result of a presidential directive in March 2008. This brought the plans of the previous government to establish the NPA as an independent body with powers to supervise all tender processes to the end. As the Treasury is under the purview of the Ministry of Finance, there will henceforth be no independent control of national procurement. Global Integrity 2007 rates procurement in Sri Lanka as 'weak'. Whistle-Blowing: Global Integrity 2007 rates whistleblowing in Sri Lanka as 'very weak'. The country does not have whistleblower protection, resulting in a general reluctance on behalf of citizens and private and public sector employees to report corruption. General Comments on the Public Anti-corruption Initiatives: Until the Constitutional Council has been appointed, the politisation of the allegedly independent committees that are meant to oversee the government and assure that good governance is taking place, will continue. Furthermore, as long as Sri Lanka has not implemented legislation concerning freedom of information and protection of whistleblowers, the government lacks the extra incentive to ensure transparency and good governance. The government, in cooperation with USAID, has elaborated an anti-corruption programme to rectify some of the flaws in their governance system. Although this cooperation seems to indicate that the political will is present, it is not backed by actions. Political interference in independent organs and the President's unwillingness to ensure that the Public Service Commission and the National Police Commission are independent, works against the anti-corruption initiatives and impedes real progress in anti-corruption measures.
Private Anti-Corruption InitiativesMedia: Since the renewed social and political tension in 2006, the freedom of the media has suffered. Part of the media, in particular the state-run media, is under heavy political influence and control, whereas the private media are more diverse, but they have become more polarised because of the war. In general, investigative reporters often encounter harassment and censorship. In particular, Tamil reporters and reporters critical of the government have been under attack. In the areas controlled by the Tamil Tigers (LTTE), free expression is not permitted. Many Tamil papers are banned and reporters have gone underground or have fled. According to Freedom House 2009, Sri Lanka is one of the most dangerous places to be a journalist, and several media workers are killed every year. This will hopefully change for the better with the military hostilities having ended in May 2009. Several journalists have fled the country for fear of being attacked. According to reports, such as Reporters Without Borders 2009, the Sri Lankan authorities make no attempt to investigate the murders of journalists. Freedom House 2009 reports that the Sri Lankan government ordered Internet service providers to block access to the website TamilNet which was a pro-LTTE website. So far, this is the only website the government has blocked. The situation for the media seems to be deteriorating and, according to Reporters Without Borders 2010, Sri Lanka ranks 162nd out of 175 countries, while Freedom House 2009 ranks the country 155th out of 195 countries and describes its press environment as 'not free'. For updates on the media situation in Sri Lanka, please see the Free Media Movement Sri Lanka website. Civil Society: Traditionally, NGOs in Sri Lanka have held connections to political parties, resulting in the government being very suspicious towards those NGOs that have ties to opposition parties. Because of the political situation in the country, the main focus for NGOs is the peace negotiations. Transparency International Sri Lanka is a notable exception to this. In September 2008, the director of Transparency International Sri Lanka experienced an assassination attempt, suggesting that anti-corruption work is carried out at considerable risk. The attack was condemned by the international community, linking the deplorable human rights situation with anti-corruption work. Transparency International Sri Lanka (TI Sri Lanka): TI Sri Lanka is working for transparency awareness and towards the passing of a whistleblower protection law and a freedom of information act. TI Sri Lanka has set up a help line for people to report corruption. The information that is received is to be forwarded to the Commission to Investigate Allegations of Bribery or Corruption (CIABOC) in order for them to take action. In 2009, it published a governance report with the goal of improving the quality of public debate on issues of governance and corruption by exposing shortcomings, and pointing to best practices that should be aspired for. Centre for Policy Alternatives (CPA): The CPA focuses on strengthening institution- and capacity-building for good governance and conflict resolution in Sri Lanka. The CPA does a lot of research to formulate the policy alternatives it presents. Standards on Corporate Governance: Transparency International Global Corruption Report 2009 reports that the Institute of Chartered Accountants of Sri Lanka (ICASL) and the Securities and Exchange Commission of Sri Lanka, in consultation with the Colombo Stock Exchange, started a joint initiative in January 2007 with a view to formulating standards on corporate governance for mandatory compliance by companies listed on the exchange. These standards were incorporated into the ‘Listing Rules’ of the exchange in April 2007. The standards were formulated by a select committee, which took account of corporate governance standards in several jurisdictions, including the United Kingdom and the United States. They relate to the minimum number of non-executive and independent directors, the basis for determining ‘independence’, disclosures required to be made by listed companies in respect of its directorate and the minimal requirements to be met by listed companies in respect of the audit committee and the remuneration committee.
ResourcesThe websites listed below provide useful facts on Sri Lanka as well as contacts and tools for companies operating in Sri Lanka:
Sources for further reading:
Conventions and IndicesUNCAC Status: Signed 15 March 2004. Ratified 31 March 2004.
Status on UNCAC Implementation
This field describes the country's status on the United Nations Convention against Corruption. Please note any declarations and reservations made upon ratification. The list of signatories can be found on the UNODC website. Read more about the UNCAC.
Other Relevant Conventions or Treaties:
Transparency CPI: 2009: 97/180 (Score: 3.1)
Transparency CPI
This field consists of the score for the country in question on the Corruption Perceptions Index from Transparency International as well as its ranking.
World Bank CORR Index (-2.5 - +2.5): 2008: -0.15
World Bank Corruption Index
This field consists of the score for the country in question on the 'Control of Corruption' indicator in the World Bank Governance Research Indicator Country Snapshot (GRICS): 1996-2008.
OECD Country Risk Classification (0-7): 2010: 6
Country Risk Classification
The classification of countries by risk category has the aim of providing OECD countries with a basis for calculating the premium interest rate to be charged to cover the risk of non-repayment of export credits. Countries are placed in risk categories 0 - 7, with 0 being the lowest risk category and thus the least expensive. Conversely, premium group 7 is the highest risk category. Each classification is comprised of 2 components: 1) an assessment of the country's economic/financial situation, and 2) its overall political stability. Access the complete list of OECD Country Risk Classification figures.
Data Verification:
Latest update: October 2009
Data verified by: Global Advice Network Information NetworkCountry Profile SourcesGeneral Information Sources
Corruption Levels Sources
Judicial System
Police
Licences, Infrastructure and Public Utilities
Land Administration
Tax Administration
Customs Administration
Public Procurement and Contracting
Environment, Natural Resources and Extractive Industry
Public Anti-Corruption Initiatives Sources
Private Anti-Corruption Initiatives Sources
|
Home
Site map
Contact
Print
Back
To top