Following the Al Jazeera story, Sri Lanka says the crypto scheme is a ‘pyramid’ | Crypto

Colombo, Sri Lanka – The Central Bank of Sri Lanka (CBSL) has announced that it is considering criminal charges against a group that ran a crypto investment scheme called Sports Chain, seven months after an Al Jazeera investigation exposed it as a scam.

In a notice published on March 21, the monetary authority declared that the investment venture had been run as a pyramid scheme, which is prohibited under Sri Lanka’s banking law.

“We conducted investigations for several months,” MDSN Gunatilleka, the additional director of CBSL’s resolution and enforcement department told Al Jazeera. He declined to immediately provide further details.

The CBSL said it has sought advice from the Attorney General – the main legal adviser to the government – on pressing charges against those responsible.

Under Sri Lankan law, operating a pyramid scheme can result in imprisonment of between three and five years. Offenders must also pay a fine of 2 million Sri Lankan rupees ($6,222) or twice the amount received from participants in the scheme, whichever is higher.

In August 2022, Al Jazeera revealed that as the economy around them cratered, thousands of Sri Lankans, including professionals such as doctors, politicians and security personnel, fell victim to the fake crypto scheme.

Some gave up their jobs hoping for high returns while many pawned their jewelry, mortgaged their property and sold their vehicles to invest all they could in the cryptocurrency that was introduced to them as Sports Chain. Despite being promised five times higher returns, they had hardly received what they had invested and many did not even receive that.

What they didn’t know at the time was that the cryptocurrency named Sports Chain never existed in the virtual currency market.

Sri Lanka’s Financial Crimes Investigation Division (FCID) launched an investigation less than a month after Al Jazeera’s revelations and has since charged nine suspects with money laundering.

If the suspects are found guilty under the Money Laundering Act, the suspects will be liable to pay the state a fine of up to three times the value of the defrauded property. They can also risk between five and 20 years in prison.

But for the investors to retrieve their money, Sri Lanka’s central bank will have to charge the suspects under the Banking Act for running a pyramid scheme.

Lawyers who appear for the accused believe that their clients cannot be charged with money laundering.

“Our clients were not the creators of this app. They had no control over it,” said lawyer Tivanka Ekaratne, appearing for the accused.

“This has not been proven as a pyramid scheme yet. It is the investors who have made such allegations,” Ekaratne said in a response to Al Jazeera about CBSL’s decision to ban Sports Chain.

During hearings at the Colombo Chief Magistrate’s Court late last month, attended by Al Jazeera, the FCID said it was continuing its investigation into the suspects.

“They had defrauded more than 15 billion Sri Lankan rupees ($46.6 million) from more than 8,000 Sri Lankans,” the FCID said in a petition filed at the Colombo Chief Magistrate’s Court.

The suspects – Shamal Bandara, Zhang Kai, Wang Yixiao, Shanaka Madushan, Viraj Madushanka, Amith Wickramage, Rovinda Manjula and Pradeep Kumara – were remanded in custody and granted bail in December. Isuru Lakshika, the ninth suspect, had been granted bail in March.

While their bank accounts have been frozen, the FCID is also seizing assets such as vehicles and houses that they have bought suspiciously. The suspects are banned from leaving the country.

Where is the money?

In court documents seen by Al Jazeera, the FCID has made damning revelations about how the suspects invested some of the money they received from their victims in expensive vehicles and luxury two- to four-bedroom apartments in a residential complex in the capital, Colombo.

Shamal Bandara, who has been named as the main suspect in the case, had told investigators that his only assets were a house in the northwestern city of Kurunegala and an old vehicle. However, FCID found that Bandara had been using a jeep purchased under his mother’s name.

He had also paid 5 million Sri Lankan rupees ($15,556) and 20 million Sri Lankan rupees ($62,226) separately to buy two residential units at the luxury Destiny Mall & Residency complex, which was built on a 4,046 square meter property in Colombo last year, according to a report submitted by FCID to the court.

A Mercedes-Benz vehicle bought under the name of Bandara’s brother had been used by Zhang Kai and Wang Yixiao – the two Chinese nationals who are also suspects in the case.

Court documents show that it was Bandara and Kai who had led efforts to promote this investment scheme by organizing events, sometimes at luxury hotels. Kai had been introduced to the investors as the Global Founder of Sports Chain ZS Society.

Other suspects like Shanaka Madushan had bought three units in the same apartment complex as Bandara, while Rovinda Manjula and Pradeep Kumar had bought one each. Manjula had also built a luxurious two-storey house in Kurunegala for 27.5 million Sri Lankan rupees ($85,561).

At the time of Bandara’s arrest, police officers had confiscated the personnel IDs of all suspects showing them claiming to be employees of a company called Bionics Healthcare. However, it had emerged that the company was fake and the company address on the IDs was misleading.

“The suspects had tried to associate themselves with a bogus company to create an impression that they had amassed these assets through legal means,” the FCID said in a report submitted to the court.

Escape attempt

When Shamal Bandara had been under questioning following his arrest on 11 October 2022, police officers gave him his mobile phone to explain how his team had used a mobile app to run the investment scheme.

According to court documents, Bandara had used this as an opportunity to sneak a WhatsApp message to an unidentified recipient. The message read: “Tell ZK to leave, you keep the key and leave too.”

FCID said it had identified the person referred to by the initials ZK as Zhang Kai.

When the investigators visited the rented house where the two Chinese nationals lived, other residents with whom they had shared the place claimed that the suspects were out visiting a five-star hotel.

Soon afterwards, however, Zhang Kai and Wang Yixiao were detained at Bandaranaike International Airport when they attempted to flee Sri Lanka.

“Give Us Our Money”

Investors say they are desperate to get their money back in the face of the economic crisis in Sri Lanka, which has seen inflation of around 54 percent in February 2023.

Last year, when Al Jazeera spoke to Harshana Pathirana, who had invested 2.2 million Sri Lanka Rupees ($6,844), he said he was looking to migrate to find a job and rebuild the economy.

“I now work in a hotel in Qatar. I use the money I earn to pay off my debt. I am not able to save anything yet, said Pathirana seven months later.

The 38-year-old said he has been saddled with debt he took on to make ends meet until he was able to find a new job.

He had sold his car to invest in the crypto venture and had even quit his job in the hope that he would become rich from the investment. “My family is still unaware that I invested the money in this scheme. I have kept it a secret, he said.

Pathirana’s name has been changed to protect his identity as his family is unaware that he has lost his money.

Another investor, Priyanga Kasturiarachchi, 40, told Al Jazeera that getting the money back would make a big difference to his life given the financial constraints he faces.

Kasturiarachchi had deposited almost his entire savings of 1.8 million Sri Lankan rupees ($5,600), which he served as a tourist guide for more than a decade and had managed to withdraw 1.3 million rupees ($4,044), he said.

“Since we invested everything we had at the time, we had to start from scratch to make some money. If we can get it back, it will be very useful for all of us, he said. “We are exploring all possible legal options as we want them to give us our money.”

Kasturiarachchi said he and other investors are aware that they would not be able to recover lost money if the charges are merely money laundering.

“We will be happy if they are sent to prison. But it is also important for us to get the money back, he told Al Jazeera. “We will have to wait and see what happens when CBSL files charges against them. At the end of the day, we need our money back.”

The Colombo Chief Magistrate’s Court will take up the case filed by the FCID for hearing again in August.