Financial Crime World

Bulgarian Money Laundering: Political Investment Undermines Democracy

Bulgaria, a European Union (EU) member state, is estimated to have an annual revenue from organized crime and corruption totaling over BGN 4 – 5 billion. This figure includes proceeds from drug trafficking, cigarette smuggling, prostitution, corruption in public procurement, and tax and VAT fraud. However, the true size of illicit funds entering the country is difficult to assess due to the growing real estate market and revenues from Europe and other continents.

Organized crime in Bulgaria has adapted to these new realities by entering the legal economy through ‘political investment.’ Criminal and oligarch configurations buy electoral votes or sponsor political parties, a process not strictly considered money laundering but one that corrupts the foundations of the country’s democracy.

  • Local and Parliamentary Elections: The 2007 and 2009 local and parliamentary elections showed that various criminal structures had the opportunity to influence politics, particularly at the local level, through the financing of politicians and political parties.

Combating Money Laundering: Bulgarian Legislation and Institutions

Although Bulgaria has taken several legislative initiatives to combat money laundering, its enforcement record remains insignificant.

Bulgarian Legislation and Institutions

  • Laws: Bulgaria adopted the Law on Measures against Money Laundering and Instructions for its Implementation (1998) and the Law on Measures against Financing of Terrorist Activities (2003) to combat money laundering.
  • Agencies: An Agency on Financial Intelligence was established in 2001, currently transformed into the Directorate “Financial Intelligence” in the State Agency on National Security.
  • EU: The Third Directive on Combating Money Laundering was adopted by the EU in 2005.

Challenges in Combating Money Laundering in Bulgaria

Some preliminary analysis suggests that the limited capacity of specialized state institutions is a significant problem.

  • Small number of specialists: The relatively small number of specialists at the State Agency for National Security and the General Directorate Combating Organized Crime cannot effectively take charge of the thousands of suspicious transactions and cases of money laundering.
  • Non-implementation of AML laws in the private sector: The non-implementation of anti-money laundering (AML) laws, particularly in the private sector, is also a notable issue.

Corruption in the Private Sector

Corruption in the private sector, including banks, currency exchange bureaus, real estate brokers, and car dealers, poses another significant challenge.

  • Lack of internal AML rules: The lack or non-application of internal AML rules and procedures in private sector companies undermines the effectiveness of the national AML system.
  • State control: The lack of state control over their compliance also undermines the national AML system.
  • Client preference: Private sector firms face the challenge of attracting and retaining clients who prefer to work with firms that do not apply strict internal rules, which contribute to the persistence of common and primitive money laundering schemes.

Conclusion

Bulgaria’s experience shows that common money laundering schemes in construction, real estate, agriculture, trade, and tourism industries can be detected and investigated by regular police officers or investigators. The country’s small total volume of cash flows also makes it easier to detect money laundering activities involving international transactions. Active participation of representatives from banks, tax, and customs administration in investigating money laundering, alongside specialized institutions, is crucial for effective enforcement.