FATF Status

Bulgaria is  on the FATF AML Deficiency list.

Latest FATF Statement  -  23 February 2024

Since October 2023, when Bulgaria made a high-level political commitment to work with the FATF and MONEYVAL to strengthen the effectiveness of its AML/CFT regime, Bulgaria has taken steps towards improving its AML/CFT regime, including by addressing technical compliance deficiencies related to Recommendations 6, 10 and 24. Bulgaria should continue to work on implementing its action plan to address its strategic deficiencies, including 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 a policy 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 non-profit organisations (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.

Rating                                                                           (100-Good / 0-Bad)

Transparency International Corruption Index                           45

World Governance Indicator – Control of Corruption             50

Corruption is an obstacle to doing business in Bulgaria. A lack of autonomy and transparency in the judicial system has weakened corruption investigations and property rights, encouraged public official impunity, and created an uncertain investment environment. Kickbacks and bribes plague the public procurement sector, eradicating fair market competition and resulting in fewer opportunities for foreign investors. Companies face demands for facilitation payments and bribery when registering businesses or accessing public utilities. The Criminal Code prohibits various types of corruption, including extortion, trading in influence, facilitation payments and bribery of foreign officials. A complex legal framework and weak enforcement, however, hamper the country's ability to effectively combat corruption. For further information - GAN Integrity Business Anti-Corruption Portal

Bulgaria is seen by some investors as an attractive low-cost investment destination, with government incentives for new investment. The country offers some of the least expensive labor in the European Union (EU) and low and flat corporate and income taxes. Labor shortages and inflationary pressures, however, have increased wages and domestic prices. Bulgaria has the lowest labor productivity rate in EU, and wage increases exceed growth in labor productivity. In the medium term, productivity is at risk due to a shrinking population and low investment in innovation.

Bulgaria has received EUR 1.4 billion of a total of 6.2 billion to be spent over a six-year period (2021-2026) from the EU’s post-COVID recovery grant funds through the National Recovery and Resilience Plan (NRRP), which is intended to spur improvements in green energy, digitalization, and private sector development. In order to receive future tranches of funds, Bulgaria must adopt key pieces of legislation, including in its energy and judicial sectors. The Bulgarian government is in the process of renegotiating with the EU parts of the NRRP energy plan. In December 2022, public discussions were launched about the grant provision for the construction of individual use photovoltaic and energy storage facilities. The NRRP aims to add 4,000 MW of RE capacity by 2026.

In February the government announced it would postpone seeking entry into the Eurozone, which it had targeted joining in 2024, following its joining the European Exchange Rate Mechanism (ERM II) in July 2020 and the EU’s Banking Union in October 2020. The next Eurozone entry date depends on whether the government is able to curb inflation and adopt necessary legislative amendments. The Bulgarian currency has been pegged to the euro since 1999. The adoption of the euro will eliminate currency risk and help reduce transaction costs with some of the country’s key European trading and investment partners.

In January 2022 the Organization for Economic Cooperation and Development (OECD) opened accession discussions with Bulgaria, which should help drive additional economic reforms in the coming years.

There are no legal limits on foreign ownership or control of firms. With some exceptions, foreign entities are given the same treatment as national firms and their investments are not screened or otherwise restricted. There is strong growth in software development, technical support, and business process outsourcing. The Information Technology (IT) and back-office outsourcing sectors have attracted a number of U.S. and European companies to Bulgaria, and many have established global and regional service centers in the country. The automotive sector has also attracted U.S. and foreign investors in recent years.

Foreign investors remain concerned about rule of law in Bulgaria. Investors cite as major challenges Bulgaria’s endemic corruption, difficulty obtaining needed permits, unpredictability due to frequent regulatory and legislative changes, sporadic attempts to negate long-term government contracts, an inefficient judicial system, and problems executing judicial judgments.

In 2023 the government continued granting partial subsidies to businesses for rising energy costs. Tourism, logistics, the service industries, and the automotive sector were particularly hard hit by the COVID pandemic. The Bulgarian economy grew by 7.6 percent in 2021 but in 2022 growth slowed to 3.4 percent due to reduced investment and declining net exports. The war in Ukraine, which has led to higher raw material and energy prices, and the slow recovery of the Eurozone, Bulgaria’s major export market, undercut growth opportunities in 2023. As a result, economic growth in 2023 is expected to slow to under two percent. The war in Ukraine disrupted supply chains, contributed to domestic inflation, and made investors more caution, but it also creates opportunities in Bulgaria to effectively consolidate supply chains through nearshoring.

Country Links

Bulgarian National Bank

Financial Intelligence Directorate - State Agency for National Security (FID-SANS)

Financial Supervision Commission: Home

BULSTAT register - psc.egov.bg