2011-07-06 WikiLeaks: The "Big Laundry" or the Bad Apples in Bulgaria’s Banking Sector

On October 26, 2005, on the so-called “government route” on “Bulgaria” boulevard in Sofia, banker Emil Kuylev was gunned down. Immediately after the murder, the top people in the country – Interior Minister, Rumen Petkov, Chief Prosecutor, Nikola Filchev, and President Parvanov publically declared that Kyulev’s business was “clean.”

The American Ambassador in Sofia at the time, John Beyrle, however, has been of a different opinion since the same afternoon he sent to the State Department a report titled “TOP BULGARIAN MONEY LAUNDERER SHOT DEAD IN SOFIA” [05SOFIA1847]. He does not mention the name of the “top launderer,” but provides in the text a thorough biography and business portrait of Kuylev – a former policeman, who had used his connections in the services to create consulting businesses, and later a bank, in partnership with Michael Chorny, receiving a “sweetheart deal” from the State – the right to handle, through Roseximbank, all payments of the Bulgarian Tax Directorate and the Customs Agency, as well as the operations of the biggest tax-payers in the country; a founder of Vazrajdane Business Club along with Multigroup boss Iliya Pavlov (shot dead in 2003) and Vasil "The Skull" Bozhkov; a former advisor to President Georgi Parvanov and, (according to unconfirmed reports), a major political campaign sponsor of the National Movement for Stability and Prosperity (NDSV) party of former King and Prime Minister Simeon Saxe-Coburg, of the Bulgarian Socialist Party, BSP, and of Parvanov himself for his 2001 campaign – these are the traits of the image of one of the wealthiest people in Bulgaria.

Kyulev had applied significant effort to clean this image, even hiring an American lobbyist. Seemingly, the result had not been very convincing because, as the Ambassador points out, the Foundation for Fight against Human Trafficking, established by the banker, was suspected in money laundering.

“At least 23 people have been killed in organized crime related assaults since the beginning of the year. However, unlike the other businessmen and organized crime figures who have fallen victim to gangland style shootings, Kyulev's reputation associated him primarily with white-collar crime. Kyulev's assassination is a significant event on par with Iliya Pavlov's killing in March 2003. The timing of the killing further underscores Bulgaria's inaction against organized crime, and is being viewed by many today as a national embarrassment,” Beyrle notes.

The “Healthy” and the “Rotten” in the Bulgarian Banking Sector

A year later, “the white-collar crime” is scrutinized in more detail in a cable, written by Beyrle, focusing on the Bulgarian banking sector [06SOFIA1652], in which he compares several Bulgarian banks to “bad apples.” He, however, stresses that as a whole the sector behaves correctly and is in its strongest position since the banking crisis of 1996. This is not attributed to the efforts of Bulgarian bankers, but to an influx of foreign capital and large, stable foreign banks. “The largest, safest and cleanest are the foreign-owned banks) primarily from Austria, Italy, and Greece. The new international owners introduced good banking practices and improved the quality of banking services,” Beyrle writes.

The Ambassador points out that “the major problems in the Bulgarian banking system include money laundering by Bulgarian and foreign criminals and connected lending,” before listing the banks under observation: First Investment Bank (FIB), Corporate Commercial Bank, also known as "The Bank of Risk Engineering," International Asset Bank (former First East International Bank), called "The bank of SIC," Economic and Investment Bank (former Bulgarian-Russian Investment Bank), DZI, Investbank, called "The Bank of Bishops and Generals," Central Cooperative Bank, a.k.a., "The bank of TIM," and the Sofia Municipal bank.

For further details, the Ambassador advises to review the "Bulgaria Organized Crime Report," available on the State Department internal internet page. His predecessor, James Pardew, has sent such report earlier during the same year.

The Ambassador further focuses on the measures undertaken by the cabinet and law enforcement authorities to halt the “white-collar” crime trough a stronger control on fiscal transactions. The bank of the now-dead Kyulev –DZI bank, is listed as a main violator, with the clarification that after the murder the bank has shown marked improvements in its reporting and compliance checks, bringing it into line, but that it would be also extremely naive to think that DZI has completely reformed all of its ways.

The cable sites a particular case where DZI has behaved well by reporting, in November 2006, several transactions by the Director of the State Hospital, a high ranking BSP official, who was a close friend of the then Minister of Health Gaidarski. An informer of the Americans from the law enforcement authorities is cited saying he “he was surprised that the Bank would report this individual due to the political connections.” (The connections, obviously, have turned stronger than law enforcement since there are no known charges against any Director of the State Hospital.)

The source also notes that he had “never been instructed or pressured to stop investigations of DZI.”
According to Beyrle, “Bulgaria must also look at the non-bank financial sector - particularly leasing – and work against potential money laundering there.”

Bivol’s Comments: Sugarcoating the “Bad Apples”

On the backdrop of the not so optimistic picture in Bulgaria, Beyrle’s conclusion that the “the banking sector is the only one to have substantially complied with the law's requirement” is encouraging. But, if the bad spots in the system are long and well-known, the issue is how successful is the fight against the violators. It is alarming that the Bulgarian State pours public resources in some of the “observed” banks and tolerates abuses of the law, instead of limiting bad practices and countering “white-collar” crime. The lingering conflict and mutual accusations between the Financial Intelligence Agency (FIA) and the Central Bank (BNB) create additional difficulty and diminish the effectiveness of the tools for control.

The years following this report proved the “bad apples” not only have not been cleaned by the controlling authorities, but the power provides for them a glitzy cover under different forms. Hidden State support for some of the “observed” banks was evident both during the term of the so-called Three-Way Coalition cabinet and the current rule of GERB.

For example, a reference provided by Finance Minister, Simeon Djankov, by March 31, 2010, shows that strategic State enterprises keep their money precisely in banks seen as problematic by the Americans. Corporate Commercial Bank (CCB) is the absolute champion with 48%, but Economic and Investment Bank with 9%, Central Cooperative Bank with 7% and Investbank with 6% are also leading the ranking. It is unclear why these exact banks have been favored when the market share of each of them is about 3%. By the way, at the end of the term of the cabinet Stanishev, CCB was keeping only 35% of the money of the State enterprises, and a year and a half later reached the record 48%.

The CCB Director, Tsvetan Vasilev, had been a partner in a number of projects of the “New Bulgarian Media Group Holding” along with the former Head of the State Lottery, Irena Krasteva, and her son, Delyan Peevski, a Member of the Parliament from the ethnic Turkish party Movement for Rights and Freedoms, DPS, and former Deputy Minister of Disasters and Emergency Situations. They own many print and electronic media, notorious for their servitude to anyone who is in power. The group is also not shy about demonstrating openly political commitments by the concept of their media. The news that on July 4, the US National Holiday, the group Peevski-Vasilev is launching a new daily sounds like a sad irony and is a new milestone on their way to have effective media cartel in the country.
In August of last year, the European Commission announced it would be probing unlawful State assistance for CCB. Another probe, related to the bank, was launched by the EC in connection with the acquisition of the “NURTS Bulgaria” multiplexes, represented by Tsvetan Vasilev.

The Economic and Investment Bank (EIB), where according to the cable, current Prime Minister, Boyko Borisov, had passed assets with unclear origin, also received a substantial share of the services of the budget and of the making of the road vignettes. Like Kyulev and Roseximbank before, today EIB is cared for by the power with a “sweetheart” deal and handles the money of the National Revenue Agency, the National Social Security Institute, the Customs Agency and the Interior Ministry.

The latest drastic example is the cabinet’s proposal to legalize construction on State plots, occupied by the “Yulen” company in the Pirin National Park. The “Yulen” ski lifts and tracks are subject of an infringement procedure of the EC, and the State risks a fine. Behind this company lure the interests of the owners of First Investment Bank (FIB) and particularly of Tseko Minev, Head of the Ski Federation, who is also eyeing the Vitosha National Park for possible construction activities. This is the same FIB about which, in 2006, the American Ambassador wrote that it exists in “the murkier criminal realm.” Even without EC penalties, the bill would still be paid by all Bulgarians, not the concrete owners.

As a conclusion, it would be naïve to think that the US Embassy’s analysis from 2006 had remained hidden from investors’ circles in the US and Europe. The goal of such reports is precisely to reach “clean” investors, favoring the “good apples” in the Bulgarian banking sector, which comply with international standards and practices.

The article in Bulgarian from Bivol.bg

Theme by Danetsoft and Danang Probo Sayekti inspired by Maksimer