- Customs claim provisions failed to consider ‘undial’ impact
By Shenal Fernando
The failure of the provisions of the Regulation No. 1739/3 dated 2 January 2012, which introduced the open account method of importing to Sri Lanka in 2012, to consider the impact of the operation of the undial money transfer system appears to have created a loophole to be exploited by unscrupulous importers.
Speaking to The Sunday Morning Business, Sri Lanka Customs Deputy Director – Legal and Media Spokesman Sudattha Silva pointed out that the ‘open account’ import method was introduced to Sri Lanka in 2012 by the Regulation No. 1739/3, made under Section 20 of the Imports and Exports (Control) Act, No. 1 of 1969.
He stated that while Section 11(1)(a) of the regulation imposed a condition that the payment in lieu of the goods imported should be made within 365 days, it simply meant that a Sri Lankan bank could not make a payment in lieu of goods imported under the open account method after the passing of 365 days.
However, the provisions of the regulation did not impose any obligation or authority on the Customs or any other entity to pursue persons who did not make their payments to the supplier within 365 days, nor did it impose any obligation on Customs or the bank to report to the to the Import and Export Control Department or the Central Bank of Sri Lanka (CBSL) in the event the payment was not made in time.
Responding to a query put forth by The Sunday Morning Business, Silva admitted that it was possible that this loophole had been created because of the failure to consider the impact of the operation of the undial system of money transfer at the time of drafting the regulation.
“There is no mechanism in force under which Customs is required to report to anyone regarding the fact that a payment for an open account transaction wasn’t made within 365 days.”
He further stated that this legal uncertainty had been created due to the fact that while the CBSL was responsible for the managing of foreign exchange, the regulations regarding payment for goods had been created by the Import and Export Control Department under the Imports and Exports (Control) Act.
Following the intensification of the country’s foreign exchange liquidity crisis, the new CBSL Governor Dr. Nandalal Weerasinghe on 29 April 2022 pre-emptively announced that the Import and Export Control Department of the Finance Ministry would publish new regulations prohibiting the import of goods through open account and DA/DP term methods in order to dismantle the undial money transfer system and the burgeoning local black market for foreign exchange.
Speaking to The Sunday Morning Business, an import industry source claimed that they had reached out to the CBSL Governor seeking clarification on these new rules and giving their insights into how the open account trade could continue to operate while restricting the use of the undial system by implementing a system of checks and balances involving the monitoring of the payment by Customs and banks.
The source admitted that a minority of unscrupulous importers had turned to the undial system in making payments for goods imported under the open account method. However, he pointed out that instead of increasing surveillance and monitoring such transactions, the decision by the authorities to ban all open account trade was an overcompensation.
