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Message: <blockquote data-quote="ibnanv" data-source="post: 22451706" data-attributes="member: 218596"> A governance activist has warned Prime Minister Ranil Wickremesinghe  that a revised foreign exchange law, tended to give too many powers to  the minister of finance extending beyond issuing policy, which  undermines good governance or Yahapalanaya, an activist has warned.Chandra Jayaratne, a governance activist in a letter to the Prime  Minister said civil society representations made in regard to the new  foreign exchange law had been disregarded in the final law that has been  passed by the parliament. He said reforms were needed to Sri Lanka's Constitution dealing with ministry secretaries and powers of the minister. "All stakeholders of society, having experienced the ill effects  of endowing power on the Ministers to issue not only policy directions  to Ministry Secretaries, but in addition to have power to direct and  control them in the exercise of supervision of the Departments and  Institutions under the Ministry, would certainly endorse the above  reform of limiting the administrative and control power of Ministers,"  Jayaratne said. "In the above context, it is most surprising that the Foreign Exchange Act No; 12 of 2017 certified on 28th July 2017 is to be brought in to effect from November  2017, in a form which is mostly unchanged from its original draft. "This enactment is despite the serious concerns expressed by the  civil society before the enactment. It is sad that the assurances the  civil society had from those in governance that the issues of priority  concern of civil society will be addressed by Committee Stage amendments  in Parliament have not been delivered by the Government." Sri Lanka has suffered and citizens have been victimised due to  ministerial or political interference in activities of the government  since independence from British rule. During the latter part of British rule and till 1971, permanent  secretaries protected citizens from ad hoc arbitrary actions of rulers,  elected or otherwise, freedom advocates say. After secretaries were  appointed at the pleasure of the President rather than a civil service  commission, citizens were exposed to arbitrary action. A constitutional  council which was brought re-built a just government does not appoint  ministry secretaries. Meanwhile Jayaratne said in 1946, when Sri Lanka had permanent secretaries, the minister only had general powers. "The Ceylon Constitution Order in Council 1946, endowed on  Ministers only general powers of direction and control, with the  relevant provision reading as “Each Permanent Secretary shall, subject  to the general direction and control of his Minister, exercise  supervision over the department or departments of Government in the  charge of his Minister," he pointed out. Jayaratne said it was necessary to allow the central bank to  carry out its functions independently.  Outside of the short periods of  the recent past, when politically driven persons and cronies of those in  the apex of power and governance headed the Central Bank, the top tier  leaders of the Central Bank have upheld and implemented best practices  and principles of Central Banking. Sri Lanka lost free capital mobility it had under British rule with the setting up of a money printing central bank in 1951. It printed money (either to finance deficit or artificially keep  down interest rates or both) and tried to control the exchange rate at  the same time, which was not practically possible, without controlling  forex flows. The contradictory exchange and monetary policy (explained by the  impossible trinity of monetary policy objectives) inevitably generated  forex shortages and started authorities started punishing people who  tried to protect their savings from effective expropriation a type of  state sponsored robbery, with draconian exchange controls and criminal  penalties. The exchange controls themselves were one of most serious losses  of freedoms, experienced by citizens of Sri Lanka after independence  from British rule after the creation of a so-called soft-pegged exchange  rate. Once a person has complied with tax and other laws, where he  moves the money to, should not be a concern for the state and the ruling  class. "The extent of the control over all life that economic control  confers is nowhere better illustrated than in the field of foreign  exchanges," explained economist t Friedrich von Hayek in 1944 a few  years before Sri Lanka entered the failed Bretton Woods soft-peg system. "Nothing would at first seem to affect private life less than a  state control of the dealings in foreign exchange, and most people will  regard its introduction with complete indifference. "Yet the experience of most continental countries has taught  thoughtful people to regard this step as the decisive advance on the  path to totalitarianism and the suppression of individual liberty. "It is in fact the complete delivery of the individual to the  tyranny of the state, the final suppression of all means of escape not  merely for the rich, but for everybody.” The full text of the letter by Chandra Jayaratne is reproduced below: 3rd November 2017 An Open letter to the Prime Minister and Copied to the President Dear Mr. Prime Minister, “Yahapalanaya” is not Taking Away Accountabilities of Independent Public Institutions and Vesting them in Cabinet Ministers In order to assure Good Governance-“Yahapalanaya”, as the  Chairman of the Parliamentary Steering Committee on Constitutional  Affairs, You are vested with the leadership accountability to ensure  that the recommendations linked to the reform of article 52(2) of the Constitution dealing with Secretaries to Ministries, as duly endorsed by the Sub Committee on Public Finance, is  steered through the Constitutional Reforms process and embodied in the  new Constitution. This single move will make a significant difference to  assuring Yahapalanaya-Good Governance. The Ceylon Constitution Order in Council 1946, endowed on  Ministers only general powers of direction and control, with the  relevant provision reading as “Each Permanent Secretary shall, subject to the general direction and control of his Minister, exercise supervision over the department or departments of Government in the charge of his Minister. All stakeholders of society, having experienced the ill effects  of endowing power on the Ministers to issue not only policy directions  to Ministry Secretaries, but in addition to have power to direct and  control them in the exercise of supervision of the Departments and  Institutions under the Ministry, would certainly endorse the above  reform of limiting the administrative and control power of Ministers. In the above context, it is most surprising that the Foreign Exchange Act No; 12 of 2017  certified on 28th July 2017 is to be brought in to effect from November  2017, in a form which is mostly unchanged from its original draft. This  enactment is despite the serious concerns expressed by the civil  society before the enactment. It is sad that the assurances the civil  society had from those in governance that the issues of priority concern  of civil society will be addressed by Committee Stage amendments in  Parliament have not been delivered by the Government. Outside of the short periods of the recent past, when politically  driven persons and cronies of those in the apex of power and governance  headed the Central Bank, the top tier leaders of the Central Bank have  upheld and implemented best practices and principles of Central Banking. The best of talent available in the country is attracted to the  Central Bank and key staff members are amongst the most competent  professionals in the market. Resources for references and networking and  exposure through best available training options enrich the capability  of staff of the Central Bank. As a Public Institution engaged in  regulatory governance, the Central Bank has unquestioned integrity and  capability, so long as political interference and influence do not taint  such core values. The Monetary Board, when properly constituted with persons of  integrity and professionalism, provides an apex structure of leadership  and effective decision making for best practices driven good governance.       In the above context it is difficult to neither to understand nor  accept, the rationale for taking away the powers and accountability  hitherto vested in the Central Bank and its affiliated agencies, in  exercising best judgment and professionalism based regulatory  enforcements concerning the management of foreign exchange. It is even  more difficult to justify how these accountability transfers can be   made to a Minister and not to an Independent Public Institution,  especially in the light of the unanimous agreement of the Parliamentary  Sub Committee that Article 52(2) should revert to the pre 1972  Constitutional provisions.   Even at this late stage, the Civil Society urges you, in the  context of your commitment to Yahapalanaya-Good Governance, to  reconsider the likely negative implications and the potential future   impact on good governance and monetary management, arising from the  following issues, risks, unprofessional practices and financial crimes,  by enforcing the new law as presently enacted : •         Bringing in to force the new law effective  November 2017, in the absence of essential regulations and guidelines,  especially when such regulations and guidelines have not been  transparently reviewed with civil society; •         The key decision making functions with the highest  levels of authority and empowerment in the management and governance  have been shifted  from  o   the expertise and experience enriched, o    citizen recognized  independent public institution of  the Central Bank, to a politically elected individual minister, leaving  the Monetary Board and the Central Bank accountable for monetary  stability assurance under the Monetary Law, being vested with only the  agency functions of implementation, which latter function also as per  Ministerial directions, and thus violates the accepted best practice  principles of management and control by an Independent Public Regulatory  Institution o   Sections 2 (1 & 2),  Minister is empowered to issue directions to the Central Bank and the Central Bank has to follow as the agent of the Government o   Section 4 (2) c, Central Bank can grant special permission to  any person within Sri Lanka ( ie. other  than an authorized or  restricted dealer) to deal in foreign exchange, as prescribed by the Minister by Gazette o   Sections 7 (1) and (2) and (10), Minister (having regard  to treaty /agreement provisions and impact on monetary policy and  stability) in consultation with the Monetary Board and with the  approval of the Cabinet, authorize by regulations, the permitted class  or classes of capital transactions in foreign exchange. In  exceptional circumstances in accordance with directions issued by the  Minister, the Monetary Board is to permit capital transactions not  permitted by regulations o   Sections 8 (1) and (2), A person in or resident in Sri Lanka  can export from Sri Lanka or import in to Sri Lanka or hold foreign  exchange in possession or acquire foreign assets from foreign exchange  derived by the conversion of Rupees or an asset in Sri Lanka, subject  only to such limits as prescribed by the Minister by Gazette o   Sections 9 (1 to 4), Central Bank may subject to approval of the Minister  issue guidelines and directions to authorized/restricted dealers or to  any person, class or classes  of persons engaging in current and capital  or other transactions relating to foreign exchange o   Sections 11(1), Central Bank needs to inform the Minister  before issuing directions to dealers to comply with provisions of the  Act, even where such parties have violated the Act or regulations o   Section 12 empowers the Minister to extend the allowed time period for concluding an investigation o   Section  13, The Minister to appoint a Board of Inquiry to inquire in to appeals o   Sections 22, (1 and 3) Where the Monetary Board advises  the Minister that remittances of foreign currency in and out of Sri  Lanka constitute a potential threat to the financial stability of Sri  Lanka, the Minister may with the approval of the Cabinet, take steps to  restrict or regulate such remittances for a period not exceeding 6  months and shall forthwith communicate same to Parliament. Such  limitation period may be extended by the Minister with approval of  Parliament to a period in the aggregate not exceeding one year. Is this  process practical in a severe crisis situation and does it not impede on  the independence of the Central Bank as per Monetary Law? •         In terms of clause 8 (3), any Sri Lankan Citizen, resident in Sri Lanka, who remits to Sri Lanka any foreign exchange previously not declared  and which are not the property in respect of which proceedings are  pending in a court of law or covered by an order of a Court of Law under  Prevention of Money Laundering or Convention on the Suppression of  Terrorism Financing, o   Will not be deemed to be the property obtained by the commission of an offense under Prevention of Money Laundering  Law o   is liable to pay only a remittance fee of one percent, where such remittance exceeds USD one million and o   Provided however if such remittances are invested in Sri Lanka Development Bonds the remittance fee is exempted and  o   There shall be no restrictions on the repatriation such funds The longer term risks and implications on Sri Lanka of these  provisions appear not adequately addressed despite the amber warning  submissions of the civil society. •         The provisions of section 12 requiring every  investigation or inquiry for failure to comply with the provisions of  the Act or regulations to be concluded within six months is totally  impractical •         The penal sanctions being only a monetary fine of a  limited extent may take away the only deterrent to prevent the  commission of such offenses •         With the repealing of the Exchange Control Act and  requiring that all suits, actions and proceedings instituted under the  repealed Act to be concluded within 6 months, is totally impractical and  will be contrary to the present government’s commitments to effectively  enforce the law and the campaign promises made during the 2015  elections. •         The wide ranging relaxations and concessions made, with  the bringing in to effect of this Act, and the options now available  for Ministerial directions based capital transactions to take place,  will weaken significantly the regulatory and enforcement processes  currently in place, and this can lead to significant value illegal  transactions, financial crimes, and money laundering, especially due to  the lacunae in o   The Criminal Procedure Code o   Money Laundering Act o   Lack of effectively embedding in local legal framework  provisions set out in relevant Conventions and International Agreements •         The Colombo Port Financial City based International  Financial Centre currently under development will need to be endowed  with concessions and benefits going much further and broader in scope  than this enactment and unless essential safeguards are embedded there,  Sri Lanka could receive negative classifications in financial ratings  and global acceptance. With international and local research studies, economic and  social indicators and other clear signals visible, indicating a  significant informal/black economy, a high degree of undervaluing and  over valuing for customs, marketing of overseas investment options,  trusts and financial instruments, high incidence of narcotic  shipments/transshipments, perceived high incidence of gold, other  precious metals , gems and currency smuggling and perceived high degree  of money laundering, civil society yet again raise strong amber signals  of potential risks post enactment. This open letter is to serve on you  formal notice of above signals and civil society that best judgment  based leadership decision making will follow. Yours Sincerely, Chandra Jayaratne </blockquote>

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