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Bulgarian corruption risk
Bulgaria has experienced several widely publicized investigations and prosecutions this year, with politicians, magistrates, and prominent businesspersons under scrutiny.
- Investigations and criminal proceedings against high-level corruption activities are likely to continue in the one-year outlook, with the court probably producing more convictions.
- Businesses, especially in the construction, excise duty goods, and energy sectors, are likely to face increased risk of disruption to their operations.
- There is an increased likelihood of the European Commission ceasing to monitor progress in the fight against corruption and crime by the end of 2019 or 2020.
Desislava Ivancheva, the suspended mayor of Mladost, one of the largest districts in Sofia, and her former deputy Bilyana Petrova were charged with racketing and demanding a bribe of BGN500,000 (USD295,000) in exchange for a construction permit from a real estate developer. Ivancheva and Petrova deny the allegations.
Five people were charged with crimes, including illicit distribution of drugs, racketeering, arson attacks against cars and property, and assaults as part of an organised criminal group. Among the charged were Nessebur municipal councillor Peyko Yankov and Bourgas's municipal councillor Bencho Benchev, who was charged with concealment of the suspected leader of an organised criminal group. Yankov and Benchev deny the allegations.
In August, prosecutors dismantled a group for the illegal production of tobacco that had production facilities in four cities. Prosecutors charged 23 people for the possession of illicit cigarettes. Police seized 42 tons of tobacco for around BGN7million and illicit cigarettes for around BGN1.5million.
Prosecutors carried out an investigation against the owners of two luxury hotels in Sofia and Plovdiv, seizing BGN10 million in cash. Six people, including Valcho Arabadjiev, the son of the owners, were charged with money laundering and large-scale tax evasion. Hotel owner Vetko Arabadjiev and his wife Marinela are wanted on a European arrest warrant. Arabadjievi deny the allegations.
Eight people were charged with large-scale tax evasion, illicit sale of goods and money laundering following an investigation into the second largest wine and liquor producer and the largest flour producer in the country. Among the charged is Minyo Staykov, director and owner in the companies. He denies the allegations.
Displaying progress in fighting corruption and organized crime
For more than 10 years after accession to the European Union in 2007, the European Commission has been monitoring Bulgaria on the country's progress on judicial reform and in fighting organized crime and corruption. Under the Cooperation and Verification Mechanism (CVM), Bulgaria is required to show that it has reached specific benchmarks in those areas. As the Commission tends to focus on certain high-profile cases, criminal proceedings against politicians and magistrates increase the likelihood of a more positive CVM report (expected to be published in November).
The Bulgarian government, led by Prime Minister Boyko Borissov's center-right Citizens for European Development of Bulgaria (GERB), wants removal of CVM monitoring by the end of the Commission's current mandate in 2019. Since 2016 and in line with this political objective, parliament has adopted a number of judicial changes, including increasing the competence of a Specialized Criminal Court to handle not only organized crime, but also high-level corruption cases. The anti-corruption law, adopted in January, established the Commission for Combating Corruption and Forfeiture of Illegally Acquired Assets (KPKONPI), which combines previously separated anti-corruption agencies, and strengthened its prerogatives. KPKONPI can freeze assets and start forfeiture proceedings at the court for illegally acquired assets after finding substantial discrepancies (exceeding BGN150,000, or USD88,700) between a person's income and property or following criminal prosecution against persons for corruption and other crimes. The prosecutor's office also has the power to freeze assets as part of criminal proceedings.
Drive for more convictions
The Specialized Criminal court began to officially rule on high-profile corruption cases in November 2017. This court took all ongoing corruption-related, high-profile indictments, such as the case related to the Corporate Commercial Bank (KTB) - the fourth-largest Bulgarian bank that went bankrupt in 2014. In September, the court opened the case against Mladost's Mayor Ivancheva and her deputy several months after her arrest. In general, this is an example of an expedited process, which will probably be assessed positively by the European Commission. Recent legislative amendments will most probably lead to faster convictions related to corruption.
Outlook and implications
Investigations into large-scale tax evasion, money laundering, and corruption are likely to continue into next year, in many cases conducted jointly between the prosecution service and KPKONPI. The drive is likely to be maintained until the end of the mandate of the current general prosecutor Sotir Tsatsarov in December 2019. The Bulgarian prosecution office is fairly centralized and the prosecutor-general plays a significant role in the actions of the office. Actions by prosecutors and anti-corruption officials are highly likely to result in seizures of assets and cessation of business activities, at least for several days and up to several weeks. Investigations are most likely to target domestic large businesses, with foreign-owned operations being far less likely to attract the attention of prosecutors.
Prosecutors' probes will increase the risk of operational disruption to businesses, including those in contract agreements with the investigated parties, and raise non-payment risks. As part of investigations, assets have been seized, bank accounts frozen, and facilities closed. Sectors that are particularly likely to be affected are energy and construction. Both are profitable sectors with a generally high risk of influence peddling and bribe demands, with the construction sector also receiving a large part of the EU funds for Bulgaria, which puts it under greater scrutiny. The sale and production of tobacco and alcohol are also likely to undergo more investigations, given that Bulgaria is part of the route for goods being smuggled between Western Europe and the Middle East.
An indicator of decreased corruption risk after the one-year outlook is whether the next general prosecutor will be a figure close to Tsatsarov who will be able to receive political endorsement from GERB. If the European Commission maintains the CVM, but promises to remove it at the end of 2019 or 2020, this will indicate a continued effort to get more criminal proceedings to court until 2020. An indicator of enhanced KPKONPI prerogatives is the GERB-led government remaining in power in 2019, which is moderately likely after a probable early election. This would potentially make KPKONPI's investigations more independent from prosecutors, decrease corruption, and increase business disruption risks.
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