Банкеръ Weekly



The good days for offshore shareholders in Bulgarian banks are coming to an end. After Parliament approved the draft bill on amendments to the Banks Act, all owners of more than 3% stakes in the capital of a credit institution will be obliged to submit to the Bulgarian National Bank (BNB) quite detailed information about themselves. Thus, the anonymity, covering some shareholders in local banks, will be eliminated. The drama, of course, will mostly affect the offshore companies, behind whose suitable discretion the real owners of a number of financial institutions are presently hiding. By amending the Banks Act the Government will fulfill only one of the six requirements of the International Monetary Fund (IMF) for releasing the second tranche of the loan for Bulgaria for 2002.In fact, all these fundamental changes are based on the Patriotic Law, passed in the USA after the terrorist attacks on September 11, 2001. Under that law, all banks which have accounts in the USA were to send by the year-end to the Treasury detailed information about their shareholders. The accounts of the banks would be frozen in case they refused to do that. All Bulgarian credit institutions submitted reports to the US administration.It's another question that the effective regulatory Bulgarian documents do not contain a specific provision, obliging the shareholders in banks to provide information about their legal status, business activitis, and persons connected with them. Such information is submitted only when applying for a licence to carry out banking activities. This allows evasion of some legal requirements and regretfully deprives the bank supervision of the possibility to assess accurately the trustworthiness of the owners of some credit institutions, the motives for the draft bill on amendments to the Banks Act reads. The bill was moved in by the Chairman of the Parliamentary Economic Commission Valeri Dimitrov and the Chairman of the Parliamenatry Budget and Finance Commission Ivan Iskrov.It is widely known thatcompanies register in offshore zonesin order to cut down their expenses for payment of taxes. This practice has been adopted by all big multinational companies worldwide. Another reason for resorting to offshore structures is to hide the names of their real owners, who in most cases have not made their money legally. According to experts, people of financial culture, independly if they make their money legally or illegally, resort to such practices. The ultimate aim - to evade taxes - is more important.The owners of offshore companies may also elude some regulatory restrictions for crediting in Bulgaria and get a loan from a local bank, whose amount exceeds 25% of its equity capital. For instance, it is sufficient if five offshore companies, owned by one and the same person, draw a credit that is, say, 5% of the bank's capital. Thus, one person will get a loan, equal to 25% of the credit institution's capital, and all legal requirements would be observed.The offshore companeis are also a suitable shelter for the banks, which do not want it to be known who is behind their shareholders. There might be various reasons for that - unpaid taxes, problems with legal authorities, unfavourable political situation, poor image, etc. And a permission from the BNB is required in order to hold 10% and more of a bank's capital. This problem is presently eliminated as the investor buys separate packages of the bank's shares, which are less than 10% of its equity, through several of his offshore companies. Thus, the need to apply for a permission from the BNB is evaded and the central bank cannot check if the offshore companies are related bodies.The amendments to the Banks Act will deprive the businessmen who want anonymity from the convenience of offshore companies. And if they insist to remain in the shade they will have to find a sufficient number of citizens and firms of reputation, that have paid their taxes and have enough incomes to prove they could hold a package of shares in a certain bank.The legislative axeAfter the amendments to the Banks Act are passed, the central bank will be able to show much more curiosity.Owners of 3% and higher stakes in a bank's capital, including those from the exotic offshore zones, will have to present at BNB's Banking Supervision Department documents for the origin of money with which they have purchased the shares, prove that the money has not been borrowed, and documents for the taxes they have paid during the last five years.The companies, falling into this category, shall be also obliged to present written information about the people, holding shares in them. The Banking Supervision Department will be entitled to require from the shareholders in banks all necessary accounting and other documents, connected with their operation.The BNB will naturally refuse to grant a licence to a bank if on the grounds of the received information it ascertains that some of its shareholders owning 3% and more of its equity, could harm its safety or operations. Straightly speaking, the aim is to refuse licences to credit institutions, controlled by offshore companies with anonymous owners and unknown nature of their business.After the legislative amendments are passed, the BNB will checkall offshore companies, which are shareholders in Bulgarian banks. In case information is concealed or attempts are made to provide insufficient information, they will be obliged to sell theit shares within 30 days. At that, BNB's punitive decrees cannot be appealed at the Supreme Administrative Court.

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