FINANCIAL CHRONICLE – The parliamentary Committee on Public Finance (CoPF) of Sri Lanka interrogated senior officials from the Central Bank, including Governor Nandalal Weerasinghe, regarding critical lapses in regulation and oversight that permitted an internal fraud of Rs. 13.2 billion to occur undetected at the National Development Bank PLC (NDB).
This high-profile inquiry unveiled significant weaknesses in the country’s banking system, which has raised alarms among international financial institutions, notably the International Monetary Fund (IMF). The IMF has already called for an immediate and thorough reform of operational risk management along with Anti-Money Laundering and Countering the Financing of Terrorism (AML/CFT) frameworks throughout the entire regulatory network of the state.
The scam, amounting to billions, represents one of the most elaborate and prolonged insider financial crimes within Sri Lanka’s corporate history. A lone individual, functioning as a low-level “inputter” in NDB’s transaction reconciliation unit, managed to drain billions from the system over almost ten years.
This insider adeptly navigated legacy technical vulnerabilities to manipulate NDB’s internal general ledgers in conjunction with the LankaPay electronic fund transfer network. The significant financial loss remained unnoticed by both the internal audit committees and the Central Bank’s off-site supervisory division until the total reached an astonishing Rs. 13.2 billion, cleverly disguised on NDB’s balance sheet under the vague category of “Other Financial Assets/Receivables.”
During a heated session led by CoPF Chairman and opposition MP Harsha de Silva, lawmakers scrutinized the leadership of the Central Bank of Sri Lanka (CBSL), demanding accountability for what they characterized as a systemic failure in regulation. Committee members expressed concerns regarding the efficacy of the Bank Supervision Department, questioning how such a huge discrepancy in capital went unnoticed, why the implicated bank was allowed to set the parameters for the inquiry, and whether there are corporate conflicts of interest jeopardizing the ongoing forensic investigation.
A pivotal moment arose when R. R. S. De Silva Jayatillake, Director of the Bank Supervision Department, disclosed that NDB had worked with the regulator to outline the investigation’s parameters. “Is it appropriate for the accused to set the scope of the investigation?” de Silva asked, criticizing the regulator’s decision to involve the accused bank in shaping an inquiry into its own fraudulent activities.
Governor Nandalal Weerasinghe defended the approach, asserting that while NDB prepared the initial draft, the Central Bank retained the ultimate authority over the investigation’s mandate. The Central Bank has engaged Deloitte India for the inquiry, with six analytical specialists already on-site in Colombo. An interim report is anticipated within two weeks, while a comprehensive final report is expected by July 18.
“The audit is progressing, although auditors have encountered some challenges,” Jayatillake remarked, noting that formal punitive action would be postponed until the forensic report is completed. However, Harsha de Silva expressed serious concerns regarding a potential conflict of interest within the external audit team, highlighting that a current board member of NDB had been a senior partner at PricewaterhouseCoopers (PwC) Sri Lanka, which recently merged with Deloitte.
“Could there be any undue influence?” de Silva inquired, emphasizing the need for absolute assurance that this former senior employee has no impact on the investigation. Central Bank officials reassured the committee that they had obtained assurances from Deloitte India that its forensic team would function independently from its local Sri Lankan affiliate throughout the investigation.
The technical discussions during the hearing concentrated on how NDB’s balance sheet could reflect an artificial asset amounting to Rs. 13.2 billion. When questioned, the CEO of LankaPay acknowledged that the interbank netting cycles, which clear and settle every two hours, make it structurally impossible for a legitimate clearing cycle to result in a residual balance of that size.
CoPF members criticized the Bank Supervision Department, pointing out that historical records from NDB showed this specific line item fluctuating erratically from Rs. 1.5 billion to Rs. 4 billion before ballooning to Rs. 13.2 billion. Lawmakers contended that such erratic fluctuations should have immediately raised red flags for off-site supervision.
Jayatillake explained that due to the perpetrator’s nearly ten-year tenure as an inputter, the investigation’s scope would need to be extended to undertake a decade-long audit to accurately trace the methods used in the fraud. The committee also accused the Central Bank of acting as an uncritical “post-box,” approving NDB’s public market debenture issuances for raising Tier 2 capital without proper verification of the underlying financial statements.
While Central Bank officials argued that their approval was strictly limited to ensuring compliance with baseline capital adequacy and structural rules under Securities and Exchange Commission (SEC) guidelines, the CoPF dismissed this rationale. The committee has mandated that the Central Bank submit all official endorsement and approval letters provided to NDB for independent legal and regulatory examination. (Colombo/June 13/2026)
