Bulgaria’s Proposed Amendments to the Prevention of Money Laundering Act
4 July 2023On 28 April 2023, the Council of Ministers submitted a Bill to amend and supplement the Prevention of Money Laundering Act (PMLA) to the National Assembly.The proposed bill introduces additional anti-money laundering measures outlined in the Action Plan. These measures aim to address the risks of money laundering and terrorist financing identified in the National Risk Assessment and align with the recommendations of the MONEYVAL Fifth Assessment Round Report for Bulgaria.
Key Amendments to the Prevention of Money Laundering Act
One of the key points in the bill is the proposal to create Articles 9b and 9c in Chapter One, Section II of the PMLA.
Analysis of Article 9b Restrictions
The new Article 9b of the PMLA imposes significant restrictions on individuals who:
- provide legal advice on a professional basis;
- provide, on a professional basis, a registered office, correspondence address, or other similar services for the registration and/or operation of a legal entity; and
- carry out, on a professional basis, real estate brokerage, including f real estate rental transactions.
Under the current law, the only condition for individuals engaging in these activities is to not have been convicted of a general intentional offence, unless rehabilitated.
The newly proposed bill provides additional requirements, such as the person must not:
- been a member of a management, control body or an unlimited partner in a company subject to insolvency proceedings or a company dissolved due to insolvency in the last five years, if there are unsatisfied creditors;
- fall under the restriction under Article 124 of the PMLA;
- been disqualified from holding a position of material responsibility;
- have a reason to doubt the person’s reliability and suitability based on gathered information.
It is important to note that the restrictions apply not only to natural persons directly involved in the activities mentioned in Article 9b, but also to those holding the positions of management,control,being unlimited partners or beneficial owners in the legal entities engaged in these activities referred to in Article 4(15), (16) and (18) of the PMLA.
Enhancing Transparency and Accountability Measures
The 5-year look-back period is a significant consideration. It refers to the requirement where a person must not have been a member of a management,control body, an unlimited partner in a company subject to insolvency proceedings, or a member in a company dissolved due to insolvency if there are unsatisfied creditors.
Under the current Commercial Act – Article 21 (3), a consistent 2-year limitation period applies to these positions. If the proposed amendments to the PMLA remain unchanged, a parallel and more restrictive requirement will appear in practice, potentially leading to contradictory practice.
Interestingly, the last requirement stipulates that based on the gathered data about the person, there must be no reason to doubt their reliability or suitability, which in turn can create uncertainty as it relies on subjective criteria. The text does not clarify who should make the assessment, at what stage it will be effective, how prior actions by the person will be treated, and the extent to which it applies to other provisions of the law.
Special Public Register: Article 9c
The new Article 9c of the PMLA establishes a special public register at the Minister of Justice for individuals engaged in activities under Article 4(16) of the PMLA on a professional basis. These individuals must be registered in the public register to continue their activities.
This provision covers various services,including providing registered office or correspondence addresses, an office and/or other similar services, trust services, or arranging activities on behalf of another person.
Focus on Cryptocurrency Transactions
Another significant amendment is the introduction of enhanced due diligence requirements for obligated entities under Article 11(5) for clients when engaging in random operations or transactions involving the exchange of virtual currencies and recognized currencies without gold cover, with a value equal to or exceeding the BGN equivalent of EUR 1,000.
As seen from the proposed minimum threshold, a large number of operations with virtual currencies is expected to fall under the new text. This innovative provision can also be seen as a preparatory step for implementing the EU Commission MiCA’s cryptocurrency regulation, which is expected to come into force soon.
Strengthening Beneficial Owner Information under PMLA: Article 63a
The proposed amendment introduces Article 63a, requiring obligated entities to notify the Company Registry within 14 days of any discrepancies found regarding ultimate beneficial owner (UBO) information. The notifications would be anonymous and must be supported by relevant documents. The new information regarding the UBO then will be officially published in the commercial register, prior to official correspondence with the legal entity.
Conclusion: A Comprehensive Effort for Transparency and Compliance
In conclusion, the proposed amendment to the Prevention of Money Laundering Act (PMLA) showcases the Council of Ministers’ comprehensive efforts to enhance Bulgaria’s anti-money laundering measures and mitigate the associated risks of money laundering and terrorist financing.
The introduction of Articles 9b and 9c in the PMLA also imposes significant restrictions and additional requirements on individuals engaged in legal advice, registered office services, real estate brokerage, and other related activities. While the measures aim to strengthen transparency and accountability, certain aspects, such as the 5-year look-back period and subjective assessment of reliability and suitability, need careful consideration to avoid potential contradictory practices.
Furthermore, the establishment of a special public register, enhanced due diligence for cryptocurrency transactions, and notification obligations regarding discrepancies in beneficial owner information reflect the commitment to aligning with evolving international standards and emerging EU regulations.