High-Risk Countries and PEPs Face Loopholes in Anti-Money Laundering Measures

Overview

A recent review has revealed significant loopholes in anti-money laundering measures, particularly in the banking sector, for high-risk countries and Politically Exposed Persons (PEPs).

Identification of PEPs

Despite having measures in place to identify PEPs, verification mechanisms vary among Obligated Entities (OEs), with difficulties noted in verifying source of funds and wealth information. Additionally, OEs have demonstrated varying degrees of understanding when it comes to implementing Task Force Financial (TFS) related to Terrorist Financing (TF).

Internal Control and Compliance Arrangements

Internal control and compliance arrangements within OEs appear proportionate to their size, but none of the OEs reported technical compliance gaps impacting their ability to comply in practice.

Supervision

The Financial Supervision Commission (FSC) and Bulgarian National Bank (BNB) apply controls to prevent criminals from owning or controlling supervised entities. However:

• Fit and proper tests are not performed on shareholders of currency exchange offices
• Entry controls for shareholders in the gambling sector are applied at a higher threshold than permitted by international standards

Need for Sector-Specific Guidance

The review highlighted the need for sector-specific guidance to identify suspicion, especially in the TF field. Financial supervisors demonstrated fair knowledge of money laundering risks in their supervised sectors, but understanding of TF risk and institutional risk is less developed across all supervisory authorities.

Risk-Based Supervisory Models

Financial supervisors are taking positive steps towards developing risk-based supervisory models, but further enhancement is required, especially in relation to institutional risk assessment.

Resource Constraints

The review raised concerns about the lack of resources (human, technical, and financial) in supervisory authorities, which limits their ability to conduct effective supervision.

AML/CFT Sanctioning Regime

The AML/CFT sanctioning regime was found to be disproportionate, dissuasive, and ineffective, with fines imposed but not settled in many cases.

Conclusion

The review concluded that there is a need for improvement in the anti-money laundering measures, particularly in high-risk countries and PEPs, to ensure that the financial sector remains safe and secure.