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Precautions Against Money Laundering

Bulgaria has taken some measures against money laundering.

This time the reforms are in the real estate sector and affect all the parties involved in that business.

In November 2009 a motion was presented in the National Assembly that all payments on real estate deals should be made via bank transactions. Any purchase which the client could not provide bank proof of payment for would be considered void. These changes in the Notary Public Act are introduced as a potential measure for the reduction of the property and tax frauds.

There are a lot of different opinions whether the above reforms will have positive impact on the real estate market or not. Bankers, solicitors, brokers, notaries- they are all consentient that property frauds and money laundering will decrease dramatically. There will no longer be area for simulative deals. Instead, in the process of concluding a deal, the buyer would have to transfer the sum to a guaranteed deposit bank account and only after both the buyer and the seller are confirmed to have no obligations towards the state and the money origin is established, the seller would be able to receive the full amount of the property price. At the same time the transfer of the funds via bank account will guarantee that the state will receive property taxes based on the full price but not such calculated on the tax evaluation, which is a common practice.

The issue has both pros and cons and one of the disadvantages is that the process of conclusion of the deal will become longer, more expensive and more complicated. The seller will have to wait for almost a month to receive the funds for the property and if it turns out that the buyer has any obligations towards the state, the former may not receive the money at all. In addition to this, money transfer via bank account will be subjected to bank charges. This could be a percentage deducted from the amount when we consider transactions above 5000 BGN, for instance. Another participant- the state- will also incur costs to establish a whole new entity, which will be the holder of the money until everything else is being checked.

It is still uncertain if these expenses are justified. Those who are skeptical about the effectiveness of the reform in the Law do not see the point in its implementation. According to them these changes will not oblige the buyers and sellers to declare the full price of the property or to state the financial source for the purchase. Moreover, the people who back up the reform believe that it will have just the opposite effect- buyers and sellers will be urged to look for different ways of payment where notaries will be disregarded and the prices declared in front of them could be lower with the option of the outstanding amount to be paid under different terms.

The above concerns emphasize that not any amendment in the Law could produce positive consequences but the plighted one could rather stimulate the grey economy instead to decrease the number of frauds. Now it is all up to the National Assembly to decide which option is more reasonable.


Written by Home Point BG