PARLIAMENTARY COMMITTEE: CORPORATE COMMERCIAL BANK WAS A FINANCIAL PYRAMID FROM THE OUTSET (update)

Bulgaria's Corporate Commercial Bank (CCB) was run as a classic pyramid scheme. This is the main conclusion of the report prepared by the Inquiry Parliamentary Committee, which examined the circumstances on the CCB case.

The Bulgarian National Bank’s supervision, the State Agency for National Security (SANS) and the CCB’s majority shareholder, Tzvetan Vassilev, carry most of the blame, according to the report. It exonerates the Financial Supervision Commission (FSC), saying it does not have the lawful authority to look into fraudulent banking schemes.

The report was submitted to Bulgaria’s Parliament on Tuesday evening, 7th of July and was published on its website on 8th of July.

The 150 pages of the report describe the reasons for CCB’s insolvency, but does not mention specific names of depositors with preferential interest rate agreements or cessions, concluded after the closure of the bank. The responsibility for the insolvency is shared between Tzvetan Vassilev, BNB and SANS. The document refers to 138 companies which form the credit portfolio of CCB at the size of 5,300,000,000 BGN. Nearly two thirds of those companies however did not have a single day of business activities. Others were related to the majority shareholder, Tzvetan Vassilev, the so called “shell” companies, to which CCB gave loans and thus siphoned off 3,500,000,000 BGN. This way, in practice, Tzvetan Vassilev financed himself.

The shell companies were set up for the sole purpose of taking loans and did not have funds to repay them. They were given loans at low preferential interest rates, but despite that they did not repay. However the bank gave them new loans, again at low interest rate, to refinance the loans. The scheme involved a  shell company, taking a loan and sometimes immediately transferring the monies to the account of another shell company and thus the money reached Tzvetan Vassilev, the report says. The transfer of money from entity to entity created the illusion, on documents, that CCB had lots of assets and was a reliable bank.

Hundreds of millions of BGN were given through this scheme, which according to the MPs from the Parliamentary Committee, the BNB could have identified, but because of lack of effective control, the central bank facilitated the siphoning off of CCB.

SANS also “slept though” the fraudulent schemes in CCB, the report says.It allowed the national interest to be threatened. Furthermore, SANS had received signals and information about money laundering and frauds carried out by Tzvetan Vassilev, years before the crisis with CCB. In 2006, for example, there was information about suspicious operations of the banker, but Sofia City Court refused to initiate pre-court proceedings.

In the next years other signals were submitted to the Chief Directorate for Combating Organized Crime (CDCOC), but they were not followed up to conclusion.

It appears that even some foreign anti-financial fraud agencies had sent reports and requests to Bulgaria about the activities of 37 companies related to banker Tzvetan Vassilev, to which SANS did not react appropriately.

The Parliamentary Committee also found that there had been no reaction to the omissions of the official auditors in the years before CCB became insolvent. In their reports to BNB, the auditors did not disclose their findings that a number of loans had been granted to companies that did not have the collateral to secure those huge loans.

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