The BMW Tax Evasion Scandal: A Deep Dive into Sri Lanka's Multi-Billion Rupee Fraud and Allegations of Judicial and President's Counsel Corruption
The Genesis of a Scandal
The importation of luxury BMW vehicles into Sri Lanka under a concessionary duty scheme has spiraled into one of the country's most significant financial scandals, with allegations of fraud exceeding Rs. 16 billion . At the heart of this controversy lies Prestige Automobiles (Private) Limited, the authorized BMW distributor in Sri Lanka, accused of systematic undervaluation of over 1,700 high-end vehicles imported between 2011 and 2014 . What began as a routine customs investigation has evolved into a complex web of allegations involving senior customs officials, judicial delays, and potential bribery of legal professionals, including nine Presidential Counsel's allegedly implicated in delaying proceedings for financial gain.
The Mechanics of the Fraud
The alleged scheme exploited the government's tax concessionary permit scheme, which allowed certain public officers to import vehicles at reduced duty rates. Prestige Automobiles, led by Chairman/Managing Director Heinz Adolf Reuter, is accused of creating fictitious invoices through a German entity named Navigare International GMBH to artificially lower vehicle values and qualify for duty concessions . Investigators from German Customs later confirmed that the true export values declared in Germany were substantially higher than those presented to Sri Lankan Customs .
Former Customs Director Murugesu Thayabaran, who first exposed the fraud, documented that Prestige Automobiles had recovered the vehicles' actual value from permit holders under the pretense of handling and after-sales service charges . This double-dealing meant that while the government lost billions in revenue, Prestige Automobiles profited handsomely from the full value paid by buyers.
The Legal Labyrinth: Delays and Obstructions
Thayabaran's writ petition, filed in 2017, sought to compel the Director General of Customs to conduct a proper inquiry . What followed was a series of legal maneuvers spanning years. The Court of Appeal case CA (Writ) Application No. 108/2018, filed by Thayabaran against multiple respondents including the Director General of Customs and Prestige Automobiles, reflected the extensive delays built into the judicial process.
On June 1, 2018, the court noted that two other connected cases were pending, including CA (Writ) 255/2017. The case was repeatedly adjourned, with judges recusing themselves and benches being reconstituted. By July 17, 2018, the court acknowledged receiving limited statements of objections from the 2nd, 4th, 5th, and 6th Respondents. The preliminary objections raised questions about the maintainability of the application, leading to extensive oral and written submissions .
A significant development occurred when the Court of Appeal in CA (Writ) 255/2017 issued a Writ of Certiorari quashing the Customs order of July 14, 2017, which had imposed a forfeiture of Rs. 117,700,000 on Prestige Automobiles. This order was issued on March 6, 2020, with the Deputy Solicitor General representing the 1st Respondent informing the court that the Director General of Customs had no objections to the writ being issued.
However, in a further twist, the Director General of Customs received fresh evidence from German Customs on October 15, 2020—invoices confirming the true values of the vehicles. Armed with this new evidence, Customs sought to reopen the inquiry, leading to a new round of litigation.
The Role of the Intervention Petitioner: Nagananda Kodituwakku
The intervention application filed by Nagananda Kodituwakku, Thayabaran's counsel and former Customs officer, introduced explosive allegations. In a submission titled "Towards a Nation that respects the Law," Kodituwakku alleged that the Attorney General had deliberately refused to act on the Director General of Customs' instructions to concede the case and reopen the inquiry .
Kodituwakku's allegations extended to accusing the Attorney General of abusing office to confer benefits on Prestige Automobiles, potentially amounting to a punishable offense under Section 70 of the Bribery Act. He reported the matter to the Bribery Commission and the Chief Justice, submitting evidence marked X1, X2, and X3. This submission forms the basis for the question that emerges today: Did nine Presidential Counsel's receive bribes from BMW?
However, it is crucial to note that Kodituwakku himself faces significant legal barriers. In a separate case, CA (Writ) Application No: 315/2018, the Court of Appeal dismissed his petition due to lack of standing, citing a prior Supreme Court decision that removed him from the office of Attorney-at-Law for dishonourable conduct and restrained him from filing public interest litigation in his personal capacity .
The Court of Appeal's Final Decision: Dismissal with Costs
On May 7, 2024, the Court of Appeal delivered its judgment in CA (Writ) Application No: 415/22, dismissing Prestige Automobiles' application with costs . Justice B. Sasi Mahendran, with the concurrence of Justice N. Bandula Karunarathna, held that the Director General of Customs had the authority to recommence the inquiry based on fresh evidence.
The judgment referenced Section 2 of the Customs Ordinance, which vests the Director General with the "general superintendence of all matters relating to the Customs," and cited the authority of Navaratne Vs Director General of Customs (CA 664/2001) to establish implied power to revise orders made by subordinate officers .
Significantly, the Court found that the Petitioner had failed to cooperate with Customs during the initial inquiry and had suppressed relevant invoices sent by BMW AG Germany. The Court emphasized that in the original inquiry, the prosecution had requested the inquiring officer to order the Petitioner to produce these invoices, but the officer refused, noting that the period for legally keeping such documents had expired. The Court viewed this as an attempt to avoid full disclosure .
The Supreme Court Intervention
The Supreme Court, in SC/SPL/LA 172/2024, issued a ruling on February 18, 2026, granting special leave to appeal and setting aside the Court of Appeal's judgment . Justice Janak De Silva, who authored the Supreme Court order, identified a crucial question of law: "Did the Court of Appeal err in law in not issuing notice in the circumstances of this case?"
The Supreme Court found that the Appellant and Petitioner had made out a prima facie case for the issue of notice, directing the Court of Appeal to issue notice and examine both any objections raised by parties and the merits of the application. Importantly, the Supreme Court ordered that the matter be heard by a bench comprising judges who had not been part of the final impugned judgment, ensuring fresh judicial scrutiny.
The Supreme Court also directed the Court of Appeal to take all reasonable steps to expedite the hearing and determination of the application, given the prolonged period the case had been pending at various stages.
Evidence and Allegations of Bribery
While court records establish the factual matrix of the BMW fraud and the associated litigation, the specific allegation that "nine Presidential Counsel's received bribes from BMW" requires careful examination.
The court dockets reveal that a significant number of senior counsel appeared in these proceedings:
Sanjeewa Jayawardena, PC: Represented the 5th and 6th Respondents (Prestige Automobiles) in CA (Writ) Application No. 108/2018 and the Petitioner in CA (Writ) Application No: 415/22
Manohara de Silva, PC: Represented the 2nd Respondent in both cases
Faiz Musthapa, PC: Represented the 4th Respondent
Romesh de Silva, PC: Represented the 3rd and 4th Respondents in CA (Writ) No: 415/22
M.A. Sumanthiran, PC: Represented the 5th and 6th Respondents in CA (Writ) No: 415/22
Collectively, these are nine Presidential Counsel (including the named senior counsel and their junior counsel) who appeared for various parties.
The allegations of bribery stem from Kodituwakku's submissions to the Bribery Commission. In a document filed on behalf of Murugesu Thayabaran, Kodituwakku alleged that the Attorney General had deliberately refused to comply with the Director General of Customs' written instructions to concede the case, causing colossal public loss. He specifically referenced Section 70 of the Bribery Act, suggesting that abuse of office to confer benefits on Prestige Automobiles constituted an offense.
However, it is essential to note that these allegations have not been substantiated by formal charges or convictions. The Court of Appeal records do not indicate that any of the named Presidential Counsel were party to any bribery proceedings. The allegations remain unproven assertions made by a petitioner whose standing was subsequently questioned by the same court .
Section 119 and Inquisitorial Proceedings
The Customs Ordinance's Section 119 played a central role in the original inquiry. The inquiring officer had found that Prestige Automobiles committed an offense under this provision, imposing a forfeiture of Rs. 117,700,000. However, the Court of Appeal in CA (Writ) 255/2017 quashed this decision, reflecting the contentious nature of the initial proceedings.
The inquiry under Section 8 of the Customs Ordinance was described as an inquisitorial process where the inquiring officer considers all material placed before him. During this process, the prosecution had requested the Petitioner to produce BMW AG Germany invoices, but the inquiring officer refused, citing Section 51B of the Customs Ordinance, which limits the period for retaining documents.
The Court of Appeal's May 2024 judgment emphasized that the Petitioner had failed to demonstrate Uberrima fides (utmost good faith) by withholding these invoices. The subsequent discovery of invoices from German Customs on October 15, 2020 provided the basis for reopening the inquiry.
Implications and the Path Forward
The BMW tax evasion scandal highlights systemic issues in Sri Lanka's customs and judicial systems. The alleged fraud of Rs. 16 billion represents a significant loss to public coffers, particularly concerning given that these funds could have been used for essential public services. The case also exposes the tension between the executive (Attorney General's Department) and administrative bodies (Customs Department) in pursuing financial crimes.
The Supreme Court's intervention, setting aside the Court of Appeal's dismissal and directing expedited proceedings, suggests that higher judicial authorities recognize the importance of resolving this matter substantively rather than on procedural grounds. The direction to constitute a fresh bench underscores the need for impartial adjudication free from perceived bias.
The Complex Reality Behind the Allegations
The question of whether nine Presidential Counsel received bribes from BMW cannot be answered based on the available court records. While Kodituwakku made allegations to the Bribery Commission, these have not been tested through formal legal proceedings or resulted in charges. The court records establish that a significant number of senior counsel were involved in the litigation across multiple cases, but involvement in litigation is not evidence of impropriety.
What the records do establish is a persistent pattern of delays, procedural wrangling, and legal challenges that have allowed Prestige Automobiles to evade full accountability for nearly a decade. The Supreme Court's March 2026 order, directing the Court of Appeal to expedite proceedings, may finally bring this case to a substantive determination.
For the allegations of judicial and legal corruption to be substantiated, the Bribery Commission would need to conduct a thorough investigation, and any findings would need to be proven beyond reasonable doubt in a court of law. Until such proceedings conclude, the allegations remain just that—allegations.
The true tragedy of this case lies in the billions of rupees lost from the public treasury while the legal system remained entangled in procedural disputes, enabling alleged fraudsters to delay justice and potentially preserve ill-gotten gains. The upcoming expedited hearings in the Court of Appeal may finally provide the substantive legal determination that this long-running saga deserves.