United Nations Resident Coordinator in Sri Lanka, Marc-André Franche, has cautioned that applying anti-money laundering rules as broad restrictions on non-profits, rather than targeted risk-based measures, could weaken security, development and Sri Lanka’s Mutual Evaluation outcome.

The United Nations Resident Coordinator in Sri Lanka, Marc-André Franche, has issued a stark warning that the country’s approach to its ongoing Financial Action Task Force (FATF) Mutual Evaluation could determine whether civic space expands or contracts. Speaking at the launch of the Sri Lanka Civil Society FATF Shadow Report, organised by the Sri Lanka CSO FATF Network, Franche stressed that treating anti-money laundering and counter-terrorism financing (AML/CFT) rules as blanket restrictions on the entire non-profit sector would undermine the very security and development goals those rules are intended to protect.

Sri Lanka is currently undergoing its third Mutual Evaluation on AML/CFT with the Asia/Pacific Group on Money Laundering (APG), the regional body affiliated with the global Financial Action Task Force. The process assesses both technical compliance with FATF’s 40 Recommendations and the effectiveness of measures against 11 Immediate Outcomes. An onsite visit is anticipated in the coming months, with the evaluation carrying high economic stakes. Previous grey-listing episodes after earlier evaluations led to increased scrutiny of cross-border transactions, higher compliance costs, delays in payments, reduced correspondent banking access, and pressure on foreign investment, remittances and growth. Officials have repeatedly emphasised that the country cannot afford a return to the “grey list.”

Targeted Approach Essential Under Revised FATF Standards

Franche highlighted FATF Recommendation 8, which addresses the potential abuse of non-profit organisations (NPOs) by terrorist groups seeking to exploit public trust and lighter oversight. The original post-2001 approach prompted many countries to impose broad, one-size-fits-all restrictions that strained legitimate charitable work without significantly reducing risk. A 2023 revision narrowed the focus to organisations actually facing high risk and required governments to assess that risk individually rather than regulate the entire sector uniformly.

“If it’s applied well, in a targeted, focused, proportionate, and evidence-based way, as it is intended, it strengthens security, civic space, and it will enable development and growth of this country,” Franche said. “If it is applied as a blanket measure, it will do the opposite.” He noted that Sri Lanka’s National Risk Assessment has itself characterised the overall inherent terrorist financing risk within the non-profit sector as “low to medium,” in contrast to higher ratings for banks and finance companies. Applying uniform controls despite this finding risks non-compliance with Recommendation 8’s risk-based requirements.

Civil Society Faces Banking and Funding Barriers

The Shadow Report launched at the event documented widespread practical difficulties. A 2025 survey of 102 non-profits found that 69 per cent had experienced problems receiving foreign funds. Of those facing obstacles, at least 42 per cent were told by banks to register with the Non-Governmental Organisations Secretariat – a requirement not stipulated by law. Nearly half of respondents reported difficulty opening new bank accounts, while only 17 per cent said they encountered no issues at all.

Civil society organisations and analysts have long argued that circulars and instructions from the Financial Intelligence Unit and NGO Secretariat have treated foreign funding itself as inherently suspicious. This approach, they say, stigmatises legitimate organisations, delays projects, and drives activity underground – precisely the opposite of FATF’s stated objectives. FATF itself has warned that blanket and arbitrary measures can increase rather than reduce terrorism financing risks by pushing financial flows outside formal systems.

History of Broad Security Measures Raises Concerns

Franche observed that Sri Lanka has a documented tendency to interpret or over-apply security measures broadly. He pointed to the Prevention of Terrorism Act’s use against civil society actors, journalists and minority groups. UN human rights treaty bodies have separately raised concerns about funding restrictions and bureaucratic obstacles facing non-governmental organisations, including registration and clearance requirements that sit uneasily with human rights obligations.

These patterns have fuelled fears that the Mutual Evaluation process is being leveraged to expand control over civic space rather than to strengthen the integrity of the financial system in a proportionate manner. Successive governments have justified heightened regulation of NGOs by reference to FATF standards, yet critics contend many of the measures adopted or proposed diverge from the focused, risk-based approach the global body now requires.

Recent Legislative Changes Expand Powers

In 2026, amendments to the Financial Transaction Reporting Act, the Prevention of Money Laundering Act and the Convention on the Suppression of Terrorist Financing Act expanded investigative, surveillance and asset-management powers. A proposed law on NGO registration and supervision has drawn particular scrutiny. The UN has already conveyed concerns to the Government that the draft risks replicating powers associated with the Prevention of Terrorism Act, including overbroad criminalisation, extensive executive authority with limited safeguards, and insufficient due process protections.

Civil society networks have criticised the limited consultation surrounding these measures. Draft legislation has often been published with inadequate time for review and primarily in English rather than local languages, limiting meaningful public input. Franche called for an enabling regulatory environment built on institutionalised, inclusive consultation.

Role of Civil Society in National Resilience

Protecting civic space is not a concession to non-profits, Franche argued, but an investment in the country’s resilience. He cited the sector’s contribution to the humanitarian response to Cyclone Ditwah in November 2025, which affected an estimated 2.2 million people and caused hundreds of deaths through flooding and landslides. No major challenge facing Sri Lanka – including poverty reduction – can be resolved by the government alone without a functioning civil society and private sector working alongside it.

The UN stands ready to support an evidence-based and proportionate approach to the Mutual Evaluation. Laws governing civil society, Franche said, should include safeguards against arbitrary detention, disproportionate surveillance and unjustified asset seizure without due process, while ensuring continued access to banking services and protection for humanitarian and disaster-response activity.

Call for Inclusive Consultation and Safeguards

As the Mutual Evaluation advances, the choices Sri Lanka makes will shape both its international financial standing and the health of its democratic space. A risk-based, targeted application of AML/CFT rules consistent with the revised Recommendation 8 offers a path that strengthens security without shrinking civic space. Blanket measures, by contrast, risk producing the opposite outcome – weakening both the effectiveness of financial crime controls and the country’s capacity to address its broader development challenges. The coming months will test whether Sri Lanka can align its regulatory framework with the letter and spirit of FATF standards while preserving the enabling environment essential for a resilient society.

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Focus keyphrase: Sri Lanka FATF Mutual Evaluation UN warning

Tags: Sri Lanka, FATF, AML/CFT, Mutual Evaluation, civil society, Marc-André Franche, money laundering, NGO regulation, civic space, Asia-Pacific Group, Recommendation 8, Cyclone Ditwah,