Magistrate Questions Audit Failures, CBSL Warnings and Possible Suppression.
The rapidly expanding NDB Bank fraud investigation now appears to be moving beyond the alleged operational perpetrators and steadily toward possible questions surrounding senior management responsibility, audit failures, and whether warnings raised earlier may have been ignored or suppressed within the system itself.
In a significant development yesterday, Colombo Chief Magistrate Asanga S. Bodaragama directed the Criminal Investigation Department (CID) to arrest and produce before court any senior officials of National Development Bank who may have aided, abetted, or facilitated the fraudulent misappropriation allegedly involving approximately Rs. 13 billion from the bank’s general ledger account.
The Magistrate also instructed the CID to submit a detailed report regarding recommendations allegedly issued earlier by the Central Bank of Sri Lanka (CBSL) concerning the fraud, and whether any such recommendations had subsequently been suppressed or ignored by senior officials within the institution.
Those directions emerged when the complaint filed by the Cyber Crimes Investigation Division relating to the alleged fraudulent withdrawals carried out between 2024 and March 2026 was taken up before court.
Suspects Produced Before Court
Produced before court under remand custody were:
- Assistant Manager Lahiru Kodikara
- His alleged brother, Pathum Kodikara
- Bank data operator Saranga Kosala
- Businessman Mohammed Inhamul Hashan
The CID informed court that the first suspect had allegedly gained widespread trust inside the institution and was believed to have masterminded the fraud.
Investigators further stated that the suspect had reportedly facilitated loans for fellow officers of the bank, thereby allegedly creating unusually close working relationships that resulted in his conduct escaping meaningful internal scrutiny.
Questions Over Audit Failures
At another level, however, the hearing appeared to expose something potentially even more troubling: questions surrounding the bank’s audit environment itself.
(EDITOR’S NOTE: One-time head of PwC Sri Lanka, Sujeewa Mudalige, was/is head of the NDB Bank Audit Committee.)
The Chief Magistrate directly questioned prosecutors regarding whether internal and external audit reports had been taken into custody as previously ordered.
In response, the CID reportedly informed court that no audit had been conducted specifically on the bank’s general ledger account since 2022.
Investigators further stated that statements recorded from the Chief Executive Officer of the audit division allegedly indicated that a proper audit had not been carried out.
That disclosure visibly drew the attention of court.
The Magistrate then reportedly questioned whether the audit officer serving since 2022 remained in office and reiterated earlier directions requiring all internal and external audit reports to be immediately taken into custody.
Lawyers appearing for the suspects, however, responded that annual audits had in fact been conducted and that such reports remained public documents.
Nearly 900 Suspicious Accounts Identified
Meanwhile, investigators also disclosed what may become one of the more sensitive operational aspects of the case.
The CID informed court that approximately Rs. 10 million had allegedly been transferred by the first suspect to a private bank account in Pottuvil, and that the receiving bank had reportedly lodged complaints with the Central Bank concerning that transaction, as well as several other transfers.
The Magistrate then sought clarification from investigators regarding the scale of suspicious financial activity identified so far.
The CID responded that approximately 900 suspicious accounts had now been identified in connection with the investigation.
And that number alone is likely to deepen concern within banking and regulatory circles alike.
Because sophisticated frauds involving large volumes of accounts inevitably raise wider questions concerning:
- Transaction monitoring
- Internal control systems
- Suspicious transaction reporting
- Compliance escalation procedures
- Supervisory oversight mechanisms
President’s Counsel Kalinga Indatissa, appearing for the suspects, reportedly argued before court that it would be unfair to place the entirety of responsibility upon the accused individuals alone, suggesting broader institutional failures may also require examination.
Counsel reportedly observed that the situation reflected the saying that “water flows downward to the lowest point.”
Court Directives Intensify Scrutiny
After considering submissions from both sides, the Magistrate directed the CID to submit a detailed report regarding any bank officials who may have neglected duties connected to the fraud.
Court also reiterated directions requiring:
- Immediate seizure of audit reports and relevant bank records
- Examination of senior officials’ responses
- Clarification regarding whether Central Bank recommendations had been ignored or suppressed internally
The suspects were further remanded until May 29.
A Larger Governance Crisis?
Be that as it may, the NDB fraud story now increasingly appears to be evolving into something much larger than a conventional financial crime prosecution.
Because once courts begin questioning:
- Audit failures
- Possible ignored warnings
- Control breakdowns
- The conduct of senior officials themselves
…the issue steadily shifts from operational fraud into a broader examination of governance and institutional accountability within Sri Lanka’s banking system itself.
And equally importantly:
When did management internally understand the likely true scale?
Ratings Downgrade and Regulatory Response
Meanwhile, the financial consequences have already begun materialising externally.
Fitch Ratings reportedly downgraded NDB’s National Long-Term Rating from A(lka) to A-(lka) with a negative outlook, citing weakened controls, pressure on capitalisation, and deficiencies in internal risk management relative to peers.
CBSL, however, has simultaneously attempted to reassure the public that NDB remains above minimum regulatory capital and liquidity thresholds.
The regulator also reportedly imposed restrictions including:
- Suspension of cash dividends
- Limitations on discretionary expenditure
- Tighter supervisory oversight measures
And politically, the pressure is widening.
Former Finance Minister Ravi Karunanayake has now reportedly written formally to President Anura Kumara Dissanayake raising concerns regarding wider CBSL supervisory failures exposed by the NDB matter.
Beyond NDB Alone
At another level, however, what increasingly unsettles many observers is not merely the size of the fraud itself.
It is the suggestion that the fraud may have continued over a prolonged period beginning around mid-2024 before eventual detection.
Because sophisticated banking frauds of this magnitude rarely raise concern solely about the perpetrators.
They raise concern about:
- Reconciliation systems
- Transaction monitoring
- Segregation of duties
- Suspicious transaction reporting
- Internal audit effectiveness
- Risk escalation
- The broader control environment itself
Which perhaps explains why the story now feels increasingly larger than NDB alone.
Because Sri Lanka has, within a remarkably compressed period, witnessed:
- The NDB fraud
- The Treasury USD 2.5 million diversion controversy
- The missing USD 625,000 USPS remittance issue
- Broader recurring concerns surrounding financial controls and institutional supervision
And that cumulative pattern inevitably raises wider public-interest questions about how robust Sri Lanka’s overall financial governance architecture truly is.
The Next Critical Phase
For now, however, the next critical turning point will likely be the forensic audit itself.
Because once international forensic investigators begin reconstructing:
- Transaction flows
- Approval pathways and control overrides
- Audit trails
- Escalation records
…the story may either stabilise — or become substantially more serious depending on what the evidence ultimately reveals.
And perhaps that is why Colombo’s financial sector tonight remains quietly uneasy.
Because the NDB story is no longer viewed merely as an isolated fraud case.
It is increasingly being viewed as a test of whether Sri Lanka’s banking oversight systems themselves remain sufficiently credible after years of repeated institutional shocks.
