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Bulgaria has been added to the Financial Action Task Force's (FATF) list of countries under increased monitoring, which could spark increased cross-border scrutiny of Bulgarian organisations. 

FATF’s October plenary meeting concluded with Bulgaria fellow EU member state Croatia on FATF’s list for heightened monitoring (the "greylist"). 

Jurisdictions on the greylist end up being added in relation to poor compliance with FATF’s standards for the prevention of financial crime. 

These standards are reflected in the laws of FATF members, including the EU’s anti-money laundering directives (AMLDs). 

As Bulgaria got added to the increased monitoring list, four jurisdictions — Albania, the Cayman Islands, Jordan, and Panama — were taken off. 

European Commission eyes AML/CTF strength

When approached by 91����ԭ�� for comment, the European Commission was resolute in its support for Bulgaria. 

“We are confident that Bulgaria is on a good track,” a spokesperson for the commission said. 

“Several reforms have already been adopted or are underway to address the technical deficiencies while the necessary steps to tackle the remaining effectiveness shortcomings of the Bulgarian framework have also been initiated,” the spokesperson added. 

“These improvements will bear fruits and translate into further progress. The commission will fully support Bulgaria on this track.”

According to the commission, Bulgaria has demonstrated considerable progress since FATF’s assessment of the country in 2022. 

For example, FATF assessed that 32 of the 83 recommended actions contained in the country’s mutual evaluation report have already been addressed. 

Progress was notable in particular with regard to anti-money laundering and counter-terrorist financing (AML/CTF) supervision and the understanding of the risks emanating from money laundering and terrorist financing. 

Regarding international cooperation, meanwhile, all the key recommendations have been fulfilled. 

“The remaining deficiencies mostly relate to the effectiveness of Bulgaria’s AML/CTF framework, which typically takes more time to demonstrate,” the spokesperson said. 

With both Bulgaria and Croatia currently on the list, Kayleigh Smale of Teal Compliance told 91����ԭ�� that companies operating in the EU needed to pay close attention. 

“I think it’s important for those who carry out work that falls within the scope of the Money Laundering Regulations to regularly review their client base and the jurisdictions they’re established in and carry out their business,” the knowledge manager said. 

Is the decision surprising?

In recent years, Bulgaria has been engulfed in financial scandals. For example, former Prime Minister Boyko Borisov is alleged to have been involved in a money laundering case, using EU funds to purchase a villa in Barcelona for his mistress. 

It is also where the crypto OneCoin scam started, which was co-run by Bulgarian national Ruja Ignatova.

“Recent grey-listing by the FATF was not surprising for professionals in the field,” a spokesperson for the European Compliance Center told 91����ԭ��. 

According to the spokesperson, the financial and compliance industry in Bulgaria has for years witnessed the passivity of law enforcement institutions when it comes to planning, implementing and measuring law enforcement strategies. 

“During the years, regulators have done little to assist the openly private sector with guidelines and know-how when conducting risk assessment and building effective AML programmes,” the spokesperson said.

According to the spokesperson, public-private dialogue is non-existent in Bulgaria when it comes to economic crime prevention. “Intelligence utilised from suspicious activity reporting and corporate reporting is not further analysed and deployed for further economic crime investigation and prosecution.”

“In hindsight, it wasn’t particularly surprising, as there have been reports that placing Bulgaria within the greylist is being considered,” agreed Vyara Savova, senior policy lead at the European Crypto Initiative. 

“However, it still came as a shock, particularly considering the signals FATF’s greylist sends to potential investors and partners,” she said. 

Savova pointed out that the greylist signals heightened risk for a country. 

“Consequently, Bulgaria's financial sector might face challenges like increased scrutiny in international transactions, potential difficulties in establishing relations with global banks, and perhaps a dip in trust from international counterparts,” she said. 

The implications of grey-listing can include higher transactional, administrative and funding costs for domestic businesses. For example, the spokesperson for the European Compliance Center said that Bulgarian financial institutions will immediately be designated as a high-risk, meaning that enhanced customer due diligence could be applied by foreign financial institutions. 

“Many companies might be denied financial services, because of the de-risking endeavours of foreign financial institutions. It might become harder to do business,” the spokesperson pointed out. 

Tensions with the commission and MONEYVAL

Bulgaria being added to the greylist also comes after a set of issues with the EU and with MONEYVAL, the financial crime assessor for the Council of Europe. 

In June 2023, for example, the European Commission initiated two infringement proceedings against Bulgaria. 

The first case focused on Bulgaria's "incorrect transposition" of Directive (EU) 2018/843 (the 5th Anti-Money Laundering Directive). 

Here, Bulgaria fell short in registering, licensing or regulating service providers; lacked a mechanism to resolve discrepancies in information offered by the national beneficial ownership register; and inadequately applied the concepts of "establishment" or "residence" concerning subjects obligated to provide information on beneficial ownership. 

The second case addressed the country's failure to correctly transpose EU rules combating fraud against EU financial interests, as outlined in Directive (EU) 2017/1371.

Here, the commission identified "several conformity issues" related to the definition of criminal offences, related penalties and the liability of legal persons for crimes committed for their benefit.

Bulgaria is under intense scrutiny within the MONEYVAL framework, specifically undergoing the enhanced monitoring process.

As outlined in MOVEYVAL's May 2022 for the country, there are numerous deficiencies related to domestic cooperation, preventative measures, supervisory mechanisms, effectiveness of sanctions and the targeted financial sanctions regime. 

"Unfortunately, these shortcomings remain unaddressed," commented Liliana Sofkova, risk and compliance research analyst at Square Facts. 

"Despite implementing some minor legislative changes seemingly intended to appease Brussels, I fail to see any clear indication that this realm is currently a priority for the government," said Sofia-based Sofkova. 

Sofkova told 91����ԭ�� that this is particularly troubling given the substantial work needed to tackle critical issues like the cash-based grey economy in the country, extensive administrative corruption, tax and customs offences, fraud, electronic crimes, and smuggling of contraband goods, among other challenges. 

"Even if it were to become a priority for a limited period, the big question is would the focus be on enacting a few legislative amendments to enhance Bulgaria's reputation, or is there going to be a genuine effort to develop a comprehensive and holistic approach across multiple levels that effectively addresses these issues?" she said. 

In spite of this setback, Savova said that there is space for optimism. 

“On a much brighter note, this decision might be seen in the context of Bulgaria's broader aspirations to align with international communities, like the Schengen area and the Organisation for Economic Co‑operation and Development,” she said. “The FATF greylisting symbolises Bulgaria's intent to address its AML/CTF gaps.”

Savova suggested that beyond just enhanced AML measures, this step could also elevate Bulgaria's stature among its global peers.