A study of the underground banking system in Sri Lanka – a phenomenon of Boyle’s law
| Date | 14 August 2023 |
| Pages | 595-603 |
| DOI | https://doi.org/10.1108/JMLC-05-2023-0084 |
| Published date | 14 August 2023 |
| Subject Matter | Accounting & finance,Financial risk/company failure,Financial compliance/regulation,Financial crime |
| Author | Dinesh Sivaguru,Kamal Tilakasiri |
A study of the underground
banking system in Sri Lanka –a
phenomenon of Boyle’s law
Dinesh Sivaguru and Kamal Tilakasiri
Department of Accountancy, Faculty of Commerce and Management Studies,
University of Kelaniya, Kelaniya, Sri Lanka
Abstract
Purpose –The purpose of the study is to examine the available literature to comprehend what the
underground banking system is, for what purposes this method is used and how policymakers should
proceedto addressthis issue.
Design/methodology/approach –The approach involvedconducting this study and combining it with
a critical analysisof the available literature as well as the available historical data. The sourcesthe study has
explored include government documents, public hearings, academic articles, case studies and articles
availableon the internet.
Findings –The study revealed prevention of illegal proceeds is critical, still regulating one entity, is a
phenomenonof Boyle’s law, “squeezing the balloon”. If one end of the balloon is squeezed,making the volume
smaller, the pressureinside increases, making the un-squeezed part of theballoon expand out. The real issue
is not how criminals transfertheir illegal earnings; it is the criminals themselves. Hence, the policydecision on
this issueneeds to be carefully considered.
Research limitations/implications –Due to the complexity of the operating system of Undiyal, this
study had a number of limitations, as do manyothers. Firstly, there are no records of the Undiyal agents or
the volumes of transactions publicly available. However, comprehending the scope of the underground
operationthat exists in the country is quite difficult.
Practical implications –The study contributesto the academic researchers grasping what type of future
researchshould be focused on in this area according to the study.
Social implications –From the point of view of itspractical application, the study seeks to resolve social
issues that themiddle-class population experiences on a dailybasis and that have a huge and adverse impact
on GDP.
Originality/value –To the best of the authors’knowledge,this is an original contribution.
Keywords Underground banking system, Money laundering, Terrorist financing, Remittances,
Boyle’s law
Paper type Literature review
Introduction
The term “underground banking system”refers to a money or value transfer system that
operates informally (Makkai, 2005). Due totheir geographic linkages, informal systems are
defined by specific terms like hawala, hundi, Fei ch’ien, hoe Kuan and many others. It is
often known as Undiyal in Sri Lanka and Fei ch’ien or Chit in South Asia (Aiken and
Cheran, 2005, p. 9). The beauty of this method is that it allows for the completion of
transactions between jurisdictions without the transfer of physical money (Lad
anyi and
Kobolka, 2012). Terrorist organizations and money launderers potentially use the
underground network to transfer their illicit funds from one country to another.According
to Anwar Daudi (2005), Time Magazine publishedan article titled “A Banking System Built
Underground
banking
system in Sri
Lanka
595
Journalof Money Laundering
Control
Vol.27 No. 3, 2024
pp. 595-603
© Emerald Publishing Limited
1368-5201
DOI 10.1108/JMLC-05-2023-0084
The current issue and full text archive of this journal is available on Emerald Insight at:
https://www.emerald.com/insight/1368-5201.htm
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