II. Introduction

This article aims to briefly explain the essence of one of the most important measures against money laundering in Bulgaria, namely the correct identification of the beneficial owner, a natural person, especially in cases where they cannot be identified initially. Such cases arise, for example, when one of the parties involved in a particular financial transaction is a legal entity which is itself a subsidiary of a second legal entity owned by a third legal entity, and so on. In this scenario, it is possible to conceal the actual owner (natural person) who has been involved in previous criminal activities. According to Directive (EU) 2015/849 of the European Parliament and of the Council of 20 May 2015 May 2015 on the prevention of the use of the financial system for the purposes of money laundering and terrorist financing, Member States should incorporate provisions into their national legislation to prevent money laundering in the Union. In Bulgaria, the requirements of the above-mentioned Directive were implemented by the Law on Measures against Money Laundering (LMMA), promulgated in State Gazette No. 27 of 27 March 2018, with the latest amendments in State Gazette No. 18 of 28 February 2020. On the basis of the Act, the Ordinance on the Implementation of the Law on Measures against Money Laundering was introduced.

II. Identification of the beneficial owner as a preventive measure

It should be noted that under Bulgarian criminal law, money laundering is treated as a criminal offence under Article 253 of the Criminal Code, for which there is criminal liability. Without going into the criminal classification of this offence, it should be noted that it is always a form of subsequent criminal activity, i.e. the assets used for money laundering itself have been acquired through or as a result of a previous offence. Given that money laundering poses a high level of public danger to the financial system of the EU and individual Member States, measures have already been taken at European level to prevent such acts from the outset. Part of the measures to prevent the use of the financial system for money laundering purposes are the so-called comprehensive customer verification measures. These are measures that are carried out by law by the entities listed in Article 4 of the LMMA – these are banks, insurance companies, persons offering tax advice and providing their clients with administrative or correspondence addresses, notaries, private bailiffs, arms, oil and other companies. These measures generally involve the collection of certain information by the obligated parties from potential customers with the aim of obtaining indications of money laundering at the initial stage of the business relationship. One of these comprehensive verification measures, according to Article 13 of the Directive, is the identification of the beneficial owner.

III. Form and content of the identification of the beneficial owner

When identifying the beneficial owner, the obliged entities shall follow the definition of this term in Article 2(1) of the ancillary provisions of the LMMA. According to this definition, the beneficial owner is always a natural person, whereby this may not necessarily be a single natural person, but also several natural persons. In cases where the customer is a legal entity, the beneficial owner is the person who owns or controls it, and in the case of a specific transaction or operation, the beneficial owner will be the person in whose name and/or on whose behalf the transaction or operation is carried out. With regard to ownership of the legal entity, the law refers to direct or indirect ownership of a sufficient percentage of the shares, interests or voting rights in that legal entity. An indication of direct or indirect ownership is that the person owns at least 25 per cent of the shares in the legal entity. However, it is possible that an actual owner can be determined not only on the basis of ownership, but also on the basis of the control they exercise over the legal entity in decisions regarding the composition of the executive and supervisory bodies, transformation, termination of activities and other matters of significant importance to the activities.

It is important to note that persons who are nominally considered owners and shareholders of the company are not determined to be beneficial owners if, after completing the identity verification, another beneficial owner is identified.

Articles 59-65 of the LMMA describe the procedure for identifying the actual owner. It consists of collecting certain documents from the customer – a legal entity – that contain information about the actual owner. If the company is registered in a country other than the Republic of Bulgaria, a certified current status or extract from the official commercial register of the country is required, containing current information about the company, such as: name, registered office and address, capital, managing director, activity, etc. In addition, a copy of the company's current memorandum of association or articles of association is required, showing who the owners are. The relevant documents should be accompanied by a translation into Bulgarian. Furthermore, a specific declaration by the company's legal representative listing the actual owners of the company must be submitted. The form and content of this declaration are determined by the implementing regulations. Corporate entities with a branch in the Republic of Bulgaria must also provide information on their actual owners if they are owned by foreign legal entities. This information is entered in the Commercial Register, the Register of Non-Profit Legal Entities and the BULSTAT Register, depending on the type of company.

The information is submitted to the registers by means of a special declaration containing the following details:

• the actual owners: name, nationality, personal identification number for Bulgarian citizens, date of birth for foreigners, country of residence if different from the Republic of Bulgaria or the country of nationality;
• the legal entities through which control is exercised over their subsidiaries registered in the territory of the Republic of Bulgaria: company name, number in the national register, legal form under national law, registered office and address of the management, and identification details of the representative;
• a contact person who has their permanent residence in the territory of the Republic of Bulgaria and must submit a notarized consent form. The requirement for the presence of such a person arises in cases where no registered legal representative with permanent residence in Bulgaria is listed on the company's register. This is the case, for example, if the managing director of the company is a foreigner who does not have permanent residence in Bulgaria.

In addition to the above information, the obligated parties must also have copies of the current identity documents of the company's legal representatives and its beneficial owners.

If, after exhausting all possible means and provided there is no reason for doubt, it cannot be determined who the beneficial owner is, or if there is doubt that the identified person or persons are not the beneficial owner, the natural person who is a senior executive of the audited company is considered the "beneficial owner". The obligated persons shall keep records of the measures taken to determine the beneficial owner.