Bulgaria was added to the Financial Action Task Force (FATF) "grey list" of countries subject to increased monitoring in October 2023, becoming the third EU country to do so after Malta and Croatia. Malta was removed from the list in June 2022, while Croatia still remains on the list.
Why?
Bulgaria's assessment is based on the most recent mutual evaluation undertaken by MONEYVAL in May 2022. The evaluation was based on the information provided by the country and information obtained by the evaluation team during its on-site visit to the country.
The recent mutual evaluation of Bulgaria indicated a number of deficiencies:
Understanding their risks: The National Risk Assessment (NRA) includes a good initial analysis of money laundering and terrorist financing (ML/TF) threats, but there is no comprehensive statistical data.
Lack of inter-agency cooperation between law enforcement and lack of tools.
Limited use of financial intelligence: Financial intelligence is available to the competent authorities, but it is not used to its full potential to investigate and prosecute ML and TF cases.
Low number of ML investigations, prosecutions, and convictions: The number of ML investigations, prosecutions, and convictions is low compared to the number of registered predicate offenses, and ML is not considered a priority by law enforcement or prosecutorial authorities.
Ineffective confiscation regime: There is no legal or other mandatory requirement to pursue confiscation as a policy objective, and a number of technical issues hamper the confiscation process.
Low understanding of TF risks by financial institutions and designated non-financial businesses and professions (DNFBPs): FIs and DNFBPs have a low understanding of TF risks, which results in low-quality TF-related suspicious transaction reports (STRs).
Ineffective integration of TF investigations with other strategies: The investigating and prosecuting authorities do not take an effective and systematic approach to exploring and investigating the financing aspects of terrorism-related offenses.
Targeted Financial Sanctions: Bulgaria has implemented targeted financial sanctions. Despite having mechanisms in place to implement TFS, Bulgaria has not yet identified or frozen any assets pursuant to these sanctions. This suggests that the country's efforts to enforce TFS have been ineffective.
Non-Profit Organizations: The NRA's assessment of Non-Profit Organizations (NPOs) is not comprehensive, and the supervisory measures in place may not effectively mitigate the risks posed by NPOs.
Inadequate supervision: Designated Non-Financial Businesses and Professions (DNFBPs) supervision is not risk-based and is not effective mostly because of a lack of resources.
Market entry measures not in place for high-risk sectors: There are no market entry measures in place to prevent criminals from entering the real estate, accountancy, virtual asset service providers (VASPs), trust and company service providers (TCSPs), and currency exchange offices sectors.
Beneficial ownership: Bulgaria started implementing measures for transparency of the country’s beneficial ownership regime. However, the country doesn't fully understand the risks of different types of businesses, so it's hard to ensure they're all transparent. There are also concerns about the accuracy of the information that is available.
Cooperation with Mutual Legal Assistance (MLA): Bulgaria provides timely and constructive international cooperation, particularly in MLA. However, challenges such as formal domestic procedures, extensive duplication of requests, legislative gaps regarding cooperation with non-EU cooperation, BO information deficiencies, and an absence of clear procedures affect its effectiveness.
Terrorist financing: Terrorism financing (TF) activity in Bulgaria is relatively restricted to the use of cash, money transfer services, and the occasional use of illegal/informal financial services (hawala). Some TF risks have been identified, including limited financial and material support for foreign organizations functioning abroad and using the hawala system as a conduit for support. The analysis of the NPO sector is limited and needs to be updated.
Next steps
Bulgaria will work with the FATF and MONEYVAL to strengthen the effectiveness of its AML/CFT regime. The country is expected to implement the following FATF action plan:
Implement its national AML/CFT Strategy into action by creating a comprehensive plan.
Addressing its technical compliance deficiencies
Demonstrate risk-based supervision for postal money operators, currency exchange providers, and real estate agents and establish market entry controls for VASPs and postal money operators.
Make sure that the beneficial ownership information held in the register is accurate and up-to-date.
Implement the automated system to prioritize suspicious transaction reports (STRs).
Improve investigations and prosecutions of different types of money laundering more effectively, including high-level corruption and organized crime.
Ensure that confiscation is pursued as a policy objective.
Be able to conduct financial investigations alongside all terrorism investigations.
Addressing gaps in the TF and PF targeted financial sanctions (TFS) frameworks
Identifying the subset of NPOs most vulnerable to TF abuse and demonstrating initial implementation of risk-based monitoring to prevent abuse for TF purposes.
Bulgaria has committed to working with the FATF and MONEYVAL to address these deficiencies. However, it is likely to take some time for Bulgaria to make sufficient progress and be removed from the grey list. In the meantime, Bulgaria's placement on the grey list is likely to have a number of negative consequences, including increased scrutiny from international financial institutions, higher compliance costs for businesses, and reduced investment and trade opportunities.
The Bulgarian government should take the FATF's concerns seriously and implement reforms to improve its AML/CFT regime. By doing so, Bulgaria can demonstrate its commitment to combating financial crime and protect its economy and
Comments