BULGARIA: SCENESETTER FOR ASSISTANT TREASURY

C O N F I D E N T I A L SOFIA 000591

SIPDIS

TREASURY FOR A/S COHEN

E.O. 12958: DECL: 10/06/2019
TAGS: ECON EFIN PGOV PREL BU
SUBJECT: BULGARIA: SCENESETTER FOR ASSISTANT TREASURY
SECRETARY COHEN'S VISIT

Classified By: DCM Susan Sutton for reasons 1.4 (b) and (d).


1. (C) Summary. Embassy Sofia welcomes you and looks
forward to a successful visit. The new center-right GERB
government has made fighting corruption and organized crime
its top priority, but faces significant challenges.
Bulgarian criminals have developed sophisticated means to
launder money through legal loopholes and corrupt officials.
Law enforcement and oversight have not kept pace. The
Borissov government has declared its willingness to take bold
steps to fight money laundering, but our support is critical
to maintain the momentum of reform. Your visit, along with
the visit of Assistant Secretary of Defense for International
Security Affairs Alexander Vershbow during the same week,
will demonstrate the importance we place on our bilateral
relationship and the reform process PM Borissov has launched.
End Summary.


OUR GOALS AND RECOMMENDATIONS
--------------


2. (C) Since July, the new government has looked to the
United States for expertise and advice on its legislative and
policy priorities. The Bulgarians have taken positive steps,
but need our continued support. Your specific advice to them
on our anti-money laundering (AML) recommendations listed
below will help focus the debate and motivate the most senior
levels of the Government of Bulgaria to move quickly on
reform. The embassy has offered four rule of law policy
recommendations, and three detailed recommendations
specifically for AML and terrorist finance (TF):

a. Institution of interagency organized crime task forces
with vetted, interagency teams focused solely on tackling
complicated, high-level organized crime and corruption cases.

b. Creation of specialized court divisions of specially
trained and vetted judges to hear important organized crime
and corruption cases.

c. Implementation of measures to strengthen the government's
power to seize assets involved in organized crime and
corruption cases.

d. Renewal of efforts against money laundering and terrorist
finance by:

i. enforcement of reporting requirements for cash withdrawals
over BGN 30,000,

ii. re-establishment of the Financial Intelligence
Directorate's (FID) powers to conduct independent on-site
inspections of banks and other financial institutions and to
access information classified as "bank secret" or protected
by other bank secrecy laws,

iii. reincorporation of the FID into the Ministry of Finance
(MoF),a structure that was previously recognized by the U.S.
State Department and European Commission as effective,
reliable and fully compliant with international standards.

DEBATE ON WAY FORWARD
--------------


3. (C) The main area of contention within the government on
AML policy is the status and location of the FID. Both
Minister of Finance Simeon Dyankov and Minister of Interior
Tsvetan Tsvetanov agree that the FID should regain its lost
powers, but the two disagree on where the FID should sit. It
is essential that Bulgaria's financial intelligence organ
have full powers to investigate crimes, as well as the
ability to coordinate policy. Dyankov has advocated for the
FID to move back to Finance, which seems to be the cleanest
solution. Tsvetanov has proposed an alternate plan that
would leave the FID within the State Agency for National
Security (DANS),while creating a new organ in MoF to handle
the policy coordination function. From our perspective, the
strength and breadth of FID's powers are more important than
where it is situated on the organizational chart. By
highlighting the U.S. interests in this decision (FID's
powers/cash withdrawal reporting),you can help end the
internal squabbling and refocus top decision makers on the
key underlying policy issues.


4. (C) The debate between Dyankov and Tsvetanov over the

location of the FID has mutated into a political struggle for
power and influence. Caught in the middle is Director of the
FID Dr. Vasil Kirov. Kirov, a straight-talking bureaucrat
and close Embassy contact, has lost favor with some in the
government due to his vocal involvement in the debate and a
perception by some that he is primarily interested in
defending his turf and expanding his influence.


THE BANKING SECTOR
--------------


5. (C) Most international banks in Bulgaria already comply
with the AML and TF regulations of Bulgarian law. Only a
small group of banks, mostly Bulgarian owned, fall short of
compliance. These banks coordinate their resources within
the Association of Banks in Bulgaria (ABB) and have
significant influence in Bulgarian politics. In the past,
they have fought back against pressure to comply with new
regulations.


6. (C) Banking and financial authorities are aware of the
most notorious banks and claim to be working hard to create
legislation to bring practices in line with western standards
and to step up enforcement activities. The Bulgarian
National Bank (BNB) is the main governmental organ
responsible for overseeing the activities of registered banks
in Bulgaria. In a recent meeting with the embassy, Ivan
Iskrov, Governor of the BNB since 2003, painted an optimistic
picture of the Bulgarian banking sector and asserted that
banks here are tightly-regulated and not preferred conduits
for money launderers. Iskrov considers the anti-money
laundering legislation in Bulgaria to be sufficient and
argues that it would be wiser to make better use of current
enforcement mechanisms than to change the law. Iskrov
dismisses FID Director Kirov's complaints about legislative
loopholes and a lack of investigative tools as excuses for
not producing results.


7. (C) We believe Iskrov views the banking sector and
Bulgaria's AML regulations with rose colored glasses. His
perception may be either genuine misunderstanding or willful
ignorance. Stressing U.S. concerns about Bulgarian bank
noncompliance with AML regulations and legislative loopholes
will be key. The system will not be effective until the FID
has complete and indispensable authority to conduct on-site
inspections and cash withdrawal reporting is fully
implemented.


YOUR MEETINGS
--------------


8. (C) You will meet with Deputy Prime Minister and
Minister of Finance Simeon Dyankov, Deputy Prime Minister and
Minister of Interior Tsvetan Tsvetanov, Director of the
Financial Intelligence Directorate of DANS Vasil Kirov,
Governor of the BNB Ivan Iskrov, Director of DANS Tsvetlin
Yovchev, and Deputy Foreign Minister Milen Lyutskanov. Bios
for these officials will be sent separately. These officials
state the government is up to the task of improving its
anti-money laundering and terrorist finance regime. However,
there is a risk that internal squabbling could derail reform.
Your visit is an ideal opportunity to refocus the AML reform
debate on results rather than bureaucratic turf battles.
ORDWAY