BULGARIA: NEW TOOLS IN THE FIGHT AGAINST MONEY

UNCLAS SECTION 01 OF 02 SOFIA 001168

SIPDIS

SENSITIVE
SIPDIS

E.O. 12958: N/A
TAGS: EFIN KCRM PGOV PTER BU
SUBJECT: BULGARIA: NEW TOOLS IN THE FIGHT AGAINST MONEY
LAUNDERING AND TERRORIST FINANCE

SOFIA 00001168 001.2 OF 002



1. (SBU) SUMMARY: Under U.S. and EU urging, Bulgaria has
begun considering more sophisticated tools to fight organized
crime (OC),especially its financial aspects. Complex money
laundering schemes finance massive, pervasive local
underground activities. Recognizing that inadequate laws and
weak enforcement capabilities have been unable to
control/penetrate the situation, Parliament recently passed
amendments enhancing the powers of the Financial Intelligence
Agency (FIA) to obtain bank information without a court
order. Additional new legislation complements these
provisions by allowing the Chief Prosecutor direct access to
bank records when money laundering or OC activity is
suspected. Improved interagency coordination and a planned
Ministry of Interior (MOI) unit specializing in money
laundering round out the options recently put on the table.
USG coordination with the GOB focuses primarily on equipping
officials with the necessary tools and training to fight
money laundering and best use tight resources. END SUMMARY

--------------
NEW LAWS GIVE GOB SHARPER TOOLS...
--------------


2. (SBU) Bulgaria,s fight against OC has so far been
undermined by its inability to stem the flow of proceeds from
criminal activity being laundered and repatriated into
seemingly legitimate investments. The problem is not an
inadequate legal framework: Bulgaria's laws generally conform
to the recommendations set forth by the Financial Action Task
Force (FATF). In a June 29 meeting, the Director of the FIA,
Dr. Vassil Kirov, offered us a very positive assessment of
recent efforts to address OC by improving the ability of the
FIA and law enforcement to "follow the money." Parliament
recently passed a Law on Credit Institutions, which contains
a provision allowing the Chief Prosecutor (CP) to obtain bank
records directly from the bank without a court order when
there is a suspicion of money laundering or an OC offense.
(Note: To prevent abuse of this provision, USAID/Bulgaria has
provided CP Velchev with a Best Practices memo on setting the
level of proof needed to demonstrate an underlying predicate
of criminal activity.)

3. (U) Parliament even went a step further, passing several
amendments to the Law on Measures Against Money Laundering
(LMML) that will expand the circumstances in which law
enforcement agencies can collect information in potential
money laundering cases. Previously, the FIA was only able to
access bank information without a court order when four kinds
of institutions -- banks, insurers, privatization bodies, and
the Central Depository -- issued suspicious transaction
reports (STRs). These amendments strengthen the FIA's
investigation capabilities by enabling it to access records
when 26 additional reporting entities issue an STR, including
casinos, attorneys, real estate brokers. While these
amendments may have little immediate impact, since virtually
all of the STRs are currently only issued by reporting
entities in the first four categories, law enforcement
efforts could be significantly enhanced as more of the
reporting entities start issuing STRs -- long a USG goal.

-------------- --------------
...BUT IMPLEMENTATION AND ENFORCEMENT STILL DRAGGING
-------------- --------------



4. (SBU) Even with these new legislative measures, Bulgaria
continues to lag in its implementation and enforcement of
existing legal mechanisms to fight money laundering. Weak
collaboration within the Government plagues many of its
initiatives. On July 3 the FIA, MOI, and prosecution service
signed a "joint instruction" document to improve interagency
cooperation in money laundering cases. (The FIA lacks law
enforcement authority and must forward matters which merit
investigation to the MOI.) The document stipulates 1) that
the FIA copy the Chief Prosecutor when sending the MOI case
referral letters (including attachments such as bank records,
FIA analyses, etc.),and 2) that the MOI report to the CP its
views regarding any such referral within 30 days of the date
of referral. The specific details of how these informal
instructions will be implemented have not yet been worked
out, and Interior Minister Petkov's commitment to such
cooperation has not yet been tested.

5. (SBU) A related problem is that even so-called
"specialists" on money laundering often lack the experience
and training to be truly effective in investigating and
prosecuting suspected cases. The FIA is preparing to add 10
staff in order to better supervise the LMML's 30 categories
of reporting entities, but Kirov has told us that these
individuals will be seconded -- probably from Customs and the
National Revenue Agency (NRA) -- rather than added as new

SOFIA 00001168 002.2 OF 002


hires, as we had originally been informed. Although
OTA and USAID's Financial Sector Integrity Project (FSIP)
have explored options to assist in training new inspectors,
our offer has been put on hold given the changed staffing
arrangement. The MOI plans to establish a money laundering
unit, staffed with 15 investigators, although observers
believe the unit will require as many as 60 investigators to
be fully effective. Within the Prosecution Service, which
already includes prosecutors specializing in money laundering
cases, CP Velchev plans to organize district-level units
focusing on OC, corruption, and money laundering, and to link
these units to those within the MOI.

--------------
THE TOOLS THAT THE USG IS PROVIDING
--------------

6. (U) USG assistance focuses primarily on providing
guidance in implementation efforts and building enforcement
capacity. OPDAT's focus on financial investigation and
financial profiling reflects its objective to curb the flow
of money to human traffickers. OPDAT in particular notes the
extensive training needed by specialists in the prosecutor's
office and the police forces. Treasury's Office of Technical
Assistance (OTA) has conducted workshops on money laundering
and financial crimes to train representatives from the MOI,
Prosecution Service, FIA, National Revenue Agency, and Asset
Forfeiture Commission. The GOB also reports difficulty in
tracking and investigating money laundering cases. We are
doing a cost analysis were the USG to provide sufficient
equipment and software to meet their needs.


7. (U) Promoting interagency and intergovernmental
collaboration is also a USG priority, and both OTA and OPDAT
have urged the GOB to strengthen its emphasis on
collaboration in money laundering cases. OTA hosts monthly
meetings of a Financial Crimes Task Force, whose members
reflect a range of law enforcement agencies fighting OC,
including the MOI, Prosecution Service, NRA, Customs Agency,
Bulgarian National Bank, and FIA. OTA and OPDAT are also
working together to develop a Best Practices Manual to assist
the MOI and Prosecution Service in the investigation and
prosecution of money laundering cases.

8. (U) Bulgarian investigators tracking suspicious money
trails are often thwarted when criminals launder funds
through offshore corporations established in Cyprus, the
Channel Islands, the Caribbean, the U.S., and elsewhere. USG
enforcement agencies -- including the FBI, U.S. Secret
Service, and DEA -- are providing direct operational
assistance in joint investigative activities that have a U.S.
nexus, working to expeditiously identify people behind these
layers of shell companies when U.S. incorporation and/or bank
accounts were used in the laundering process.

--------------
COMMENT: WILL THESE TOOLS DO THE JOB?
--------------


9. (SBU) Most of these recent developments are finally
surfacing after percolating in interagency negotiations over
the course of the past several months. Although these
measures have yet to prove their immediate effectiveness in
practice, they highlight the growing political will to face
up to the bad guys -- OC figures and even highly placed
officials -- as demonstrated by the June arrest of the former
head of Sofia Heating Utility on money laundering charges.
It is unlikely that the prosecution service will be able to
churn out any high-profile money laundering indictments in
advance of the EU's final monitoring report, due September
26, but these legislative and structural measures reaffirm
the Government's stated commitment to rooting out OC and its
attendant vices. END COMMENT

KARAGIANNIS
#
KARAGIANNIS