EU-Report Accession Bulgaria

Chapter 4: Free movement of capital

The previous Regular Report indicated that Bulgaria had already achieved substantial alignment of its legislation with the acquis in this area and since then there are few new developments to report.

In the field of capital movements and payments, limited legislative developments have taken place. Although two of the related laws, the Foreign Investment Law and the Law on Public Offering of Securities, were amended in March 2002, the amendments were not acquis-related but resulted from the adoption of the new Law on Privatisation and PostPrivatisation Control.

In the field of payment systems, in November 2001, the Bulgarian National Bank amended its regulation on payments with bankcards to partially transpose the acquis on electronic payments instruments, particularly on relations between the card-issuer and cardholder.

As regards money laundering, an amended Law on Measures against Money Laundering entered into force in January 2002. The amendments reflect the transformation of the Bureau of Financial Intelligence into an Agency, as part of Bulgaria's on-going public administration reforms. Concerning co-operation between the different institutions involved in fighting money laundering, instructions on co-operation procedures between the Bureau of Financial Intelligence Agency and the National Customs Agency, General Tax Directorate, Insurance Supervision Agency and Gambling Supervision Agency have also been approved since the last Regular Report. Whilst in 2001 the Bureau received over 301 reports on suspicious transactions and deals, only 16 were transmitted to the Prosecutor's office and there were no prosecutions for money laundering in Bulgaria in the period covered by this report.

Overall assessment

In the field of capital movements, liberalisation in line with the acquis is well advanced. A number of transactions, mainly outflows, are not, as yet, liberalised. However, the main remaining restrictions relate to the acquisition of real estate by foreigners. This issue still needs to be addressed.

In the field of payment systems, the adoption of legislation in line with the acquis in the areas of cross-border credit transfers, settlement finality and securities settlement systems has yet to be completed. Further work is also needed in order to fulfil the acquis on electronic payment instruments. Further amendments to the Foreign Exchange Law for the transition from a registration to a declaration regime for export of capital are still to be finalised.

As far as administrative capacity is concerned, the Ministry of Finance and Bulgarian National Bank are responsible for supervising foreign exchange and collecting statistical data.

As regards money laundering, whilst the legislative amendments introduced increase alignment with the acquis, further changes are still required for this to be complete.

The specialised institutions -- the Bureau of Financial Intelligence and the Police Service for the Identification of Corruption and Serious Economic Crime- are now working on improving their co-operation with the goal of being able to work together effectively in the near future.

The administrative capacity of the Bureau needs to be reinforced further by recruiting additional staff. Its stability and functional independence have to be fully ensured; in particular, attention needs to be paid to ensuring the functional independence of the Head of the Bureau. The slowness of investigations and lack of prosecutions in those cases that have been forwarded to the Prosecutor's Office continue to give cause for concern and need to be addressed. The Bureau also suffers from a lack of proper supervision of its activities. The effectiveness of the Bureau's management and staff needs to be improved so it can deal effectively with requests for investigations from both international and domestic sources. The reorganisation of the Bureau to increase the number of analytical staff is a positive development. The Bureau's inspection function, however, needs to be considerably reinforced so that, for example, it can pay more attention to exchange bureaux and casinos.

There is also a need to increase the resources available in other institutions such as the Bulgarian National Bank in order to combat money laundering effectively. Financial institutions need to develop programmes against money laundering, to include development of internal policies, procedures and controls, and ongoing training and audit functions.

Whilst the adoption of instructions on the co-operation between the Bureau and other agencies is a positive step, attention needs to be paid to their implementation. This is particularly the case for the Insurance and Gambling Supervision Agencies, where cooperation is at an early stage.

Concerning payment systems, Bulgaria still needs to establish and out-of-court redress scheme to deal with the settlement of complaints between banks and their customers.

Conclusion

In its 1997 Opinion, the Commission concluded that Bulgaria had introduced currency convertibility for most current account transactions, but limited liberalisation of capital movements. The liberalised capital transactions concerned inward capital movements exclusively. A relaxation of restrictions, notably on outward capital movements, could be envisaged only once durable improvement had been achieved in the financial situation and performance of the banking sector and depending on the progress of economic stabilisation and structural reform. On money laundering, the Commission concluded that, whilst Bulgaria was party to the 1990 Money Laundering Convention and adopted a Money Laundering Act in May 1996, considerable work remained to be done to enable the system to work effectively in practice.

Since the Opinion, Bulgaria has made significant progress, both in aligning its legislation and in developing the necessary administrative structures. Bulgaria has achieved substantial alignment of its legislation but needs to further improve administrative capacity.

Negotiations in this chapter are provisionally closed. Bulgaria has been granted transitional periods concerning the acquisition of ownership over land for secondary residences by EU citizens (for a period of five years following accession), and concerning the acquisition of agricultural land, forests and forestry land (for a period of seven years following accession) Bulgaria has accepted the condition that self-employed farmers who want to establish themselves and reside in Bulgaria are excluded from the scope of the transitional period. Bulgaria is generally meeting the commitments it has made in the accession negotiations in this field.

Bulgaria should focus further efforts on completing alignment and eliminating all remaining restrictions, completing the administrative structures necessary to properly implement the acquis in this area, and reinforcing administrative capacity, paying particular attention to the bodies involved in the fight against money laundering.

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