EC Noticed and Pointed Finger at Bulgarian “Banksters”

“Bulgaria is experiencing excessive macroeconomic imbalances, which require decisive policy action and specific monitoring. In particular, the financial sector turbulence in 2014 has raised concerns about the existence of banking practices in the domestically-owned part, with potentially significant implications for financial sector and overall macroeconomic stability. In addition, the still negative, albeit improving, external position, corporate over-leveraging and weak labour market adjustment continue to pose macroeconomic risks and deserve close attention.”

Press release of the European Commission (EC) from February 25, 2015

We publish the English original of the press release of the European Commission because some local media distorted the translation of “domestically-owned part” and replaced it with the toothless and incomprehensible “at the local level“. However, such Brussels’ slang is a much stronger and specific finger pointing at the culprits, than the diplomatic message of “bad apples”.

An expert report on the prevention and correction of macroeconomic imbalances was published a day later, in which things are named clearly and specifically without political polishing. It lists domestically-owned banks as Investbank, Municipal Bank, Corporate Commercial Bank, First Investment Bank, Bulgarian-American Credit Bank, E-Commerce, Asset Bank, Texim and Central Cooperative Bank.

Expert report from February 26, 2015

The report gives priority to problems in the banking sector, which is indicative. Its very beginning speaks of the weakness of the institutions and of the supervision and the findings are tough and compelling:

The supervisory body’s failure to detect significant problems in the fourth largest bank in the country, Corporate Commercial Bank (KTB), points to shortcomings in financial sector supervisory practices and in oversight of concentration risk;

This has undermined the credibility of banking supervision, in turn also raising doubts concerning the health of other parts of the financial sector;

Concerns have emerged regarding the reliability of reported financial sector data reports;

KTB was an extreme case, but reported figures suggest that there could be shortcomings in other banks as well;

Without an in-depth, third-party investigation, the soundness of the financial sector cannot be ensured;

A strong, credible and transparent supervisor is required to reduce the risk of imbalances and correct those that have already accumulated;

The mention of Bulgarian-owned banks that are considered problematic is taboo in Bulgarian media. Bivol published four years ago a cable of former US Ambassador in Sofia John Beyrle (see here), in which the owners of these banks are listed along with their “merits” and specific criminal characteristics. Our media was haunted then with an “institutional bat” on behalf of the central bank (Bulgarian National Bank, BNB – see here). BNB initiated a procedure over a complaint of four of the mentioned banks, threatening us with execution for bank “blasphemy” through a fine amounting to hundreds of thousands of levs.

From these protagonists, listed in John Beyrle’s 2006 cable, only Emil Kyulev is no longer among the living. Corporate Commercial Bank went bankrupt and its majority shareholder, Tsvetan Vasilev, is wanted by the law enforcement. The others are First Investment Bank (FIB, of Tseko Minev and Ivaylo Mutafchiev), Central Cooperative Bank (CCB of TIM), Investbank (of Petya Slavova), Bulgarian-American Credit Bank (BACB of the girlfriend of second-term Prime Minister Boyko Borisov – Tsvetelnina Borislavova), Asset Bank (of Mladen Mikhalev AKA Madzho), Municipal Bank (previously connected to energy mogul Hristo Kovachki).

The “worst apple” – Corporate Commercial Bank – did not survive the collision of its main shareholder Tsvetan Vasilev with his corpulent business partner, notorious lawmaker Delyan Peevski. So far we do not dare to discard Vasilev, as we have seen some banking sector protagonists return after being outcasts. Such are the owners of FIB, who already outlived the collapse of a number of banks. Tseko Minev and Ivaylo Mutafchiev come from the notorious “party-owned” First Private Bank, which went bankrupt 20 years ago and cheated its depositors with huge amounts. Some credit millionaires from First Private Bank are still missing. One of the most infamous among them is Emil Raykov, Boyko Borisov’s former partner since the time of the manufacturing of contraband cigarettes by the company “Teo International”.

Minev and Mutafchiev have extensive experience with banks, such as Biochim and Agrobusinessbank, before taking over the management of FIB. By the end of 1997, the two were FIB Executive Directors. Following the adoption of the new Law on Banks, they were forced to withdraw from the management for their practice in the bankrupt Agrobusinessbank. According to this law, they could not hold new executive positions in the system. They were replaced in the Supervisory Board by Georgi Mutafchiev, brother of Ivaylo Mutafchiev and Radka Mineva, Minev’s wife. But Minev and Mutafchiev were not banned from owning banks. The fact that Ivaylo Mutafchiev was exposed by the Files Commission, examining the Communist era secret services’ files, as former State Security (DS) agent “Kamen” recruited back in 1980 by the sinister 6th DS General Directorate, did not prevent him from being today one of the biggest bankers in Bulgaria.



Bankers or banksters?

The biographies of these people are known. Are they bankers or criminals using the banking system for dirty deeds? The latter are also called “banksters”. The US secret analyzes lean towards the second definition. After years of silence, we finally heard the assessment of Europe. Essentially, it alarmed that there are “banksters” in Bulgaria.

What is the difference? The meaning and the calling of the banking business is to keep and multiply the money of depositors; to lend to enterprising people who invest wisely and multiply this money through their work. Let’s say that you as depositor are looking for the most favorable conditions. This is normal, you need a banker. There are 23 banks in Bulgaria and you can find one.

But do you expect from the owner of the bank to scoop by the handful the deposited money and to distribute it in the form of unsecured loans to connected companies; to use it to monopolize the media; to buy by the piece and to their advantage the most expensive and strategically important for the country’s economy enterprises and companies? Or to build a ski resort in a national park, overriding the law? Do you expect your money to create fake political projects; to buy elections and to corrupt authorities, the government and the media to cover-up violations of laws? Do you expect from your banker to use your money for their own needs, and when it emerges that they will not return it, then for you to pay again, only this time through your taxes in the budget? Do you expect that your money is going to be ultimately transferred to the hidden foreign accounts of the owners of the bank, and to never come back?

If you expect and see as normal anything of the above, you probably trust a “bankster”. Without being named directly, these are the so-called “banking practices” that cause concern. Bivol investigated them in debt over the years, shedding light on hidden properties, relationships and offshore companies networks of the biggest players. We have collected enough data and documents to trigger action on the part of the institutions and to initiate rule of law. All responsible authorities, the prosecution and BNB have been notified. These State authorities not only did not react in a timely manner, but they are complicit in the crimes, as it already emerged from the collapse of Corporate Commercial Bank. No one has been found guilty and no one has been punished. In the Mafia State, the ruling mafia will hardly seek responsibility from itself for the grisly public crimes and unbearable corruption. After all, its main purpose is to rob the country, its resources and people, while it has appointed convenient puppets at all key posts to guard it and to provide cover-up from the rule law.

Bivol’s signals that there is a threat that the case with drained banks could be repeated and the public to be robbed again, and this time fatally, were followed by a deafening silence. And the silence was followed by an unjustified institutional attack against us and other media that dared to write about the problem with Bulgarian banks (see here).

The essence of the problem

In mid-2014, Corporate Commercial Bank was closed, and the subsequent regulatory audit revealed a loss of 2 billion euro (equivalent to 60% of the bank’s assets and 5% of Bulgaria’s GDP). With regard to Bulgaria, the failure of Corporate Commercial Bank was much, much bigger than Enron’s in the United States. The auditing company KPMG proved to be the same as for the other unstable bank – FIB, which was saved at the cost of a cash injection from the budget of around 1.2 billion levs, and 3/4 of this money has not been returned to the State by the initially set repayment deadline. Funny how KPMG issued a clean opinion on the accounts of FIB, after issuing such for Corporate Commercial Bank just before its bankruptcy. Is it a coincidence that precisely this same auditing company, except being the auditor of the two troubled banks, is also the auditor of their regulator BNB? Namely BNB bears the overall responsibility for the functioning of the banks, as required by law and by the generally established banking rules and standards. Bivol has serious grounds to believe that the irregularities in FIB are similar to those in Corporate Commercial Bank, both in their nature and scope. A possible collapse of FIB will have an extremely negative and lasting impact on the overall economic condition of our country for many years to come.

That is why we not only published sound investigations in the identified problems (see here, here, here, here and here), but also alerted BNB in its role of banking regulator. The regulator obviously failed to take any action and retracted its original promise to check our signals. This leads us to strongly suspect the existence of corruption in the actions of the financial watchdogs in Bulgaria.

We all remember how on June 21, 2014, after a systemic problem with the liquidity of Corporate Commercial Bank, the regulator closed it and placed it under special supervision. The promise of the Governor of BNB, Ivan Iskrov, was that it will open in a month and be in business again with no problem of returning the money to depositors upon request. This did not happen. In late October 2014, after the regulatory audit, Corporate Commercial Bank entered into bankruptcy proceedings. At the moment, this enormous theft of capital is being refunded to the harmed bank customers from the State budget. This is one of the main reasons for the borrowing of the huge new foreign debt of 16 billion levs.

Let’s not forget that while the State makes us debtors for decades, it is a creditor of the other bank under special supervision – FIB – with nearly 1 billion levs. Meanwhile, Bivol’s investigations made it clear that the bank that took the money from the State budget in turn handed credits close to this amount to companies and persons connected with its owners (see the list of companies here). Our journalistic investigation in the banking business of FIB shows significant shortcomings, similar in nature and scale of those in Corporate Commercial Bank. Just like Corporate Commercial Bank, FIB has many significant exposures, in flagrant violation of regulatory limits, to a network of offshore entities. We have reason to believe that these entities are owned by major shareholders of FIB, their employees and associates. In fact, the balance of FIB may include significant exposures to non-financial assets (for example, entire companies), disguised as loans, which is in violation of banking laws and regulations. These exposures are, by their nature, non-liquid and difficult to recover. In the middle of 2014, the Bulgarian government granted, with the authorization of the European Commission, emergency funding to FIB, amounting to more than 600 million euro in order to prevent future solvency problems. Subsequently, FIB repaid about 150 million euro and has committed to repay the rest within 18 months. Although this alleviates the immediate situation, the problem with FIB’s capital liquidity currently remains unresolved.

Therefore, it is extremely alarming that FIB may, at one point, follow the fate of Corporate Commercial Bank. The more the regulators and the State delay the answers to questions about FIB, the more severe will be the damage if an unfavorable scenario for FIB unfolds. So far, reports of clean audits by KPMG helped hiding the problems. Given that the balance of FIB is greater than that of Corporate Commercial Bank, a possible bankruptcy of FIB may cause a devastating financial chaos in Bulgaria, affecting the political stability, the government, the business and the general public. Such a development would cause irreparable harm to our society and would ring the bell quite loudly outside the country. Let it be known in advance WHO will be guilty in a subsequent precedent of the Corporate Commercial Bank bankruptcy! These are in person the leadership of BNB, the Minister of Finance, the Prime Minister and all MPs, who chose the omerta of silence rather than their duty to seek responsibility.

Precisely that triggered the special attention in the EC report to the activities of the banking system in the country and the quality of supervision. Not coincidentally it literally mentions these:

Those had not been detected by auditors or the supervisor up to that point, raising doubts about the quality of reported data in the sector as a whole;

Those events also created doubts over whether other banks in the sector could have followed business models similar to that of Corporate Commercial Bank;

Can we assume then that Bulgarian banks are used to drain billions by their owners and afterwards the whole society has to pay for the colossal theft? Isn’t this really a way to drain the State budget by a handful of “banksters”, born and nursed by the Communist regime and the State Security, always and still managing and owning our financial and economic assets?

Our main concern is what is happening in Bulgaria. After we directly alerted BNB, and given the responding inactivity, we decided to formally notify the European Commission.

Unlike the rotten Bulgarian institutions, the European Commission seems to have heard us. In the coming days, we will provide more evidence – authentic, specific and compelling – speaking loudly of the ongoing crimes in FIB. Let’s not forget that it is described in the WikiLeaks diplomatic cable as a bank “now considered to have one foot in the legitimate retail world (it is known as one of the most aggressive and “polished” banks ) as well as one in the murkier criminal realm”. We will investigate the others as well.

We are doing this because we want to finally see the end of this “bad transition” and have a fresh start. First, however, the financial backbone of the Bulgarian mafia must be broken. It is sad and symptomatic that in Bulgaria it is clearly not possible to have normal Bulgarian bank owners. The positive is that the European Commission has noticed this shameful fact and established it very clearly and categorically. It is a pity that we are all guilty of this, as we have allowed the seizure of the State by white collar mobsters.



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