Bulgaria is not on the FATF List of Countries that have been identified as having strategic AML deficiencies
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 by the Financial Action Task Force (FATF) in 2008. According to that Evaluation, Bulgaria was deemed Compliant for 13 and Largely Compliant for 19 of the FATF 40 + 9 Recommendations. It was Partially Compliant or Non-Compliant for 3 of the 6 Core Recommendations.
MoneyVal Plenary - 1st June 2017: Fourth round follow-up: Application by Bulgaria to be removed from regular follow-up
Following the adoption of the 4th round MER in September 2013, Bulgaria was placed in regular follow-up. Since then Bulgaria has submitted two follow up reports (in September 2015 and September 2016 respectively). Bulgaria was invited to submit a further progress report and seek exit from the regular follow-up process at the 53rd Plenary.
The Secretariat analysis of Bulgaria’s third follow-up report concluded at the outset that the country had taken positive steps to remedy shortcomings concerning SR.II. However, despite of additional amendments proposed to the Criminal Code, it appeared that the shortcomings identified under SR.II were not yet fully covered. This primarily concerned the criminalisation of the remaining offences as listed in the Annex to the TF Convention, as well as the abolition of the purposive element of the terrorism/TF offence. At the same time, the on-going reform of the Criminal Code also affects the country’s compliance with R.3. Despite of these outstanding issues, the Bulgarian delegation stated that significant efforts were undertaken to bring the country to the level of LC with the remaining core and key recommendations. It also pointed to a recent significant increase in confiscated assets which has an impact on the effectiveness of the country’s confiscation regime.
The Plenary took the view that Bulgaria is taking considerable steps forward. However, it found that the country is not yet in a position to exit the regular follow-up procedure. The Plenary also considered that the on-going process of amending the Criminal Code should be awaited, given that further progress is needed in particular with respect to SR.II and R.3. Therefore, the Plenary decided to invite Bulgaria to submit a further progress report and to seek exit from the regular follow-up process at the 55th Plenary in December 2017. Bulgaria was requested to inform Plenary, through the tour de table in September 2017, on the progress with regards to the above-mentioned legislative progress.
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.
There are no international sanctions currently in force against this country.
BRIBERY & CORRUPTION
Rating (100-Good / 0-Bad)
Transparency International Corruption Index 42
World Governance Indicator – Control of Corruption 51
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, a former communist country that entered the EU on 1 January 2007, averaged more than 6% annual growth from 2004 to 2008, driven by significant amounts of bank lending, consumption, and foreign direct investment.
Successive governments have demonstrated a commitment to economic reforms and responsible fiscal planning, but the global downturn sharply reduced domestic demand, exports, capital inflows, and industrial production. GDP contracted by 5.5% in 2009, and has been slow to recover in the years since.
Despite a favorable investment regime, including low, flat corporate income taxes, significant challenges remain. Corruption in public administration, a weak judiciary, and the presence of organized crime continue to hamper the country's investment climate and economic prospects.
Agriculture - products
vegetables, fruits, tobacco, wine, wheat, barley, sunflowers, sugar beets; livestock
electricity, gas, water; food, beverages, tobacco; machinery and equipment, base metals, chemical products, coke, refined petroleum, nuclear fuel
Exports - commodities
clothing, footwear, iron and steel, machinery and equipment, fuels
Exports - partners
Germany 12.5%, Italy 9.2%, Turkey 8.5%, Romania 8.2%, Greece 6.5%, France 4.2% (2015)
Imports - commodities
machinery and equipment; metals and ores; chemicals and plastics; fuels, minerals, and raw materials
Imports - partners
Germany 12.9%, Russia 12%, Italy 7.6%, Romania 6.8%, Turkey 5.7%, Greece 4.8%, Spain 4.8% (2015)
Investment Climate - US State Department
Bulgaria is seen by many investors as having a favorable foreign investment regime which includes government incentives for new investment and low or flat corporate and income taxes. Bulgaria still offers some of the least expensive labor in the European Union (EU). Domestic business is experiencing a shortage of skilled labor in many sectors due to the migration of many specialists and an ageing population. The IT and back office outsourcing sectors have attracted a number of U.S. and foreign companies to Bulgaria; many have established global and regional service centers. EU funds, including agricultural subsidies, amount to USD 17.5 billion over the current seven year period (2014-2020) and are a key source of capital for numerous projects to develop Bulgaria’s environment and water sectors, energy, technical and social infrastructure, public services, and agricultural infrastructure. In Fall 2015, the government awarded two offshore Black Sea projects for oil and gas exploration to several major international companies.
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. However, foreign investors remain concerned about the rule of law in Bulgaria. They cite other problems impeding investment such as unpredictability due to frequent regulatory and legislative changes, slow judicial system processes, and limited enforcement of intellectual property rights (IPR).
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