Sri Lanka is moving towards achieving a per capita income of US$ 4,000 by 2016 and it has to maintain a growth rate around 8 per cent per year to realise the expected target. However, internal investment capability of the country is limited due to low domestic savings. Therefore, Sri Lanka has to rely on external finance such as foreign Direct Investment to achieve expected prosperity. This paper investigates the determinants of Foreign Direct Investment in Sri Lanka and evaluates the attractiveness of India, Sri Lanka, Bangladesh and Pakistan for foreign direct investment during the period of 1975-2012. Fully modified least squares (FM-OLS) regression model was fitted to estimate the determinants of foreign direct investment. Attractiveness of the selected countries for foreign direct investment was evaluated using an index. Empirical results revealed that GDP growth rate, inflation, infrastructure quality, lending interest rate, labour force, exchange rate, and corporate income tax were significant determinants of FDI in Sri Lanka during the period of 1975-2012. Main feature of the variables which are determinants of FDI is that they are directly associated with the cost of production of the investors. Therefore, it can be interpreted that the main motive of the foreign investors in Sri Lanka is to reduce the cost of production by improving the efficiency of operations. FDI index suggests that India and Bangladesh were more attractive for FDI inflows over Sri Lanka and Pakistan. Market seeking investors are keen on the potential large market size of India and Bangladesh over Sri Lanka. Therefore, the motive of the investors is important in evaluating determinants of foreign direct investments in a country.

Purpose The purpose of this paper is to discuss the dilemma of digital banking and the financial inclusion agenda of countries with the level of strength of the anti-money laundering and countering the financing of terrorism (AML/CFT) regime. Design/methodology/approach This study develops an AML/CFT compliance index using the assessment data of FATF to measure the level compliance strength of countries to measure the impact of the strength of the AML/CFT regime on the financial inclusion. Financial literacy, literacy, number of bank branches and income level of countries are used as other control variables in regression analysis, which is used to test the developed model. Findings The results suggest that the AML/CFT compliance level of a country is a significant factor in determining the level of financial inclusion. Besides, the number of bank branches for 100,000 people, literacy and financial literacy are significant factors in financial inclusion. However, the results reveal that financial literacy is significant over literacy in determining financial inclusion. Therefore, having considered the importance of the AML/CFT regime for financial inclusion, regulators are required to strengthen the AML/CFT regime and make clarity on the AML/CFT regulations. This clarity will promote the digitalization and financial inclusion over time. Practical implications Most of the studies related to financial inclusion and AML/CFT aspects are qualitative. Therefore, this is only the start of measuring the strength of an AML/CFT regime. More appropriate measures will be developed in the future based on this foundation. Originality/value This paper is an original work done by the author, which discusses the issues of digital banking and financial inclusion agenda of countries with the compliance strength of the AML/CFT regime. The AML/CFT compliance index is the original idea of the author, which can be used as a quantitative measure to capture the strength of the AML/CFT regimes in future studies.

Purpose The purpose of this study is to assess whether level of income of a particular country affects the level of effectiveness in anti-money laundering (AML)/ countering the financing of terrorism (CFT) supervision to identify the most important recommendations in achieving high level of effectiveness and critically discuss the findings of the fourth round evaluations with the outcome of first two objectives. Design/methodology/approach The level of effectiveness was rated in terms of a four-point Likert scale given 4 for high, 3 for substantial, 2 for moderate and 1 for low level of effectiveness. The countries were ranked using a four-point Likert scale given 4 for high income, 3 for upper middle income, 2 for lower middle income and 1 for low income countries as per the categorisation of World Bank list of economies (World Bank, 2017). For the purpose of estimation, level of effectiveness was rated in terms of a four-point Likert scale given 4 for high, 3 for substantial, 2 for moderate and 1 for low level of effectiveness. The level of technical compliance was ranked using a five-point Likert scale given 5 for compliant, 4 for largely compliant, 3 for partially compliant, 2 for non-compliant and 1 for not applicable as per the ratings given in FATF 2013 methodology (FATF, 2013). Findings It was observed that the level of income of a particular jurisdiction has a positive relationship with the level of effectiveness in AML/CFT supervision. Statistical analysis reveal that AML/CFT framework on regulation and supervision of financial institutions (Recommendation 26) and providing guidance and feed back to reporting entities (Recommendation 34) have significant impact on effectiveness level on AML/CFT supervision over the powers of supervisors (Recommendation 27), regulation and supervision of designated non-financial business and professions (Recommendation 28) and sanctions (Recommendation 35). Research limitations/implications The research was limited to 36 fourth round mutual evaluation reports. Originality/value This paper is an original work done by the author as a result of the experience which the author received involving as an assessor in mutual evaluations.

Purpose The purpose of this paper is to study the impact of global anti-money laundering and countering the financing of terrorism (AML/CFT) standards on combating money laundering and terrorist financing (ML/TF) efforts. This study will assess the impact of AML/CFT legal framework as well as the effective implementation of the framework on combating crimes. Design/methodology/approach The author develops an AML/CFT effectiveness index using the results of 11 immediate outcomes in mutual evaluation reports to measure the overall effectiveness of regimes in combating ML/TF. In addition to this index, the AML/CFT compliance index is used to measure the strength of the AML/CFT legal framework of countries. A model was developed and tested to measure the impact of the AML/CFT legal framework and its effective implementation on corruption, bribery, terrorism and crimes. Findings The results suggest that the effective implementation of the AML/CFT legal framework is important to combat ML/TF. The existence of a sound AML/CFT legal framework alone will not be sufficient to combat ML/TF. Therefore, countries are required to implement their legal framework effectively to achieve the AML/CFT goals of the country as well as the global policymaker. The empirical results show a significant relationship between the AML/CFT effectiveness index with the proxies the author used to capture corruption, bribes and crimes. Considering the wide range of implications of the crimes, which are related to ML/TF, this study suggests the global policymakers to further strengthen the monitoring mechanism of AML/CFT deficient countries to protect the global financial systems from criminals. Practical implications There is a dearth of studies on the impact of the effectiveness of the AML/CFT regime on combating ML/TF. Therefore, this study will lay the foundation for future studies on measuring the effectiveness of an AML/CFT regime. More appropriate measures will be developed in the future based on this foundation. Originality/value This paper is an original work done by the author, which discusses the impact of Financial Action Task Force standards on combating ML/TF. The AML/CFT effectiveness index is the original idea of the author, which can be used as a quantitative measure to capture the effectiveness of the AML/CFT regimes in future studies.

Purpose The purposes of this paper are to discuss the short-term economic impact of the jurisdictions that have been identified as deficient countries in terms of the regime of anti-money laundering and countering the financing of terrorism and to identify the probable reasons for the poor results of mutual evaluation reports of the deficient countries. Design/methodology/approach This study uses a case study approach to discuss the short-term economic impact of the countries that are under the International Co-operation Review Group (ICRG) process due to poor results of mutual evaluation reports. The sample of countries for the study was selected based on the Financial Action Task Force (FATF) listing as of November 30, 2019. The objectives of the study are expected to be achieved by discussing the issues of these jurisdictions based on publicly available information. However, this study will not consider the long-term economic impact on the countries due to the observed short-term nature of the ICRG process. Findings This analysis reveals that the ICRG process affects countries in two different perspectives. First, there are implications on the financial system of a deficient country as a result of identifying it as a high-risk country. Second, there are some other forms of economic implications due to the rigorous ICRG process. The downgrading of the sovereign rating by international and credit rating agencies is one of such implications that result in adding a risk premium to the country. This results in increased transaction costs and borrowing costs of deficient countries. Besides, it appears that the ICRG process impacts the capital and currency markets of deficient countries as a result of enhanced due diligence process on fund transfers and limitations in corresponding banking relationships. However, despite these difficulties, some countries have been identified more than once for the ICRG process. Therefore, such countries have to take measures to strengthen the anti-money laundering and countering the financing of terrorism (AML/CFT) regime to avoid future listing. However, long-term sustainability of the countries that were removed from the FATF grey-listing is also questionable under the current FATF methodology of evaluating countries because of the level of effectiveness depends on the judgment of assessors on the risk and context of countries rather the technical compliance. Research limitations/implications This study was limited to the countries that were in the grey list as of November 30, 2019. The countries exited from the list have not been considered for the study. Originality/value This paper is an original work done by the author by discussing the issues of the ICRG process in respect of deficient countries in view of strengthening the AML/CFT regimes of such countries.