Bulgaria – Know Your Customer (KYC) Rules

 

 

Bulgaria‘s developing financial sector, large underground economy, prevalent use of cash transactions and lack of effective enforcement combine to make Bulgaria vulnerable to money laundering. The main sources of laundered money in 2011 were derived from domestic and foreign criminals engaging in drug trafficking, smuggling, human trafficking, tax fraud, credit card fraud, and increasingly, internet fraud. Bulgaria is a major transit point for the trafficking of drugs and persons into Western Europe. Corruption remains a serious problem and many still associate public tenders with kickbacks and money laundering. Financial crimes enforcement capacity is limited. The authorities opt for easy-to-prove, low-level corruption and related money laundering cases. As a result, progress on cases of high public interest, involving alleged siphoning of millions of taxpayer money, such as the public procurement of big energy infrastructure projects, have not generally been pursued.

Bulgarian criminals often establish small businesses to hide laundered funds, increasingly in offshore territories. However, due to the adverse effects of the economic crisis, businesses are seeing less profit, making it more difficult to launder money in these venues. In 2011, casinos, night clubs, car dealerships and, to a lesser extent, wholesale traders, were the most common businesses associated with money laundering in Bulgaria. The tourism and gaming industries are considered important venues for money laundering activities among organized crime groups.

There are six free trade zones in Bulgaria that are supervised by the Ministry of Finance: Burgas, Vidin, Ruse, Svilengrad, Plovdiv and Dragoman. The goods produced in these zones are exported without duties. While this is becoming less common due to Bulgaria‘s EU membership, some believe free trade zones are used to avoid paying customs fees, especially on gas derivatives and cigarettes sold within Bulgaria.

Contraband continues to generate laundered funds within the Bulgarian financial system, particularly the trade in smuggled cigarettes, alcohol, and fuel. According to the NGO Center for the Study of Democracy, the smuggling of cigarettes is particularly problematic, creating an illicit income stream in excess of $400 million annually in 2010 – 2011.

KNOW-YOUR-CUSTOMER (KYC) RULES:

 

Enhanced due diligence procedures for PEPs:

 

PEP is an abbreviation for Politically Exposed Person, a term that describes a person who has been entrusted with a prominent public function, or an individual who is closely related to such a person. The terms PEP, Politically Exposed Person and Senior Foreign Political Figure are often used interchangeably

    • Foreign PEP: NO
    • Domestic PEP: YES

Bulgaria – KYC covered entities

 

The following is a list of Know Your Customer entities covered by Bulgarian Law:

    • Banks
    • Money exchangers
    • Insurance companies
    • Investment funds
    • Notaries
    • Gambling businesses
    • Securities dealers
    • Real estate brokers
    • Political parties
    • Sport clubs
    • Accountants
    • Private enforcement agents

Bulgaria – Suspicious Transaction Reporting (STR) Requirements:

 

Number of STRs received and time frame: 1,058 from January to September 2011

Number of CTRs received and time frame: 162,181 from January to September 2011

The following is a list of STR covered entities covered by Bulgarian Law:

    • Banks
    • Money exchangers
    • Insurance companies
    • Investment funds
    • Notaries
    • Gambling businesses
    • Securities dealers
    • Real estate brokers
    • Political parties
    • Sport clubs

MONEY LAUNDERING CRIMINAL PROSECUTIONS/CONVICTIONS:

 

Prosecutions: 34 from January to September 2011
Convictions: 29 from January to September 2011

 

ENFORCEMENT AND IMPLEMENTATION ISSUES AND COMMENTS:

The Government of Bulgaria (GOB) has undertaken steps to deter financial crimes and continues to track the number of money laundering prosecutions and reports of suspicious financial transactions. The GOB has introduced legislation to allow civil asset forfeiture independent of a criminal conviction, which would make it more difficult for criminals to hide and launder illegal assets. The GOB also should make legal persons subject to criminally liability for money laundering offenses.

Aggressive prosecution of money laundering cases is hampered by the reluctance of key witnesses to testify against organized criminal groups; lack of incentives to motivate prosecutors to take on complex cases; and poor coordination and ineffective communication among police units. However, investigators and prosecutors are developing and implementing training programs, manuals and internal guidelines designed to strengthen their capacity to investigate these cases.

In 2011, roughly 95% of financial reporting was done by financial institutions. Reporting by non-bank institutions, such as gaming businesses, investment intermediaries, notaries and leasing companies continues to be low. This is likely due to the absence of effective regulatory control over the non-bank financial sector. The GOB also should make foreign PEPs subject to enhanced due diligence requirements.

The combination of a steep increase in excise duties on cigarettes, falling incomes during the financial crisis and the less stringent control on the EU internal border between Greece and Bulgaria has strained the capacity of Bulgarian customs to counter cigarette smuggling. However, Bulgarian customs and law enforcement agencies conducted several high-profile anti-smuggling operations in 2011, which led to the seizure of significant amounts of contraband.