Financial Crime World

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Bulgaria’s Anti-Money Laundering and Combating the Financing of Terrorism (AML/CFT) Efforts Fall Short

A recent review of Bulgaria’s AML/CFT framework has revealed significant shortcomings in the country’s efforts to prevent money laundering and terrorist financing. The review, conducted by [organization], found that while some obliged entities (OEs) demonstrated a good understanding of their AML/CFT obligations, others lacked awareness of the risks associated with their businesses.

Preventive Measures

The review highlighted several areas where OEs fell short in implementing preventive measures to mitigate ML and TF risks. For example:

  • Payment institutions and e-money institutions showed limited understanding of the risks relevant to their nature of business.
  • Real estate agents, gambling operators, and lawyers demonstrated varying levels of understanding of the risks associated with their sectors.

The review also found that some OEs relied too heavily on customer due diligence (CDD) conducted by banks, assuming that transactions processed through banks were subject to close scrutiny. However, this assumption is not always accurate, as ML/TF risks can still exist even in transactions processed through reputable financial institutions.

Supervision

The review identified several issues with the supervision of OEs in Bulgaria. For instance:

  • The Financial Supervision Commission (FSC) and the Bulgarian National Bank (BNB) apply controls to prevent criminals from owning or controlling supervised entities, but these controls are not always effective.
  • Some supervisory authorities underestimated the risks in their supervised sectors, and institutional risk assessment was a concern.
  • DNFBP supervision is not risk-based and inspections of DNF BPs have been limited. Regulation and on-site supervision of VASPs are still in their infancy stage, while supervision of gambling is under development.

Sanctioning Regime

The review found that Bulgaria’s AML/CFT sanctioning regime is not proportionate, dissuasive, or effective. Fines imposed by supervisory authorities have often been left unsettled, and the objectivity of judgments on the level of severity and systemic nature of breaches has been questionable.

Conclusion

Overall, the review highlighted significant shortcomings in Bulgaria’s AML/CFT framework. To address these issues, the country needs to take a more proactive approach to preventing ML/TF risks, improving supervision, and strengthening its sanctioning regime. The government must also ensure that supervisory authorities have sufficient resources to effectively oversee OEs and take enforcement action against those who violate AML/CFT regulations.

Recommendations

  1. Improve awareness among OEs of the ML/TF risks associated with their businesses.
  2. Enhance CDD practices, including the use of risk-based approaches.
  3. Strengthen supervision, including the development of risk-based supervision models and increased inspections of DNF BPs.
  4. Regulate VASPs and gambling entities more effectively.
  5. Improve the sanctioning regime to make it proportionate, dissuasive, and effective.

By implementing these recommendations, Bulgaria can strengthen its AML/CFT framework and reduce the risks associated with ML/TF.