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Bulgaria’s Correspondent Banking System Lacks Transparency, Fails to Prevent Shell Banks

SOFIA - A Recent Assessment by the International Organization for Standardization (ISO)

Bulgaria has failed to implement adequate measures to prevent shell banks from using correspondent relationships with financial institutions outside the country. The ISO report highlights that while Bulgaria has made some progress in implementing anti-money laundering (AML) and combating the financing of terrorism (CFT) measures, it still falls short in several areas.

Key Findings

• The Bulgarian National Bank (BNB) does not collect sufficient information about respondent institutions to ensure they do not allow their accounts to be used by shell banks.
• Bulgaria has not implemented effective measures to prevent the use of correspondent relationships for money laundering and terrorist financing purposes.
• The BNB’s lack of transparency in its reporting requirements and supervision of correspondent banking relationships hinders its ability to effectively monitor and deter such activities.

Consequences

• Bulgaria does not have adequate sanctions in place to punish individuals or entities that violate AML/CFT regulations. While administrative penalties are available, they are not proportionate and dissuasive, which may encourage further illegal activities.
• The country’s lack of transparency in its correspondent banking system has raised concerns among international organizations and financial institutions.

Efforts to Improve

• The State Agency for National Security has announced plans to strengthen its efforts to prevent shell banks from using correspondent relationships with Bulgarian financial institutions. The agency will work closely with the BNB and other relevant authorities to identify and block suspicious transactions and entities.
• The ISO assessment is part of an ongoing effort by international organizations to promote good governance, transparency, and accountability in the global financial system.

Conclusion

Bulgaria’s correspondent banking system lacks transparency and fails to prevent shell banks from using correspondent relationships with financial institutions outside the country. To protect its financial system from abuse and ensure a more stable and secure economic environment for its citizens, Bulgaria must take immediate action to improve its AML/CFT measures and correspondent banking practices.

Source: International Organization for Standardization (ISO) Date: 23 February 2023