The Golden key credit card company scandal is one of the largest financial fraud happen in Sri Lanka.

1. THE GOLDEN KEY
CREDIT CARD
COMPANY SCANDAL
M.N.F Naseeha
AAT(PF),BM(Hons)in Accounting,
KIU

2. Table of contents
• Introduction
• GKCC Fraud
• Fraud Triangle
• Fraud indicators and red flags
• Investigation steps and evidence Gathered
• Recommendations
• Conclusion
• References

3. Introduction
• Fraud and financial crimes are a form of theft that occur when a person or entity takes money or
property, or uses them in an illicit manner, with the intent to gain a benefit from it. These crimes
typically involve some form of deceit resulting in the victim suffering a loss and / or the perpetrator
achieving a gain.
Fraud Types
Misappropriation of assets (Theft of checks, inventory , equipment, money and Information)
Bribery and corruption ( bribe to accept contract or bids, false billing, sell secrets)
Financial statement fraud ( overstating revenue, assets, understating expenses, liabilities)

4. Case studies related to financial fraud
• Case Study of Golden Key
 Golden Key Credit Card Company fully owned subsidiary of Ceylinco Group
which had more than 300 subsidiaries. It is incorporated in June 03, 1977.
 Pioneered the Credit Card industry in Sri Lanka in the Early 1980s.
 Responsible for setting – up the initial Merchant Network utilized by all credit
card companies.

5. Golden Key collapsed in 2008, after revealing fraud worth Rs. 26 billion.
Accepting funds from the public at high interest rates from 12 percent to 30
percent was the key reason for the collapse of the Golden Key Credit Card
Company

6. • November 2008:
• Some of Ceylinco financial companies fail to pay interest to their
depositors and stops withdrawals Golden Key Credit Card Co.
payments made by cheques start bouncing.

7. • December 2008:
• Golden Key Credit Card Co. crashes and is closed down. Golden
Key Credit Card Co. Ltd Chief Executive Director S. Khavan M.
Perera, is arrested.
• Ceylinco Group Chairman Dr. Lalith Kotelawala issues a public
statement that during the last few days, he had realised that
Golden Key has been involved in a major credit card fraud and that
the employees of Golden Key are now beginning to reveal certain
facts regarding the involvement of Khavan Perera. Perera admitted
to mismanagement. In newspaper advertisements Golden Key
customers are summoned for a meeting to BMICH where angry
depositors chase away the Ceylinco Group Chairman Lalith
Kotelawala who says that his group would exit Seylan Bank to raise
funds.

8. • January 2009:
• Due to panic withdrawals, Central Bank of Sri Lanka appoints a
new board to Seylan Bank with senior bankers at the helm.
• February 26, 2009:
• Court orders Chairman Lalith Kotelawala to be remanded in
connection with the Golden Key fraud.
• Depositors Union stage series of protests.

9. • March:
• First depositor dies as he does not have money to pay for his
medicine.
• April:
• The Colombo Magistrate’s Court issues a restriction order on the
director board of the Finance and Guarantee Co. Ltd (F and G Co.),
another affiliated company of the Ceylinco group from leaving
country. Court proceedings are still pending with depositors not
being paid.

10. Fraud trnagle and Golden key
Opportunity Rationalization
Motivation
3 Key
Elements
The reason for golden key to commit the fraud is to have the
more investment from depositors by providing them to 16%
and 32% interest rate. Due to this inapprpiate business
practicess CBSL has conducted an investigation.
(1) The Fraud Triangle – Opportunity
Opportunity refers to circumstances that allow fraud to occur.
In the fraud triangle, it is the only component that a company
exercises complete control over.
i. Inadequate accounting policies
ii. Poor tone at the top
iii. Weakness in internal control

11. (2) The Fraud Triangle – Motivation/ Incentive
Incentive, alternatively called pressure, refers to an employee’s
mindset towards committing fraud.
Opportunity Rationalization
Motivation
3 Key
Elements
i. Bonus based financial metric
ii. Personal incentives
iii. Investors expectaions/Share prices
(3) The Fraud Triangle – Rationalization
Rationalization refers to an individual’s justification for committing
fraud. Examples of common rationalizations that fraud committers
use include:
i. ’There’s no other solution
ii. upper management doing well
iii. They treated me wrong

12. Fraud indications and Red flags
What are Fraud Red Flags?
Fraud red flags refer to undesirable situations or conditions that
consistently contribute to fraud, waste, and abuse of resources.
When an investigator is reviewing a company’s stocks or financial
statements, certain undesirable characteristics may stand out as fraud red
flags – contributors to fraud or circumstances that may indicate the
presence of fraud.
All organizations face fraud risk, which can either be internal or external.
Internal risks come from persons within the organization who may use
their position to enrich themselves by misappropriating resources and
assets owned by their employer.
On the other hand, external risks are engineered by government officers,
customers, and contractors who may seek to obtain money illegally.

13. Red Flag Warnings of Fraud - Related to Golden Key
1. Missing documents
Missing documents that are fraud red flags include registration of motor vehicles,
lists of sales and purchases, checkbooks, and inventory reports. When such records
disappear, it may point to an undesirable situation that may lead to loss of certain
assets or money.
2. Excessive number of
adjusting entries
Making excessive adjustments without particular reasons points to cases of
employee fraud with the intention of hiding certain transactions. Any adjusting
entries in the financial accounts should be accompanied by corresponding notes
explaining the reasons for the adjustments.
3. Spikes in invoice
volume
There can be cases of unrecorded payments, or if they are recorded, they are
understated in volume and amount. The organization should know when spikes
occur and ensure all orders made by customers are recorded and fulfilled on a
timely basis.

14. Investigation steps and evidence gathered
• The Golden Key Credit Card company had a deposit base of Rs. 26.5 billion with 9,054 depositors
which made it one of the biggest asset based financial institutions. The catch to attract customers was
obviously the lucrative interest which started from 16 percent and even went up to 35 percent for
selected depositors.
• The business of the company had been investigated by the CBSL in 2006 and due to the nature of the
company being similar to issuing payment cards, a decision had been taken to regularize the company
in terms of a regulation to be issued with regard to payment cards.
• Consequent to the failure of the Sakwithi House in September 2008, the depositors of the GKCL have
been demanding the return of the funds on an immediate basis. On 27 December 2008, the CBSL had
issued a press release assuring the depositors of regulated institutions of the safety of their
investments. GKCL failed in December 2008. A Fundamental Rights Application was filed in the
Supreme Court of Sri Lanka by a group of depositors seeking compensation from the CBSL alleging
negligence on the part of the CBSL for failing to protect the public from the illegal scheme operated by
the GKCL

15. • The Supreme Court, for the first time in the history of the CBSL, directed the CBSL on 23.03.2009
and 30.03.2009 to determine that the GKCL had been carrying on finance business without authority
and to take action under section 11 of the Finance Companies Act. The court further directed the
CBSL, inter- alia, to obtain a Declaration of Assets and Liabilities from directors and key officers of
the GKCL and suspend such person’s bank accounts and obtain details of the balances.
• The Court appointed a Committee of Chartered Accountants (CCA) on 18 May 2009 to prepare a list
of the depositors and formulate a scheme of payment .The CCA had taken steps to repay the
depositors by disposing the assets of the company on a staggered basis.
• Task Force was approved of by the Supreme Court to identify assets of the company, sell the same
and make payments to the depositors, whereas at April 2014, Rs. 2.036 Bn has been repaid to the
depositors.
• As a final settlement of the said case, on 04.08.2015, a methodology has been filed of record in the
Supreme Court, whereby the Treasury would advance funds upto Rs 8.5Bn to repay the security
deposit holders of the GKCCCL. Accordingly, security deposit holders with deposits worth Rs. 2
million or less will be compensated in less than a month while depositors with upto Rs. 10 million
rupees will be compensated within two months and depositors who have deposits greater than Rs.
10 Million, within a year
The AG has listed 778 witnesses, and 82 documents which produced as evidence

16. Recommendation
• Eliminating the political influence
• Empowering Minority Shareholders.
• Increasing board performance.
• Preserving the Independency of the Auditing process.
• Enhancing disclosure and transparency
• Making the court proceedings speedy and less time consuming

17. Conclusion
• A stable and a well-developed financial system is key to economic development. In order to
preserve financial stability, to safeguard the reputation of the financial markets and to protect the
interests of the depositors, an effective financial supervisor is a vital need, promoted by legal,
political and economic quarters. In Sri Lanka, the Monetary Law Act has conferred on the Central
Bank of Sri Lanka (CBSL), the responsibility of maintaining the financial system stability
• Sri Lanka has a satisfactory legal system for the corporate governance of banks which is in line with
international standards. However this legal structure does not co-exist with the traditional social,
economic and political setting in Sri Lanka. Implementation of such laws in this context makes a
certain group of people immune to the laws. The recent banking scandals in Sri Lanka can be
attributed to the failures in the implementation of governance laws. Therefore the corporate
governance structure relating to banks shall be reformed to go in line with social, political and
cultural realities of the country