The Sri Lankan government’s efforts to regulate the casino industry have sparked debate after revelations that junket operators—key players in attracting wealthy gamblers—might not fall under the tax net of the new Gambling Regulatory Authority (GRA). These developments have emerged as part of a broader review of the gambling sector by the country’s Committee on Public Finance.

Officials from the Central Bank of Sri Lanka (CBSL) and the Financial Intelligence Unit (FIU) addressed lawmakers recently, acknowledging that junket operators, who are instrumental in facilitating high-roller activity in casinos, remain largely unregulated. Although the proposed GRA bill outlines the formation of an independent regulator, it lacks clarity on whether junkets will be subjected to revenue collection oversight.

An FIU representative candidly stated during committee hearings, “The inland revenue mechanism, casinos are already under their revenue collection structures, but of course going forward, whether the junket operators will be included in that revenue mechanism is yet to be seen.” The official, cited by The Sunday Times, added that the new authority would have the power to issue necessary rules and guidelines, though these have yet to be outlined.

Questions Over Monitoring and Money Flow Controls

CBSL’s role in gambling-related matters has come under question, with lawmakers appearing to conflate its financial oversight mandate with gambling regulation responsibilities. A committee member pressed the bank’s representatives on whether they were confident that financial flows associated with junket operations were adequately tracked.

The response was far from reassuring. An FIU official explained, “At the moment, I would not use the word satisfied… there is definitely value coming to Sri Lanka. Otherwise, their modus operandi won’t be of benefit to the local casinos.” Currently, oversight exists only within the Fiscal Policy Department of the Finance Ministry, and even that is limited to licensing with no enforcement authority under the Casino Business (Regulation) Act, No. 17 of 2010.

The lack of a real-time monitoring system raises concerns over potential vulnerabilities in anti-money laundering (AML) and countering the financing of terrorism (CFT) frameworks. The issue is particularly pressing with the upcoming launch of the City of Dreams Sri Lanka casino, backed by Melco Resorts & Entertainment in partnership with John Keells Holdings. The casino is expected to draw significant junket activity upon its August opening.

Global Lessons Unheeded?

International experience points to the dangers of unchecked junket operations. In Australia, authorities have investigated connections between junket operators and organized crime, most notably in the case of Alvin Chau, the now-jailed former head of Suncity, once the largest junket operator in Macau. Chau’s company was linked to Hong Kong’s Chow Tai Fook jewellery group, which also drew scrutiny.

In Macau, junket operators are required to hold a valid license and cannot extend credit or share revenue with casinos—functions restricted to the licensed gaming houses. Sri Lanka’s proposed law, however, does not include any provisions for licensing junket operators, a gap that critics warn could open the door to illicit financial flows and regulatory arbitrage.

Concerns Extend to Offshore and Cruise Ship Gambling

Further complicating the regulatory landscape is the issue of offshore gambling. The FIU raised alarms over cruise ships offering casino services within Sri Lanka’s territorial waters. “When the cruise ships arrive in Sri Lanka if they have casinos, that should be prevented from operating within the territorial limits… otherwise local casinos will not have a necessity to operate,” the official noted.

This comment sparked debate, with a former finance minister questioning whether such a stance would effectively deter luxury cruises from docking in Sri Lanka. The FIU clarified that the concern pertains to operations within the country’s 12-nautical-mile territorial waters, which are subject to local laws. Beyond that limit, vessels are governed by the laws of their flag state, consistent with global maritime and gambling regulations.

Sanctions and International Finance Risks Also Discussed

The session also veered into foreign policy implications, as a former finance minister suggested accepting Russian rubles for tourism due to improving ties between political leaders. The CBSL swiftly dismissed the idea, citing U.S. sanctions. An official explained, “Although those two persons may be the best of friends, still the US Treasury has issued… a list of designated entities and individuals.” Entering into transactions with such entities, the official warned, could jeopardize local banks’ access to U.S. dollar transactions.

These remarks underscore the delicate balance Sri Lanka must maintain in international finance, especially as it seeks to modernize its gambling framework without risking economic sanctions or reputational damage.