A 19-year-old man has been taken into custody by Sri Lankan authorities in Colombo over alleged involvement in illegal financial transactions conducted through the underground money transfer system known as "Undiyal." The arrest highlights growing concerns among law enforcement agencies about the widespread use of informal and unregulated financial networks operating outside the country's legal banking framework. Authorities are now investigating the full extent of the suspected transactions and whether the young suspect is linked to a broader criminal network.
What Is the Undiyal System?
The Undiyal system — also commonly referred to as "Hawala" in other parts of the world — is an informal method of transferring money that operates entirely outside the conventional banking system. Rather than physically moving funds across borders or between individuals, the system relies on a network of brokers, known as "Undiyalkarayas," who facilitate transfers through a trust-based arrangement involving coded messages, phone calls, or digital communications.
In practical terms, a person wishing to send money hands over cash to a local broker. That broker then contacts a counterpart in the destination location, who pays out the equivalent amount to the intended recipient. The actual settlement between brokers happens separately, often through trade transactions, gold, or other informal means. Because no money physically crosses borders, the system is extremely difficult for financial regulators and law enforcement agencies to trace or monitor.
While Undiyal has historically been used by migrant workers and diaspora communities to send remittances quickly and cheaply, it has increasingly been linked to money laundering, tax evasion, and the financing of illegal activities. In Sri Lanka, operating or participating in Undiyal transactions without authorization is a criminal offense under the country's financial regulations and anti-money laundering laws.
Details of the Colombo Arrest
According to reports, the 19-year-old suspect was arrested in Colombo following an investigation into suspicious financial activity flagged by law enforcement. Authorities allege that the individual was involved in facilitating or conducting transactions through the Undiyal network, which bypasses Sri Lanka's regulated financial institutions and reporting requirements.
While specific details about the volume of transactions or the identities of other parties involved have not yet been fully disclosed, the arrest signals that Sri Lankan police and financial crime investigators are actively targeting individuals at all levels of informal money transfer networks — not just the senior operatives. The fact that a teenager is among those arrested underscores how deeply embedded these informal systems have become, with younger individuals increasingly being recruited or voluntarily participating in such schemes, sometimes without fully understanding the legal consequences.
Investigations are reportedly ongoing, and authorities have not ruled out the possibility of further arrests connected to the same network.
Why Sri Lanka Is Cracking Down on Undiyal
Sri Lanka has faced significant economic challenges in recent years, including a severe foreign exchange crisis that contributed to the country's historic economic collapse in 2022. In that context, unregulated money transfer systems like Undiyal pose a serious threat to the country's financial stability. When large sums of money flow through informal channels, they do not enter the official banking system, depriving the country of much-needed foreign currency reserves and reducing the government's ability to manage monetary policy effectively.
Furthermore, informal financial networks can be exploited for illicit purposes, including the laundering of proceeds from drug trafficking, corruption, and other criminal enterprises. Sri Lanka is also under international pressure to strengthen its anti-money laundering and counter-terrorism financing frameworks, particularly as the country works to maintain its standing with global financial institutions and comply with international standards set by bodies such as the Financial Action Task Force (FATF).
Cracking down on Undiyal operations is therefore not only a domestic law enforcement priority but also a critical component of Sri Lanka's broader efforts to rebuild economic credibility and attract foreign investment in the post-crisis period.
Legal Consequences for Those Involved
Individuals found guilty of participating in illegal Undiyal transactions in Sri Lanka can face serious legal penalties under the country's financial crime legislation. This includes the Financial Transactions Reporting Act and anti-money laundering statutes, which carry provisions for significant fines and imprisonment. Authorities have made it clear that age will not be a mitigating factor when it comes to prosecuting those found to be actively facilitating illegal financial activity.
A Warning to the Public
This arrest serves as a stark reminder to the public — particularly young people — about the serious legal risks associated with participating in unregulated money transfer schemes. What may appear to be a straightforward or even profitable financial activity can quickly lead to criminal charges, a permanent record, and imprisonment. Sri Lankan authorities are urging citizens to use only licensed and regulated financial institutions for all money transfers, both domestic and international, and to report any suspected illegal financial activity to the relevant authorities.
As investigations continue, more details about the scope of this particular Undiyal network are expected to emerge in the coming days.