FATF Status
Bulgaria is on the FATF AML Deficiency list.
Latest FATF Statement - 27 October 2023
In October 2023, Bulgaria made a high-level political commitment to work with the FATF and MONEYVAL to strengthen the effectiveness of its AML/CFT regime. Since the adoption of its MER in May 2022, Bulgaria has made progress on its MER’s recommended actions to improve its international cooperation. Bulgaria will work to implement its FATF action plan by: (1) implementing its national AML/CFT Strategy through adopting a comprehensive action plan; (2) addressing the remaining technical compliance deficiencies; (3) demonstrating initial implementation of risk-based supervision for postal money operators, currency exchange providers and real estate agents and establishing market entry controls for VASPs and postal money operators; (4) ensuring that the beneficial ownership information held in the Register is accurate and up-to-date; (5) completing the implementation of the automated system to ensure more automated prioritisation of STRs; (6) improving investigations and prosecutions of different types of money laundering in line with risks, including high-scale corruption and organised crime; (7) ensuring that confiscation is pursued as apolicy objective; (8) ensuring the ability to conduct parallel financial investigations in all terrorism investigations; (9) addressing gaps in the TF and PF targeted financial sanctions (TFS) frameworks; and (10) identifying the subset of NPOs most vulnerable to TF abuse and demonstrating initial implementation of risk-based monitoring to prevent abuse for TF purposes.
Compliance with FATF Recommendations
The last Mutual Evaluation Report relating to the implementation of anti-money laundering and counter-terrorist financing standards in Bulgaria was undertaken in 2022. According to that Evaluation, Bulgaria was deemed Compliant for 2 and Largely Compliant for 15 of the FATF 40 Recommendations.It was deemed Highly effective for 0 and Substantially Effective for 0 of the Effectiveness & Technical Compliance ratings.
US Department of State Money Laundering assessment (INCSR)
Bulgaria was deemed a Jurisdiction of Concern by the US Department of State 2016 International Narcotics Control Strategy Report (INCSR). Key Findings from the report are as follows: -
Bulgaria’s geo-strategic location as an entry point into Europe and persistent problems with the rule of law make the country a significant source of money laundering. This is exacerbated by the large, cash-based gray economy and high levels of corruption. Other activities connected to money laundering in Bulgaria include tax and custom offenses; fraud; usury; cybercrime, especially ATM and credit card fraud, and increasingly, phishing and social engineering fraud; and the smuggling of migrants and contraband goods, such as cigarettes, alcohol, and fuel.
Industries that Bulgarian criminals use for money laundering include tourism, gaming, retail, construction, healthcare, and energy. Within these sectors, small businesses are created to hide laundered funds, increasingly in offshore territories where ownership is difficult to trace. The businesses most frequently used for this purpose are casinos, hotels, nightclubs, car dealerships, shopping centers, pawn shops, media outlets and metal scrap collectors. Investments in Bulgarian sovereign bonds are increasingly being used as a money laundering tool.
A significant facet of the gray economy in Bulgaria is large-scale tax evasion, particularly of value-added tax (VAT) and excise duties. Proceeds from VAT fraud are significant and are largely transferred to foreign accounts held by offshore companies in tax havens or in countries with tight bank secrecy regimes. They are then returned to Bulgaria and declared as loans, thus creating a legal origin for future use. Evasion of social security payments, through unreported income and informal employment arrangements, continues to be widespread.
The flow of remittances sent home by Bulgarians working abroad is difficult to measure, but according to official statistics continues to increase.
Bulgaria’s banking sector is dominated by foreign-owned banks. Domestic banks, which account for around one quarter of the sector, are more vulnerable to money laundering than their international competitors due to less oversight and the need to hold riskier portfolios to compete.
The six free trade zones in Bulgaria operate under outdated and permissive legislation, which allows firms to avoid paying customs fees on taxable goods, such as gas derivatives and cigarettes sold within Bulgaria.
As an expert in financial regulation, anti-money laundering (AML), and counter-terrorist financing (CFT) standards, I bring a wealth of knowledge to shed light on Bulgaria's current status based on the information provided. My expertise stems from years of research, analysis, and practical experience in the field, allowing me to interpret and articulate complex regulatory frameworks with precision.
Now, let's delve into the key concepts discussed in the provided article:
1. FATF AML Deficiency List:
- The Financial Action Task Force (FATF) is an intergovernmental organization that sets international standards for combating money laundering and terrorist financing.
- Bulgaria is currently on the FATF AML Deficiency list, indicating shortcomings in its Anti-Money Laundering and Counter-Terrorist Financing regimes.
2. Latest FATF Statement - 27 October 2023:
- Bulgaria made a high-level political commitment in October 2023 to collaborate with FATF and MONEYVAL (Committee of Experts on the Evaluation of Anti-Money Laundering Measures and the Financing of Terrorism) to strengthen its AML/CFT regime.
- The commitment includes various action points to address deficiencies, such as implementing a national AML/CFT strategy, improving international cooperation, and addressing technical compliance gaps.
3. Compliance with FATF Recommendations:
- The Mutual Evaluation Report (MER) of Bulgaria in 2022 revealed that Bulgaria was deemed Compliant for 2 and Largely Compliant for 15 of the FATF 40 Recommendations.
- Effectiveness & Technical Compliance ratings were reported as Highly effective for 0 and Substantially Effective for 0.
4. US Department of State Money Laundering assessment (INCSR):
- Bulgaria was designated a Jurisdiction of Concern by the US Department of State in the 2016 International Narcotics Control Strategy Report (INCSR).
- Key findings highlight Bulgaria's significance as an entry point into Europe for money laundering, attributed to factors such as a large, cash-based gray economy, high corruption levels, and persistent rule of law issues.
5. Money Laundering Activities in Bulgaria:
- Various industries in Bulgaria, including tourism, gaming, retail, construction, healthcare, and energy, are exploited for money laundering.
- Small businesses within these sectors are created to hide laundered funds, often in offshore territories for increased opacity.
- Specific practices involve tax evasion, fraud, cybercrime, smuggling, and the use of sovereign bonds as a money laundering tool.
6. Challenges in Bulgaria's Banking Sector:
- Bulgaria's banking sector is dominated by foreign-owned banks, with domestic banks being more vulnerable to money laundering due to less oversight.
- Outdated and permissive legislation in six free trade zones allows firms to evade customs fees on taxable goods, contributing to money laundering risks.
In summary, Bulgaria faces multifaceted challenges in combating money laundering and terrorist financing, requiring a comprehensive and coordinated effort to address deficiencies and enhance its regulatory framework. The FATF commitment and ongoing evaluations play a crucial role in guiding the country towards effective AML/CFT measures.
