Prime Minister Tony Abbott arrives in Colombo on Friday and will meet the head of Sri Lanka's armed forces, President Mahinda Rajapakse.
In police custody, Annatugoda this week denied the people-smuggling charges against him and said he had been framed. He said others in the navy, however, were guilty of people-smuggling.
He told Fairfax Media during an interview in a police cell in Thiyagoda: "I am not the man who did this thing. Others did."
But police allege Annatugoda was a key player in Sri Lanka's largest and most profitable people-smuggling ring. Since his arrest, and that of 30 other alleged smugglers, the number of boats leaving Sri Lankan shores has dropped 90 per cent, Inspector of Police P.S.C. Sanjeewa said in Matara.
The gang got rich charging passengers between 300,000 rupees ($2450) and 800,000 rupees for a single place on a boat to Australia.
It has been reported the ring was responsible for sending up to 6000 people in boats towards Australia. Inspector Sanjeewa said the known figure was closer to 1000, but this did not include boats that were never detected leaving or admitted to by those arrested, or boats that had sunk on the way.
"Thirty-one people in this ring have been arrested so far, and the number of people leaving on boats has dropped 90 per cent. This ring put people on boats from Jaffna, Mullaithivu, Batticaloa, Trincomalee," the inspector said.
Almost all the passengers were Tamils, most were young men.
Police believe Annatugoda was deeply involved in the smuggling racket, taking kickbacks in return for using his influence in the navy, and his control over patrol boats, to help smugglers' vessels leave.
"He was a senior officer, he knew about the movement of patrol boats," said Inspector Sanjeewa.
Police uncovered Annatugoda's alleged role after arresting a man called Anton Gowrithasan, who was discovered to have an unexplained 13 kilograms of gold in various bank accounts and hundreds of thousands of rupees in cash.
Gowrithasan led police to former navy officer Kuruppumullage Deshapriya, who was a key organiser and had a network of agents recruiting passengers across Sri Lanka. Deshapriya told police he had paid Annatugoda 200,000 rupees as a kickback for his allowing boats to leave Sri Lankan waters.
"And we have the bank receipt that proves the money was paid," Inspector Sanjeewa said. Annatugoda withdrew the money from his bank account.
Annatugoda was also named by several asylum seekers who were caught on a fishing trawler leaving Sri Lanka in August. They told police the navy officer had promised them safe passage to Australia.
Three other sailors - all enlisted members of the signals branch - have also been arrested as part of the smuggling ring.
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| Sri Lankan Navy officer Lieutenant Commander Sanjeewa Annatugoda in police custody in southern Sri Lanka. Photo: Ben Doherty |
Annatugoda, married with three young children, is a decorated officer who served 17 years in the navy. He was wounded during the country's civil war and awarded medals for gallantry.
"I have sacrificed a lot for the motherland," he told Fairfax, barefoot and dressed in civilian clothes, in the police cell.
He denied any involvement in people-smuggling. "I am a naval officer, and I am the one who stopped people who were trying to go to Australia. Over 1½ years I stopped many boats, at least 10 boats, and I captured many people, more than 500 people."
He said he had been framed because of a personal vendetta, and that the money put into his account was a series of loans being repaid. He had made several small loans to Deshapriya, totalling 200,000 rupees, that were then repaid in one lump sum. It was this amount that police had discovered.
Annatugoda said he and Deshapriya had fallen out after he discovered Deshapriya was double-charging for food he was selling to the navy. Annatugoda, then in charge of victualling, stopped buying from him.
In November last year, Anna-tugoda met Australia's Border Protection Command chief, Rear Admiral David Johnston, and high commissioner Robyn Mudie about the Sri Lankan navy's efforts to stop people-smuggling.
"I met with the senior officials and the high commissioner and I explained about the Sri Lankan navy's plan for patrolling the sea, the system we have for stopping smuggling,'' he said.
Fairfax Media spent seven days seeking comment from various branches of the Australian government. All refused to comment.
Asked about Annatugoda's meeting with Rear Admiral Johnston, Immigration Minister Scott Morrison refused to comment but did not deny it took place.
If Annatugoda is convicted, he faces up to five years in jail and thousands of dollars in fines. But it would also be a major embarrassment for both governments - that the alleged key man in smuggling people from Sri Lanka to Australia was one they had trained, paid and consulted on how to stop the boats.
An adviser to the Australian Federal Police, Christopher Wood, was involved in the investigation of Annatugoda and has interrogated him in custody.
Mr Wood is based in Sri Lanka and works with local police in investigating smuggling rackets. Fairfax Media spoke with Mr Wood but he said that government officials in Canberra had forbidden him from speaking about Annatugoda's arrest.
SMH