Key Highlights
- A Rs 290 million ($1M) bank fraud case allegedly routed stolen funds through Binance crypto accounts.
- The court ordered the Central Bank of Sri Lanka to stop capital outflows, exploiting crypto loopholes.
- Authorities were told to speed up investigations and launch public awareness campaigns on crypto fraud.
Colombo Chief Magistrate Asanga S. Bodaragama has sounded one of the strongest judicial warnings yet against cryptocurrency-enabled financial crime in Sri Lanka.
On March 12, the Magistrate ordered the Central Bank of Sri Lanka (CBSL) to immediately take steps to prevent local currency from being funnelled overseas through crypto channels that exploit gaps in the country’s Foreign Exchange Act.
The order came during a hearing into a case involving the alleged disappearance of Rs. 290 million (~$1 million) from a well-known private bank. According to the court, suspects in the case are accused of fraudulently obtaining public deposits and routing the funds through cryptocurrency trades using Binance accounts.
This is not the first time Sri Lanka’s judiciary has flagged crypto as a regulatory blind spot. But the Magistrate’s remarks this time carried a sharper edge.
“This is not ordinary theft”
Magistrate Bodaragama made it clear that the case goes beyond routine banking fraud. He had previously told the court that the case required urgent treatment and could not be handled like a standard financial offense.
The Magistrate noted that an increasing number of crypto-related fraud cases are being reported, but investigations appear to be largely confined to the courtroom process with limited proactive enforcement.
He instructed the Criminal Investigation Department (CID) to complete its probe into the Rs. 290 million disappearance as quickly as possible, rather than dragging out proceedings by repeatedly presenting suspects without substantive progress.
The Magistrate also directed both the CID and the Central Bank to design a public awareness program explaining the risks and illegality of unauthorized crypto transactions. According to the court, most Sri Lankans have little understanding of the newer forms of financial crime being carried out using cryptocurrency technology without Central Bank approval.
Binance responds, cites cooperation with authorities
In response to the allegations, Binance emphasized that the case concerns the actions of specific individuals, not the platform itself. The exchange said it has already fully cooperated with Sri Lankan law enforcement by providing the necessary support and information upon request.
The statement read, “These allegations pertain solely to the actions of specific parties; Binance takes action alongside law enforcement to combat fraudulent or illegal activities and remains deeply committed to ensuring the safety and security of all its users.”
It continued, “Binance has already fully cooperated with Sri Lankan law enforcement authorities, by providing the necessary support and information in response to requests. As a Abu Dhabi Global Markets licensed exchange with a fully KYC-ed user base globally, Binance will continue to support law enforcement agencies throughout the investigation of the bad actors involved. Binance’s share of users and fully licensed status will continue to be a net positive to law enforcement agencies in these situations.”
A regulatory vacuum under pressure
Sri Lanka currently has no dedicated legal framework for cryptocurrency. The CBSL has repeatedly warned citizens against investing in digital assets, and under the Foreign Exchange Act, banks are prohibited from processing crypto-related card transactions. But crypto itself is not explicitly banned, and platforms like Binance remain accessible to Sri Lankan users through peer-to-peer trading.
This regulatory grey zone is precisely what the Magistrate flagged. He observed that many individuals have been exploiting weaknesses in the Foreign Exchange Act to commit fraud and illegally transfer funds abroad. He said the Central Bank must take responsibility for identifying and closing these gaps.
The timing is notable. Just weeks ago, in February 2026, Sri Lanka’s Ministry of Digital Economy confirmed that the government is preparing a comprehensive regulatory framework for virtual assets, including cryptocurrencies and stablecoins, aimed at addressing the legal vacuum that has left citizens vulnerable.
A pattern across South Asia
Sri Lanka is not alone in grappling with crypto-linked financial fraud. Across the border, India has been dealing with a wave of similar cases. Just this week, The Crypto Times reported that India’s CBI arrested the CTO of Darwin Labs in connection with the ₹6,000 crore (~$720 million) GainBitcoin Ponzi scheme.
India has also tightened its reporting infrastructure by formally bringing crypto-assets under its FATCA and CRS compliance framework, effective January 1, 2026.
For Sri Lanka, which is still recovering from its 2022 economic crisis and lacks even a basic crypto licensing regime, the challenge is arguably steeper. The court’s order puts pressure on the Central Bank to move beyond warnings and toward enforceable action before the next Rs. 290 million disappears through a Binance account.
Also Read: India Plans Crypto Monitoring Lab to Track Offshore Exchanges
