According to the U.S. Department of State (DoS), as of 2003, Bulgaria's anti-money laundering legislation was determined to be in full compliance with all European Union (EU) standards. Although Bulgaria has enacted legislative changes consistent with international anti-money laundering standards, lax enforcement remains problematic. The U.S. DoS points out that the Government of Bulgaria (GoB) must take steps to improve and tighten its regulatory and reporting regime, particularly with regard to nonbank sectors. The GoB needs to provide sufficient resources to the Financial Intelligence Agency (FIA) so that the agency can incorporate technological improvements. The FIA should also continue to improve inter-agency cooperation in order to ensure effective implementation of Bulgaria's anti-money laundering regime and to improve prosecutorial effectiveness in money laundering cases. Furthermore, a May 2006 report from the EU regarding the status of Bulgaria's application for admission to the EU called Bulgaria's enforcement of anti-money laundering provisions an area of "serious concern," requiring "urgent action". In response, Bulgaria's Parliament tightened the Law on Measures Against Money Laundering with further amendments. Overall, these amendments are expected to strengthen the investigative capabilities of both the FIA and law enforcement when dealing with money laundering cases. Experts view this legislation as comprehensive and in line with international standards. Nevertheless, there is no significant information publicly available as to Bulgaria's actual compliance with the Financial Action Task Force's (FATF) 40+9 Recommendations.

General Overview

According to the U.S. Department of State, as of 2003, Bulgaria's anti-money laundering legislation was determined to be in full compliance with all European Union (EU) standards. (U.S. DoS 2007)

Bulgaria is neither considered an important regional financial center nor an offshore financial center. Its significance in terms of money laundering stems from its geographical position, its well-developed financial sector relative to other Balkan countries, and its lax regulatory control. Financial crimes, including fraud schemes of all types, smuggling of persons and commodities, and other organized crime offenses also generate significant proceeds susceptible to money laundering. Bank and credit card fraud remains a serious problem. The sources for money laundered in Bulgaria likely derive from both domestic and international criminal activity. Organized crime groups operate very openly in Bulgaria. While counterfeiting of currency, negotiable instruments, and identity documents has historically been a serious problem in Bulgaria, joint activities of the Bulgarian government and the U.S. Secret Service have contributed to a decline in counterfeiting in recent years. There has been no indication that Bulgarian financial institutions engage in narcotics-related currency transactions involving significant amounts of U.S. currency or otherwise affecting the United States. (U.S. DoS 2007)

Even though Bulgaria has enacted legislative changes consistent with international anti-money laundering standards, lax enforcement remains problematic. According to the U.S. Department of State, the Government of Bulgaria (GoB) must take steps to improve and tighten its regulatory and reporting regime, particularly with regard to nonbank sectors. The GoB should improve the consistency of its customs reporting enforcement and should also establish procedures to identify the origin of funds used to acquire banks and businesses during privatization. The GoB needs to provide sufficient resources to the FIA so that the agency can incorporate technological improvements. The FIA should also continue to improve inter-agency cooperation in order to ensure effective implementation of Bulgaria's anti-money laundering regime and to improve prosecutorial effectiveness in money laundering cases. (U.S. DoS 2007)

Although money laundering has been pursued in court cases, there had not been a conviction until recently. In October 2006, the courts rendered the country's first two convictions for money laundering. On October 9, the Ruse District Court sentenced a defendant to 11 months in prison and three years of probation after he admitted to receiving a 350,000 Euro (approximately $464,000) bank transfer in 2004. The FIA initiated the investigation. In another case, the Varna District Court sentenced a defendant to an eighteen-month imprisonment and a fine of 4,000 BGL (approximately $2,600) for the predicate crime of drug trafficking and distribution. (U.S. DoS 2007)

A May 2006 report from the European Union (EU) regarding the status of Bulgaria's application for admission to the EU called Bulgaria's enforcement of anti-money laundering provisions an area of "serious concern," requiring "urgent action". This issue was one of several, resulting in a potential delay of entry date into the EU. In response, Bulgaria's Parliament tightened the Law on Measures Against Money Laundering (LMML) 1998 with further amendments. The 2006 LMML 1998 amendments expanded the definition of money laundering and the list of reporting entities; allowed FIA to obtain bank records without a court order; outlawed anonymous bank accounts; expanded the definition of "currency"; and required the disclosure of source for currency exported from the country. Overall, these amendments are expected to strengthen the investigative capabilities of both the FIA and law enforcement when dealing with money laundering cases. Experts view this legislation as comprehensive and in line with international standards. All financial sectors are considered susceptible to money laundering and subject to anti-money laundering regulations. Under the LMML 1998, 30 categories of entities, including lawyers, real estate agents, auctioneers, tax consultants, and security exchange operators, are required to file suspicious transactions reports. To date, only the banking sector has substantially complied with the law's filing requirement. Lower rates of reporting compliance by exchange bureaus, casinos, and other nonbank financial institutions can be attributed to a number of factors, including a lack of understanding of or respect for legal requirements, lack of inspection resources, and the general absence of effective regulatory control over the nonbank financial sector. (U.S. DoS 2007)

The Principles

1. Legal Systems and Related Institutional Measures

II

According to the U.S. Department of State, as of 2003, Bulgaria's anti-money laundering legislation was determined to be in full compliance with all European Union (EU) standards. (U.S. DoS 2007) However, there is no significant information publicly available as to Bulgaria's actual compliance with the Financial Action Task Force's (FATF) Recommendations relating to this Principle.

Article 253 of the Bulgarian Penal Code (PC 1997) criminalizes money laundering. The 2006 amendments increase penalties (including in cases of conspiracy and abuse of office), clarify that predicate crimes committed outside Bulgaria can support a money laundering charge brought in Bulgaria, and allow prosecution on money laundering charges without first obtaining a conviction for the predicate crime. Article 253 criminalizes money laundering related to all crimes; as such, drug-trafficking is but one of many recognized predicate offenses. (U.S. DoS 2007)

The Law on Measures against Money Laundering (LMML 1998)), adopted in 1998 and amended most recently in 2006, is the legislative backbone of Bulgaria's anti-money laundering regime. Bulgaria has strict and wide-ranging banking, tax, and commercial secrecy laws that limit the dissemination of financial information absent the issuance of a court order. While the financial intelligence unit (FIU) is not bound by the secrecy provisions, they apply to all other government institutions and are often cited as an impediment to law enforcement functions. In an effort to lessen the impact of secrecy laws on law enforcement functions, in 2006 the Government of Bulgaria (GoB) issued amendments to both the LMML 1998 and the Law on Credit Institutions (LCI 12006). The amendments to the LCI 2006 facilitated the investigation and prosecution of financial crimes by giving the Prosecutor General the right to request financial information from banks without a court order in cases involving money laundering and organized crime. (U.S. DoS 2007)

There are few, if any, indications of terrorist financing connected with Bulgaria. Article 108a of the PC 1997 criminalizes terrorism and terrorist financing. Article 253 of the Criminal Code qualifies terrorist acts and financing as predicate crimes under the "all crimes" approach to money laundering. In February 2003, the GoB enacted the Law on Measures Against Terrorist Financing (LMATF 2003), which links counterterrorism measures with financial intelligence and compels all covered entities to report a suspicion of terrorism financing or pay a penalty of approximately $15,000. The law is consistent with Financial Action Task Force (FATF) Special Recommendations on Terrorist Financing and authorizes the FIA to use its resources and financial intelligence to combat terrorism financing along with money laundering. (U.S. DoS 2007)

The Bulgarian PC 1997 provides legal mechanisms for forfeiting assets (including substitute assets in money laundering cases) and instrumentalities. Both the money laundering and the terrorist financing laws include provisions for identifying, tracing, and freezing assets related to money laundering or the financing of terrorism. A new criminal asset forfeiture law, targeted at confiscation of illegally acquired property, came into effect in March 2005. The law permits forfeiture proceedings to be initiated against property valued in excess of approximately $36,000 if the owner of the property is the subject of criminal prosecution for enumerated crimes (terrorism, drug trafficking, human trafficking, money laundering, bribery, major tax fraud, and organizing, leading, or participating in a criminal group) and a reasonable assumption can be made that the property was acquired through criminal activity. The law requires the establishment of a criminal assets identification commission that has the authority to institute criminal asset identification procedures, as well as request from the court both preliminary injunctions and ultimately the forfeiture of assets. (U.S. DoS 2007)

Under the LMATF 2003, the GoB may freeze the assets of a suspected terrorist for 45 days. Key players in the process of asset freezing and seizing, as prescribed in existing law, include the MoI, MoF (including the Financial Intelligence Agency (FIA)), Council of Ministers, Supreme Administrative Court, Sofia City Court, and the Prosecutor General. The FIA and the Bulgarian National Bank circulate the names of suspected terrorists and terrorist organizations, as found on the UNSCR 1267 Sanctions Committee's consolidated list, as well as the list of Specially Designated Global Terrorists designated by the U.S. pursuant to E.O. 13224, and those designated by the relevant EU authorities. To date, no suspected terrorist assets have been identified, frozen, or seized by Bulgarian authorities. In 2005, a joint task force comprised of representatives from the FIA and the National Security Service was established to identify possible terrorist financing activities and terrorist supporters. (U.S. DoS 2007)

The Financial Intelligence Agency (FIA) serves as Bulgaria's Financial Intelligence Unit (FIU) and is located within the Ministry of Finance (MoF). The LMML 1998 guarantees the independence of the FIA director, allows the agency to perform onsite compliance inspections, and authorizes it to obtain information without a court order, share all information with law enforcement, and receive reports of suspected terrorism financing. The agency has a supervisor within the MoF who oversees the activities of the FIA. However, the supervisor is prohibited by law from issuing operational commands. The FIA remains handicapped technologically, but it is working on improving its databases to improve analytical efficiency. (U.S. DoS 2007)

The FIA is an administrative unit and does not participate in criminal investigations. In 2006, the Ministry of the Interior (MoI), the Prosecutor's Office, and the FIA established new procedures for closer cooperation when following leads contained in a suspicious transaction report (STR). The FIA forwards reports to the Prosecutor, and sends to the MoI a copy of each. The MoI is subsequently required to produce a report on the enforcement potential of the case within 30 days of receipt. Between January and November 2006, the FIA received 310 STRs, on transactions totaling $175 million, and 134,241 currency transaction reports (CTRs). On the basis of the forwarded reports, 276 cases were opened, 74 cases were referred to the Supreme Prosecutor's Office of Cassation, and 207 cases were referred to the Ministry of Interior. The FIA forwarded 32 reports to supervisory authorities for administrative action. (U.S. DoS 2007)

A May 2006 report from the European Union (EU) regarding the status of Bulgaria's application for admission to the EU called Bulgaria's enforcement of anti-money laundering provisions an area of "serious concern," requiring "urgent action". This issue was one of several, resulting in a potential delay of entry date into the EU. In response, Bulgaria's Parliament tightened the LMML 1998 with further amendments. The 2006 LMML 1998 amendments expanded the definition of money laundering and the list of reporting entities; allowed FIA to obtain bank records without a court order; outlawed anonymous bank accounts; expanded the definition of "currency"; and required the disclosure of source for currency exported from the country. Overall, these amendments are expected to strengthen the investigative capabilities of both the FIA and law enforcement when dealing with money laundering cases. Experts view this legislation as comprehensive and in line with international standards. All financial sectors are considered susceptible to money laundering and subject to anti-money laundering regulations. Under the LMML 1998, 30 categories of entities, including lawyers, real estate agents, auctioneers, tax consultants, and security exchange operators, are required to file suspicious transactions reports. To date, only the banking sector has substantially complied with the law's filing requirement. Lower rates of reporting compliance by exchange bureaus, casinos, and other nonbank financial institutions can be attributed to a number of factors, including a lack of understanding of or respect for legal requirements, lack of inspection resources, and the general absence of effective regulatory control over the nonbank financial sector. (U.S. DoS 2007)

Although Bulgaria has enacted legislative changes consistent with international anti-money laundering standards, lax enforcement remains problematic. According to the U.S. Department of State, the GoB must take steps to improve and tighten its regulatory and reporting regime, particularly with regard to nonbank sectors. The GoB should improve the consistency of its customs reporting enforcement and should also establish procedures to identify the origin of funds used to acquire banks and businesses during privatization. The GoB needs to provide sufficient resources to the FIA so that the agency can incorporate technological improvements. The FIA should also continue to improve inter-agency cooperation in order to ensure effective implementation of Bulgaria's anti-money laundering regime and to improve prosecutorial effectiveness in money laundering cases In 2004, the European Committee on Crime Problems (CDPC) found that the absence of figures as to the amount of assets frozen/seized or confiscated made it difficult to say whether targeting the proceeds of crime is an established practice in Bulgaria.. (U.S. DoS 2007; CDPC 2004, p. 4)

2. Preventive Measures - Financial Institutions

II

According to the U.S. Department of State, as of 2003, Bulgaria's anti-money laundering legislation was determined to be in full compliance with all European Union (EU) standards. (U.S. DoS 2007) However, there is no significant information publicly available as to Bulgaria's actual compliance with the Financial Action Task Force's (FATF) Recommendations relating to this Principle.

The Law on Measures against Money Laundering (LMML 1998), adopted in 1998 and amended most recently in 2006, is the legislative backbone of Bulgaria's anti-money laundering regime. Bulgaria has strict and wide-ranging banking, tax, and commercial secrecy laws that limit the dissemination of financial information absent the issuance of a court order. While the Financial Intelligence Agency (FIA), which is the financial intelligence unit (FIU), is not bound by the secrecy provisions, they apply to all other government institutions and are often cited as an impediment to law enforcement functions. In an effort to lessen the impact of secrecy laws on law enforcement functions, in 2006 the Government of Bulgaria (GoB) issued amendments to both the LMML 1998 and the Law on Credit Institutions (LC 2006). The amendments to the LCI 2006 facilitated the investigation and prosecution of financial crimes by giving the Prosecutor General the right to request financial information from banks without a court order in cases involving money laundering and organized crime. (U.S. DoS 2007)

Banks and the 29 other reporting entities under the LMML 1998 are required to apply "know your customer" (KYC) standards. Since 2003, all reporting entities are required to ask for the source of funds in any transaction greater than $19,000 or foreign exchange transactions greater than $6,500. Reporting entities are also required to notify the FIA of any cash payment greater $19,000. (U.S. DoS 2007)

The LMML 1998 obligates financial institutions to a five-year record keeping requirement and provides a "safe harbor" to reporting entities. Penal Code (PC 1997) Article 253B was enacted in 2004 to establish criminal liability for noncompliance with LMML 1998 requirements. Although case law remains weak, when it was assessed in September 2003 for purposes of European Union (EU) accession, Bulgaria's anti-money laundering legislation was determined to be in full compliance with all EU standards. (U.S. DoS 2007)

The 2006 amendments to the LMML expanded the definition of money laundering and the list of reporting entities; allowed FIA to obtain bank records without a court order; outlawed anonymous bank accounts; expanded the definition of "currency"; and required the disclosure of source for currency exported from the country. All financial sectors are considered susceptible to money laundering and subject to anti-money laundering regulations. The banking sector has substantially complied with the law's filing requirement. (U.S. DoS 2007)

In 2004, the European Committee on Crime Problems (CDPC) found that the cooperation of the banking sector seemed quite satisfactory. Greater attention to the implementation of the Basel principles on "know your customer" might be useful since, for the time being, the banking sector relied mostly on the basic identification requirements contained in the LMML 1998 and those provided for in a general regulation of the Bulgarian National Bank (BNB) on transactions and the opening and functioning of bank accounts. (CDPC 2004, p. 4)

3. Preventive Measures - Designated non-Financial Business and Professions

II

According to the U.S. Department of State, as of 2003, Bulgaria's anti-money laundering legislation was determined to be in full compliance with all European Union (EU) standards. (U.S. DoS 2007) However, there is no significant information publicly available as to Bulgaria's actual compliance with the Financial Action Task Force's (FATF) Recommendations relating to this Principle.

The Law on Measures against Money Laundering (LMML 1998), adopted in 1998 and amended most recently in 2006, is the legislative backbone of Bulgaria's anti-money laundering regime. Under the LMML 1998, 30 categories of entities, including lawyers, real estate agents, auctioneers, tax consultants, and security exchange operators, are required to file suspicious transactions reports. To date, only the banking sector has substantially complied with the law's filing requirement. Lower rates of reporting compliance by exchange bureaus, casinos, and other nonbank financial institutions can be attributed to a number of factors, including a lack of understanding of or respect for legal requirements, lack of inspection resources, and the general absence of effective regulatory control over the nonbank financial sector. (U.S. DoS 2007)

However, in 2004, the European Committee on Crime Problems (CDPC) found that there were no systematic detailed statistics on the reporting of certain obligated entities (foreign exchange bureaux, financial houses, stock brokers etc.). (CDPC 2004, p. 4)

In 2006, the Government of Bulgaria (GOB) somewhat strengthened its nonbank financial institution oversight by instituting compliance checks on casinos and exchange offices. Between January and October 2006, the FIA inspected 23 casinos and 548 exchange offices, imposing fines in 15 cases. According to the U.S. Department of State, the GoB must take steps to improve and tighten its regulatory and reporting regime, particularly with regard to nonbank sectors. (U.S. DoS 2007)

The 2006 LMML 1998 amendments expanded the definition of money laundering and the list of reporting entities. Experts view this legislation as comprehensive and in line with international standards. Under the LMML 1998, 30 categories of entities, including lawyers, real estate agents, auctioneers, tax consultants, and security exchange operators, are required to file suspicious transactions reports. To date, only the banking sector has substantially complied with the law's filing requirement. Lower rates of reporting compliance by exchange bureaus, casinos, and other nonbank financial institutions can be attributed to a number of factors, including a lack of understanding of or respect for legal requirements, lack of inspection resources, and the general absence of effective regulatory control over the nonbank financial sector. (U.S. DoS 2007)

4. Legal Person and Arrangements & Non-Profit Organizations

II

According to the U.S. Department of State, as of 2003, Bulgaria's anti-money laundering legislation was determined to be in full compliance with all European Union (EU) standards. (U.S. DoS 2007) However, there is no significant information publicly available as to Bulgaria's actual compliance with the Financial Action Task Force's (FATF) Recommendations relating to this Principle.

According a 2007 U.S. Department of State (DoS) report, some anecdotal evidence suggests that charitable and nonprofit legal status is occasionally used to conceal money laundering. In 2005, the Bulgarian Parliament passed amendments to the 1969 Law on Administrative Violations and Penalties (LAVP 1969), which establishes the liability of legal persons (companies) for crimes committed by their employees. (U.S. DoS 2007)

5. National and International Co-operation

II

According to the U.S. Department of State, as of 2003, Bulgaria's anti-money laundering legislation was determined to be in full compliance with all European Union (EU) standards. (U.S. DoS 2007) However, there is no significant information publicly available as to Bulgaria's actual compliance with the Financial Action Task Force's (FATF) Recommendations relating to this Principle.

The Financial Intelligence Agency (FIA) is an administrative unit and does not participate in criminal investigations. In 2006, the Ministry of the Interior (MoI), the Prosecutor's Office, and the FIA established new procedures for closer cooperation when following leads contained in a suspicious transaction report (STR). The FIA forwards reports to the Prosecutor, and sends to the MoI a copy of each. The MoI is subsequently required to produce a report on the enforcement potential of the case within 30 days of receipt. (U.S. DoS 2007)

Bulgaria participates in the Council of Europe's Select Committee of Experts on the Evaluation of Anti-Money Laundering Measures (MONEYVAL). The FIA is a member of the Egmont Group and participates actively in information sharing with foreign counterparts. Bulgaria is a party to the 1988 UN Drug Convention; the Council of Europe Convention on Laundering, Search, Seizure, and Confiscation of the Proceeds from Crime; the UN Convention against Transnational Organized Crime; the UN International Convention for the Suppression of the Financing of Terrorism; and the UN Convention against Corruption. (U.S. DoS 2007; CDPC 2004, p. 4)

In 2005, the Bulgarian Parliament passed amendments to the 1969 Law on Administrative Violations and Penalties (LAVP 1969), which establishes the liability of legal persons (companies) for crimes committed by their employees. This measure is in accordance with international standards and allows the Government of Bulgaria (GoB) to implement its obligations under a number of international agreements, including: the OECD Anti-bribery Convention, the European Council Convention on Corruption, the UN International Convention for the Suppression of Terrorist Financing, and the UN Convention against Transnational Organized Crime. Under the amendments, Bulgaria also aligns itself with the provisions of the EU Convention on the Protection of the Communities' Financial Interests and its Protocols, a requirement for EU accession. (U.S. DoS 2007)

According a 2007 U.S. Department of State (DoS) report, the FIA should also continue to improve inter-agency cooperation in order to ensure effective implementation of Bulgaria's anti-money laundering regime and to improve prosecutorial effectiveness in money laundering cases. (U.S. DoS 2007)