On 27 March 2018 the new Act on Measures against Money-Laundering (“AMAML” or the “Act”) was promulgated and entered into force (State Gazette, issue No. 27 of 2018). After a considerable delay in the deadline for transposition (26 June 2017), the main task of the new AMAML is to introduce in the Bulgarian legislation the requirements of Directive (EU) 2015/849 (also known to as the “Fourth Anti Money-Laundering Directive” or the “4th ALMD”). By transposing the requirements of the 4th AMLD, the new AMAML aims to provide more efficient measures against the use of the financial system for money-laundering purposes, and to provide more detailed regulation on the organization and control of the application of these measures, including, among others, increased administrative penalties in case of breach of the provisions of the new Act. However, it should be noted that, compared to the repealed AMAML, the new AMAML adopts more flexible approach on determination of the obligations of the entities obliged thereunder, by providing some exemptions or lighter requirements for operations considered as having low level of risk for money-laundering or financing of terrorism.
When an activity might be qualified as “money laundering”?
- The scope and the definitions of the incriminated acts considered as “money laundering” under the new AMAML remains almost unchanged. However, the new Act includes an additional criterion for an activity to be qualified as “money laundering”, by requiring that the person carrying or contemplating to carry such activity to be aware that the core assets of the respective operation/transaction have been acquired by criminal actions;
- In accordance with the requirements of the 4th AMLD, the new law stipulates a new activity qualified as ‘’money laundering’’, which is the act of providing advice in relation to money laundering operations/transactions.
Who’s obliged to apply anti-money laundering measures?
The new Act expands the scope of entities obliged to apply the anti-money laundering measures, by including some new categories of obliged entities, such as the agents of payment service providers, non-profit legal entities, and any depository institutions providing services related to transactions with financial instruments.
Also, the new AMAML expands the requirement for applying extended anti money laundering measures also to persons and entities related to a politically exposed person, in particular to their family members (i.e. the spouses/stable non-marital partners of the politically exposed persons, their children, parents and siblings and the spouses or stable non-marital partners of such persons), as well as to other persons who are known to hold joint beneficial ownership or any other close business relations with a politically exposed person, or who are sole or beneficial owners of legal entities or legal arrangements that are known to have been set up for the de facto benefit of a politically exposed person.
Pursuant to the new Act, the obliged entities should update their internal rules and policies for prevention against money-laundering and terrorism’ financing to comply with the new requirements within 4 months as of the adoption of new Rules for Application of the AMAML.
Disclosure of the beneficial ownership of a legal entity
Allegedly the most significant amendment to the Bulgarian anti-money laundering legislation introduced by the new AMAML is related to the disclosure of the beneficial ownership of a legal entity. For the first time the law provides a legal definition on this subject, defining beneficial owners as the natural persons who directly or indirectly own or control a legal entity, also describing in detail the criteria for identification of the beneficial ownership.
The new AMAML requires the Bulgarian legal entities to publicly disclose their beneficial owners by making a registration with the relevant registry (i.e. the Commercial Register, the Non-Profit Legal Entities Register, or the BULSTAT Register, depending on the type of the entity). In case the legal representative of the respective Bulgarian entity does not have permanent residence in Bulgaria, the entity should be obliged to appoint a contact person having such residence and should publish their contact details. As per the transitional and final provisions of the new law, by 1 October 2018 the Bulgarian Registry Agency should take the necessary technical and administrative steps to enable registration of the information for beneficial ownership, and respectively the Bulgarian entities will be obliged to make the necessary filings within 4 months thereafter.
It should be noted that the new law provides an exemption from the obligation for registration of beneficial ownership of listed companies. However, when applying the anti-money laundering measures, the obliged entities should identify beneficial ownership of clients-listed companies by doing research and collecting the relevant information for the share participation in the respective listed company in accordance with the rules for public announcement of information provided under the Bulgarian Law on Public Offering of Securities.
Clients who hold high-ranking government position
Another major change introduced with the new AMAML and provided under the 4th AMLD relates to the extension of the scope of the categories of clients who hold high-ranking government position (as well as their related parties), for whom the obliged entities are required to apply extended measures for prevention of money-laundering and/or financing of terrorism. The new Act collectively defines these categories of important clients as ‘Politically Exposed Persons”, fully transposing the respective definition under the 4th AMLD.
Measures for prevention of money-laundering
Pursuant to the new Act a customer due diligence should be carried prior to establishing business relationships with a client and/or execution of transactions exceeding certain value (even in some cases of occasional transactions/operations), but in any case, of suspicion for money-laundering and/or criminal origin of the funds. The specific due diligence measures include, among others, customer identification (including identification of the beneficial owner), collection of information about the purpose and the substance of the business relationship, identification of the funds’ origin, etc. In case an obliged entity is not able to carry proper customer due diligence, it should refuse to perform the respective activity, and respectively should terminate the established business relationship. An enhanced customer due diligence should be carried in any of the specific cases enlisted under the new AMAML, as well as in any case involving clients, products or services qualified as “high-risk” as per the risk assessment which is relevant for the specific client. The new Act enlists high-risk cases requiring enhanced customer due diligence, such as: business relationships (including occasional transactions/operations) involving politically exposed persons or their relatives, or involving entities established in non-EEA high-risk countries, or in case there is a risk that the identity of the client stays anonymous, etc. On the other hand, the new AMAML provides that in certain low-risk cases the obliged entities may carry a simplified customer due diligence, subject to satisfaction of a number of specific criteria established under the new Act only with the prior approval of a chief officer of the respective obliged entity, and subject to prior notification of the Financial Intelligence Directorate with SANS.
- By way of full transposition of the 4th AMLD, the Act introduces the requirement for EU payment service providers and electronic money issuers established on Bulgarian territory in forms other than a branch and whose head office is situated in another EU state to appoint a central contact point in Bulgaria;
- Certain changes are provided with respect to the obligations for reporting of information before the State Agency for National Security (SANS). For instance, under the new Act the Central Depository is obliged to provide to SANS information on the issuance and disposal of financial instruments.
In any case an obliged entity suspects and/or becomes aware of money laundering or of funds with criminal origin, it should report the case before SANS and should put the operation/transaction on hold. There is an exception from the above obligations for entities who provide legal services by way of occupation for certain cases where the above actions would be in conflict with the statutory obligation of these entities to act in the best interest of their clients.
The new Rules for Application of the AMAML should be adopted within 5 months as of the entry into force of the new Act. It is expected that they will provide detailed regulation on the matters set under the Act, such as specific measures to be applied by the obliged entities within the enhanced or simplified customer due diligence, rules for the risk assessment of clients’ profile, etc.