By Adolf
This is our second story on the recent revelations surrounding the alleged massive fraud of LKR 13.2 billion at National Development Bank PLC (NDB). The public has reached out to us seeking information, reflecting widespread concern. This governance failure has once again raised serious questions about the strength of governance, internal controls, and regulatory oversight within Sri Lanka’s banking system. Depositors have expressed fear and uncertainty to LNW about the safety of their money. While investigations are ongoing, early indications suggest that this may not be an isolated incident. The implications for the broader banking sector — and for public confidence — are deeply concerning.
Other Banks Impacted
Reports indicate that the Central Bank of Sri Lanka (CBSL) has already visited several banks that received funds linked to the alleged NDB fraud. Sampath Bank PLC appears to be the most impacted, with suspicious funds reportedly moving through accounts within the bank. Other major banks, including Commercial Bank of Ceylon PLC, Hatton National Bank PLC, and Seylan Bank PLC, may also have been used by perpetrators as channels for fund layering, a common technique in financial crime to obscure the origins of illicit funds.
CBSL Must Respond
If confirmed, these developments point to systemic weaknesses in anti-money laundering (AML) systems, transaction monitoring frameworks, and interbank surveillance mechanisms. The movement of funds across several leading banks suggests that existing safeguards were not robust enough to detect suspicious patterns early. At the heart of this issue is a fundamental principle: the primary fiduciary responsibility of a bank is not to its shareholders or directors, but to its depositors. Banks hold public deposits and carry a far greater obligation — the duty to protect the money entrusted to them. Fraud within a regulated bank directly undermines that trust.
CBSL’s Fiduciary Responsibility
The responsibility of CBSL is therefore critical. As the regulator and guardian of financial stability, CBSL has a moral obligation to ensure that banks are governed by individuals with the competence, integrity, and experience required to manage institutions entrusted with public funds.
Poor Regulatory Supervision
Recent governance decisions raise serious concerns. Allowing individuals without substantive banking experience to hold leadership positions in systemically important banks reflects a troubling regulatory lapse. The appointment of figures such as Suresh Shah, whose primary experience lies in industries like tobacco and beer rather than banking, to lead Hatton National Bank PLC, is a striking example. Systemically important banks — including Commercial Bank, HNB, National Savings Bank, Bank of Ceylon, and People’s Bank — hold billions in public deposits. Chairpersons of these institutions cannot treat their roles as ceremonial; these positions require deep knowledge of banking, risk management, financial regulation, and a fiduciary duty to depositors.
CBSL Must Wake Up
CBSL must urgently revisit its governance framework and enforce strict eligibility criteria requiring prior banking or financial services experience for chairpersons of systemically important banks. Leadership standards cannot be diluted without jeopardizing depositor confidence. Beyond strengthening AML and transaction monitoring systems, regulators must ensure that the right people with the right expertise are entrusted with safeguarding public money.
Ultimately, depositor confidence is the foundation of the banking system. When fraud occurs and governance standards are compromised, the credibility of the entire system is questioned. In this instance, CBSL and auditor E&Y have failed the country and its depositors, and urgent corrective action is imperative.
Previous Articles: NDB 13 B Fraud: Total Failure of Directors, the Central Bank and Auditors. Should be sued?