I believe that banking institutions are more dangerous to our liberties than standing armies.Thomas Jefferson
More and more clients are coming to us for assistance, whose bank accounts in Bulgaria have been frozen. It is unfortunate, but we see a clear pattern of more and more accounts being blocked in Bulgaria recently. So why are the banks freezing and closing their clients’ bank accounts? And what can you do, as their customer, to protect your rights and your assets?
The Anti Money Laundering (AML) regulations
According to our own research, the majority of all account arrests are related to compliance with the AML regulations. Banks are now applying a policy of zero tolerance towards any activities that may, even vaguely, resemble money laundering. And money laundering is by itself, a very subjective definition.
In order to protect their reputation and to comply with the AML laws, banks are sometimes going too far. Any suspicion, by any of the bank’s departments, can result in account block. Often, such block is applied to all of the customer’s accounts. The employees of the banks are constantly being trained how to apply the AML regulations. They know they may be even held personally liable for not-reporting suspicious transactions.
Banks need to ensure that their clients’ businesses are legitimate. The last thing any bank would want is to have a portfolio of clients with shady backgrounds. In order to open a bank account (especially to foreign clients), the bank has to perform a due diligence first. Then, after the account is opened, the bank has to constantly monitor and evaluate the clients’ activities.
In some cases, the financial operations of the client may raise concerns. For instance, doing business with certain countries or in certain sectors may seem suspicious to the bank. For example, a company with little or no employees, but with huge turnover from a high-risk country will be an alarm sign.
Some business areas pose high risk, according to some bankers. Trading in cryptocurrencies or providing gambling services may be perfectly legal. At the same time however, there may be some banks that will sort of dislike clients with similar businesses activities. These clients may pose higher than average risk for the bank and their accounts may be eventually closed.
Foreigners and Bulgarian bank accounts
We have been raising concerns about the difficulties that foreigners face when they want to open bank accounts in Bulgaria. Basically, the banks in Bulgaria, in their effort to comply with all AML regulations, simply prefer doing business with locals. Any foreign client willing to open account in Bulgaria poses the following main concerns for the bank:
- What is the real reason for the foreigner to open bank account in Bulgaria? Isn’t it more “natural” for him to open an account in his home country? And if that is so, isn’t he trying to do some shady business, far from the supervision of his home authorities?
- The due diligence on the foreigner is much harder to complete than is for Bulgarian client. And if that’s the case, why bother working with foreigners when there are enough Bulgarian clients?
As result, any foreign client in Bulgaria is constantly being monitored by the bank’s compliance officers. And logically, foreign bank accounts may be much more often being blocked and closed than those of Bulgarians.
How to minimize the risks of account closure in Bulgaria
To avoid account block and closure, use common sense. There is no universal solution and you may experience problems with the banks no matter how compliant you are. Still, the following recommendations may prove to be very helpful:
- Try to do business with customers you know well. Payments to or from shady counterparts can ruin your relation with the bank in an instant;
- Avoid certain destinations! In particular the offshore centers are considered “risky”. If you have to deal with customers in such destinations (this may be 100% genuine and legal), talk to the bank in advance. Explain your banker the nature of the business and you will be understood, most probably;
- If you plan on doing “risky” business (ie crypto, gambling, etc.) – talk to the bank first. Don’t even think of telling the bank that you will be breeding dogs if your payments go for Dogecoin;
- Try to establish good personal relation with your bank manager. If you can afford it, go for Private Banking in Bulgaria to have access to personal manager;
- Be 100% open and honest when you submit the legally required declarations in the bank. Such are needed for large payments etc. in order to declare the source of funds;
- Stay clear of any refunds. Refunding your clients for undelivered goods or services may be required at times, although this is (very) rare in Bulgaria. But if you make too many refunds, this may be the end of your relation with the bank and the start of your problems with the tax authorities.
In case of problems with your Bulgarian bank
Even if you are extremely careful and 100% legally compliant, your bank accounts may still get blocked or closed. In such case, be proactive. There are different options available in order to protect your rights. If you need assistance with your bank in Bulgaria, we recommend contacting us asap.