SUMMARY OF A/S COHEN'S VISIT TO BULGARIA

S E C R E T SOFIA 000661 SIPDIS TREASURY FOR A/S COHEN E.O. 12958: DECL: 10/28/2029 TAGS: ECON EFIN PGOV PREL BU SUBJECT: SUMMARY OF A/S COHEN'S VISIT TO BULGARIA REF: SOFIA 591 Classified By: DCM Sutton for reasons 1.4 (b) and (d). ¶1. (C) Summary: Treasury Assistant Secretary for Terrorist Financing and Financial Crimes David Cohen visited Sofia on October 23, 2009 to discuss Bulgaria's anti-money laundering and counter-terrorist finance (AML/CFT) regime. A/S Cohen pushed the Bulgarians to take bold steps to reestablish itself as a competent, reliable partner. He recommended the restoration of the Financial Intelligence Directorate's (FID) powers to conduct independent on-site inspections of banks and other financial institutions and the reincorporation of the FID into the Ministry of Finance (MoF). A/S Cohen alerted the Bulgarians to possible Iranian attempts to infiltrate the Bulgarian banking sector. The Treasury delegation also included Senior Advisor Elizabeth Rosenberg and Policy Advisor Christopher Burdick. End Summary. FID: The Biggest Little Agency Around ¶2. (C) Powers: Shortly before A/S Cohen's visit, the Bulgarian Parliament passed a draft amendment to the DANS law which would explicitly restore the FID's powers to conduct on-site AML/CFT bank inspections. Most interlocutors appeared satisfied with this amendment and believed it was an important step to strengthen oversight of private industry. FID Director Kirov was generally pleased with the new amendment, but expressed some disappointment that the amendment was silent on the FID's location in DANS and Kirov doubted that the amendment would be fully implemented. Central Bank Governor Iskrov did not believe the amendment would change the performance of the FID but pledged not to oppose it after meeting with Cohen. Iskrov argued that the problem with the FID was not loopholes in legislation, but a lack of managerial focus and experience. On another issue, Iskrov complained that his organization had not been consulted during the amendment's composition and they only learned about the amendment after it had passed its first reading. ¶3. (C) Institutional Location: The appropriate location of the FID is highly controversial. Both the MoF and FID believe that the FID should be moved back into the MoF, and DPM Dyankov has advocated this directly to Prime Minister Boyko Borissov. Director Kirov remains a strong proponent of this approach as well and highlighted the FID's main goal of protecting the Bulgarian financial system from all threats, including ML and TF. He argued that the FID would have a better reputation amongst the private sector if it was part of the MoF, playing more of a regulatory and intermediary role. Currently, given its location inside DANS, the FID is seen as a law enforcement and intelligence organ, creating an oppositional relationship with private industry. A/S Cohen emphasized the U.S. position that Bulgaria needed a strong FIU, an active public outreach function to promote AML/CFT awareness within the financial sector, and that the Bulgarian FIU needed to have its authorities restored to its pre-2008 capabilities as soon as possible. Noting that international standards are silent on where an FIU should be housed, Cohen asked the DANS chief whether his organization could execute such a function. ¶4. (C) On the other hand, the BNB and Interior Minister Tsvetanov believe the FID should remain within DANS. Central Bank Governor Iskrov highlighted the FID's investigatory capacity, which is more in line with DANS's responsibilities. Although Tsvetanov supports FID's location in DANS, he offered a compromise solution, which involves the establishment of a contact structure between DANS and the MoF in order to coordinate their regulatory and investigative functions. Tsvetanov welcomed our recommendations and wants to be convinced that the FID is better off in the MoF. Whatever the outcome, Tsvetanov wants a durable structure that will last 10-15 years. He added that the ultimate decision will be made by PM Borissov, who will use the National Security Strategy (NSS) as the framework for the decision. The NSS is being developed by The Council of Ministers and will be introduced to the public in early 2010. IRAN ¶5. (S) A/S Cohen requested that the FID closely monitor Iranian efforts to buy into the Bulgarian banking system and watch any attempts by the Islamic Republic of Iran's Shipping Lines (IRISL) to buy maritime insurance from Bulgarian insurers. (Note: IRISL was designated by the U.S. Treasury in 2008 for its support to Iran's proliferation activities.) All parties pledged their effort to monitor this situation. The FID is responsible for the implementation of FATF measures against Iran and formally requested the MoF to monitor all transactions with Iran. The BNB noted that they have denied all applications from Iran and the Middle East for the past 10-15 years and claimed that Bulgaria currently has no banking connections with Iran. Noting agreement with U.S. policy on Iran, Deputy FM Lyutskanov reiterated that Bulgaria was within range of Iranian missiles. Lyutskanov did note that he had recently met the new Iranian ambassador in Sofia, who expressed his desire to increase economic cooperation between the two countries. CASH REPORTING REQUIREMENTS ¶6. (U//FOUO) A/S Cohen recommended that Bulgaria consider a cash transaction reporting requirement on bank withdrawals. Currently, Bulgaria requires that only currency transaction reports are filed on deposits greater than 30,000 BGN ($22,500 USD). Although only suggested by FATF Recommendations, Cohen noted that given Bulgaria,s large cash-based economy, Bulgaria should consider adopting a system of currency transaction reporting on cash withdrawals from banks. Cash transactions in Bulgaria have grown an average of 46 percent per year over the past three years (while the economy has grown, on average, about seven percent). Despite the cash-intensive nature of Bulgaria,s economy, the large volume of cash transactions observed in Bulgarian business is disproportionate to ordinary and normal practices. Cohen noted that the lack of a cash withdrawal reporting requirement benefits money launderers by leaving an unknown percentage of large cash withdrawals or exchanges unreported. MEETINGS ¶7. (C) A/S Cohen met with many high-level Bulgarian officials, including Deputy Prime Minister and Minister of Interior Tsvetan Tsvetanov, Director of the State Agency for National Security (DANS) Tsvetlin Yovchev, Director of the Financial Intelligence Directorate (FID) of DANS Dr. Vasil Kirov, Governor of the Bulgarian National Bank (BNB) Ivan Iskrov, Deputy Foreign Minister Milen Lyutskanov, and Deputy Finance Minister Ana Mihaylova. ¶8. (C) Comment: Money laundering and terrorist financing have become high-level issues in Bulgaria, and the government wants to work with us on a reform plan. To an extent, our efforts are complicated by broader political controversies surrounding DANS, but we assess it is likely we will see a full restoration of FID's powers in the upcoming months. Post will continue to work closely with the Bulgarians to maintain the forward momentum. ¶9. (U) Treasury A/S Cohen has cleared this cable. SUTTON