Financial Sanctions as an Instrument of Geopolitics

The New European Anti-Money Laundering Framework: Its Impact on the Implementation of Sanctions Regimes and Challenges for Obliged Entities in Bulgaria.

Radomir Dukov

1/31/2026

Abstract

Financial sanctions are establishing themselves as a key tool of modern geopolitics, through which states realize their foreign policy and strategic goals. They represent a political act applied either unilaterally or multilaterally, often as an alternative to military action, but increasingly in combination with it. The effectiveness of sanctions remains a subject of debate, particularly in light of examples where military conflicts have erupted despite their imposition.

The international framework for imposing sanctions includes both UN mechanisms and unilateral regimes, such as those of the USA, which often have extraterritorial effects and create a significant burden for businesses and financial institutions. The European Union applies its own approach but also faces challenges related to the discrepancies between different regimes and the need for enhanced oversight. In this context, the sanctions against Russia after 2022 demonstrate that, when political will is present, they can have a substantial economic impact.

For Bulgaria, this topic is of particular importance, both due to its membership in the EU and the UN and its geostrategic position. The country is faced with the necessity of building a more comprehensive legal and institutional framework for the implementation of sanctions, as well as improving coordination between competent authorities. At the same time, businesses must be prepared for increasing requirements, including those related to the new European regulations. In a dynamic geopolitical environment, financial sanctions will continue to play a central role, necessitating clear strategic positioning and a long-term vision on the part of Bulgaria.

Financial sanctions, as well as their effect and application in international politics—and particularly in the geopolitical strategies and visions of individual states or groups of states—are gaining increasing importance and require a profound understanding. The imposition of financial sanctions is a political act carried out by a state or a group of states in the form of unilateral or multilateral measures. In today's dynamic environment, where military conflicts and economic restrictions increasingly develop in parallel, a more in-depth analysis is required regarding the reasons for applying such measures, as well as the prerequisites for commencing military action. Every state should clearly understand international processes, its own geopolitical strategy, and the role of financial sanctions in its realization. This understanding is necessary both within the framework of membership in alliances, as is the case with Bulgaria as part of the European Union, and from the perspective of formulating and asserting a country's national security strategy and its national geopolitical vision. Bulgaria should align its geopolitical vision with the EU, as it is part of it, but must also take into account its own specificities and geopolitical goals, which may diverge from those of the EU without contradicting them.

Who imposes restrictive measures and what are the reasons for their introduction? These are some of the fundamental questions that must be clearly answered so that sanction regimes can be properly understood both from a national security perspective and within the context of the geopolitical plans and goals they help achieve. Financial sanctions are establishing themselves as one of the primary tools for implementing the geopolitical strategies of states. However, they are not solely a product of modern politics. Historical examples of such restrictions exist as far back as 432 BC, when the so-called Megarian Decree was imposed in Ancient Greece. [1] Later, at the beginning of the 19th century, the United States began applying economic restrictions, and their more active and systematic use as a foreign policy tool intensified after 1917. Economic restrictions are traditionally used in situations where states or groups of states are unwilling or unready to resort to military action. Particularly indicative is Woodrow Wilson's 1917 statement, often viewed as the starting point for the modern understanding and application of sanction regimes by the United States [2]: "A nation that is boycotted is a nation that is in sight of surrender. Apply this economic, peaceful, silent, deadly remedy and there will be no need for force. It is a terrible remedy. It does not cost a life outside the nation boycotted, but it lays a pressure upon the nation which, in my judgment, no modern nation could resist."

Financial sanctions and restrictive measures can be viewed within the context of Joseph Nye’s concept of the distribution of power into soft, hard, and so-called "smart" power, which is a combination of the first two. [3] In this sense, sanctions are perceived as a tool of soft power aimed at influencing a given state or group of states without resorting to military conflict—a goal that corresponds with the understanding formulated by Woodrow Wilson. At the same time, their role is not limited to this. In the contemporary geopolitical environment, financial sanctions increasingly function as an element of "smart" power, where soft influence tools are combined with harder forms of pressure, including military action—a trend clearly observed in current international processes.

Woodrow Wilson's statement raises several questions, especially in the context of conflicts involving the United States over the last three decades. If one considers the restrictions imposed on Iraq and Iran, it becomes evident that despite them, military actions occurred. In the case of Iraq, the conflict led to a significant number of casualties and lasted a long period, while the tension with Iran can be seen as an ongoing process whose dynamics are yet to fully manifest. The fact that such conflicts occur despite the application of restrictive measures calls their effectiveness into question. The primary goal of these measures is to disrupt supply chains to the respective states, deny access to sensitive technologies, dual-use goods, and military components, and limit their access to international markets through financial restrictions. Various international regimes and agreements aimed at limiting the proliferation of weapons of mass destruction, including nuclear, biological, and other sensitive technologies, can also be viewed as specific forms of restrictive measures. Notable among these are mechanisms such as the Wassenaar Arrangement, the Australia Group, the Zangger Committee, and the Missile Technology Control Regime (MTCR), which form part of the global export control system. [4] These regimes are only part of the broader international framework that supports the implementation of restrictive measures and contributes to maintaining international security through coordinated actions between states. However, achieving this goal is impossible without effective control and clearly distributed responsibility among the numerous participants in supply chains and financial flows. This is where the key role of the financial system manifests, as it assumes a substantial part of the responsibility for monitoring compliance with restrictive measures. In this way, it becomes a tool for implementing the political will of the state or group of states imposing the sanctions.

A distinction should be made between restrictive measures imposed by the United Nations, which are usually related to armed conflicts or human rights violations, and those introduced unilaterally by specific states, such as the United States. In the latter case, one can speak of the transfer of geopolitical influence and responsibility beyond national borders. UN sanctions are adopted by the UN Security Council, where Russia, the United States, China, France, and Great Britain are permanent members. Adopting a sanction regime requires consensus among the permanent members, which in practice limits the possibility of imposing sanctions in situations where one of these states is a party to the conflict, as is the case with the war in Ukraine.

An example of a sanction regime is UN Security Council Resolution 1267 (1999), which established a mechanism for listing individuals and organizations associated with terrorism whose assets are subject to freezing by member states. [5] A significant development of this approach was observed with Resolution 1373 (2001), adopted following the attacks on the World Trade Center on September 11, 2001, which introduced a broader and more systematic framework, obligating states to criminalize the financing of terrorism, implement asset-freezing measures, and strengthen international cooperation. [6]

An example of the first type of measures imposed by an international organization can also be found in Bulgarian history as far back as the League of Nations period. In 1925, following a conflict between Bulgaria and Greece that led to Greek troops entering the city of Petrich, the League of Nations imposed restrictive measures on Greece and forced it to withdraw its forces from Bulgarian territory. [7]

In this type of restrictive measure, the primary goal is to ensure compliance with international agreements and protect the territorial integrity of states. It is no coincidence that so many countries are members of the United Nations. This is the primary level at which restrictive measures are sought. In cases where this mechanism fails, the transition is made to sanctions imposed unilaterally by individual states or multilaterally by groups of states.

The imposition of restrictive measures stemming from a state's geopolitical strategy is rarely carried out on a voluntary basis. In most cases, it is accompanied by the risk of fines or other restrictive actions for non-compliance. A typical example in this regard is the extraterritorial sanctions of the United States, which in practice introduce requirements for financial institutions and companies outside their jurisdiction. This approach inevitably leads to increased compliance costs and additional administrative burdens for businesses. The United States actively applies so-called secondary sanctions, through which they impose restrictions and additional requirements on economic entities that have relationships with sanctioned individuals or states. [8]

In this way, the financial system and international trade begin to perform functions that are not inherent to their traditional business model, transforming instead into a tool of international politics. It can be argued that the United States "transfers" part of its obligations to the financial system outside its jurisdiction. To maintain access to US dollar payments and avoid significant financial penalties and reputational risk, financial institutions and companies are placed in a situation where they must comply with US geopolitical priorities. In this context, the role of the President of the United States is substantial, given the broad powers regarding the imposition of financial sanctions. This leads to conflicts between different jurisdictions and a significant burden on businesses in countries that have no direct relation to the sanctioning country. Nevertheless, due to the risk of fines and inclusion in sanctions lists, companies and financial institutions are forced to implement complex control mechanisms and incur significant costs to comply with the geopolitical policies of third countries.

When considering the European Union, the situation is somewhat different. The approaches of Europe and the United States diverge in several aspects, including regarding certain sanction regimes. For example, in American practice, there is the concept of "State Sponsors of Terrorism," as is the case with Iran, whereas in the European understanding, such categorization of entire states is not used in the same manner. A significant difference is also the fact that the European Union does not apply extraterritorial sanctions to the same extent as the United States. One of the main challenges for businesses and financial institutions arises from the differences in sanction regimes between various states. This necessitates compliance with restrictive measures originating from multiple jurisdictions, which further complicates control, compliance, and risk management processes. Within the EU, the entities responsible for implementing targeted financial sanctions are clearly defined, providing legal clarity and predictability. [9]

Europe is taking steps toward significantly strengthening the control and effectiveness of its sanction regimes, a process that will be further deepened through the new Anti-Money Laundering (AML) package and the establishment of the new European Anti-Money Laundering Authority (AMLA). For the first time, targeted financial sanctions are included within the scope of anti-money laundering measures, which will lead to substantial changes in control methodologies and verification approaches by obliged entities. [10]

Control will now be exercised not only over anti-money laundering prevention measures but also over the processes related to the implementation and compliance with sanction regimes. This, in turn, will create an additional administrative and operational burden for both obliged entities and regulatory authorities in individual states. At the same time, however, it is expected to improve implementation effectiveness and strengthen the responsibility of businesses and financial institutions in executing restrictive measures.

The European Union applies targeted financial sanctions to protect the interests of member states, but also as a tool for realizing the Union's common political and geopolitical goals. In this context, Europe was not fully prepared for the application of such large-scale sanction packages against a state with which significant energy dependencies and deep economic ties exist. This situation changed following the invasion of the Russian Federation into Ukraine. As early as 2014, after the annexation of Crimea, the European Union imposed sanction regimes that were largely sectoral and had a limited effect, allowing the Russian economy to continue generating significant revenue from trade with the EU. The sanction measures introduced after the invasion of Ukraine in 2022 are significantly more extensive and complex. This is most clearly seen in the structure of energy imports, which represent a key source of revenue for the Russian economy. The share of oil imports from the Russian Federation decreased from 25.9% in the first quarter of 2022 to 1.4% in the last quarter of 2025. [11]

This is just one example of restrictive measures and their effect when the political will for their implementation exists and when they reflect the geopolitical situation in Europe and European Union policy. Restrictive measures cover a wide spectrum of components, technologies, and services to and from the Russian Federation, which is a direct result of EU policy. This policy translates into specific obligations for both businesses and the population of member states. This effect is manifested directly in Bulgaria as an EU member state and a frontline state on the Black Sea, as well as a transit and export point for various components, technologies, and services included in the restrictive lists. Financial sanctions, their effect, and their application in Bulgaria are not limited merely to lists of sanctioned companies, individuals, organizations, or states. They represent a much more complex network of interconnections and influences, the growing importance of which has been observed particularly clearly over the past five years. Financial sanctions function as a geopolitical tool of states through which the realization of respective political goals is supported. In this context, Bulgaria should have a clear understanding of its geopolitical strategy and positioning as part of the European Union, as well as its significance for national interests, including its own long-term goals.

The fact that Bulgaria's National Security Strategy has not been updated since 2018 raises questions regarding the extent to which the changing geopolitical environment—in which financial sanctions have an increasingly tangible influence—is being taken into account. It is necessary to analyze EU sanctions more deeply, including their effect on the economy, business, and the political environment in Bulgaria. In the context of the war in Ukraine and the conflict in the Middle East, Bulgaria should be able to clearly define its long-term strategy and vision, as well as to defend its national interests in the long run. Financial sanctions are an integral part of modern geopolitics and should be viewed as a key instrument that Bulgaria must clearly recognize within the context of its membership in the EU and NATO.

It is necessary, on one hand, to increase public awareness regarding Bulgaria's commitments and position in the contemporary geopolitical environment and, on the other, to achieve a better understanding of its geostrategeic and geoeconomic role and objectives. Bulgaria is not an isolated island and must understand both the EU's geopolitical strategy and its own place and goals within this union.

As a member state of the EU and the UN, Bulgaria is committed to implementing the sanction policies and restrictive measures resulting from the decisions of these organizations. However, this requires the existence of a comprehensive and exhaustive national legal framework governing all issues related to targeted financial sanctions. In this regard, in 2025, following the country's inclusion on the FATF "grey list" and being placed under increased monitoring, changes were adopted in legislation related to the fight against terrorist financing and targeted financial sanctions concerning the financing of the proliferation of weapons of mass destruction. [12]

Nevertheless, Bulgaria still lacks a comprehensive legal framework governing all aspects of the application of targeted financial sanctions, including the possibility of creating its own sanction regimes and national lists beyond those related to terrorist financing and the proliferation of weapons of mass destruction. This is also clearly reflected in judicial practice, including decisions by the Supreme Administrative Court regarding a list created by the Ministry of Finance. [13]

Bulgaria should be a full member of the European Union while maintaining the ability to conduct its own policy regarding the application of restrictive measures, as well as ensuring full and effective implementation of sanctions approved at the EU level. This presupposes the existence of a comprehensive national legal framework covering this matter, serving as a tool for protecting national interests, countering corruption, and strengthening the financial system. The application of restrictive measures should be viewed through the prism of increasing international conflicts and the intensifying confrontation between great powers. This raises the question of a clear positioning of the European Union on the international stage, as well as the increasingly palpable differences in the approaches and messages of the United States, including during the administration of President Donald Trump.

Europe should strengthen its role in international politics, as the restrictive regimes applied by the EU will have an increasingly central importance as a tool of foreign and security policy. This places Bulgaria under the necessity of strengthening its internal regulatory and control framework regarding the implementation of restrictive measures.

The upcoming introduction of the new EU Anti-Money Laundering package and the establishment of the new European Anti-Money Laundering Authority will exert additional regulatory pressure. It is necessary for businesses to be prepared in a timely manner through training and information campaigns regarding new requirements, control mechanisms, and expectations. This should be a priority for the competent supervisory authorities.

Alongside this, it is necessary to consider legislative amendments related to the functions of the main control institutions in Bulgaria—the Bulgarian National Bank (BNB) and the State Agency for National Security (SANS/DANS). Currently, the scope of their powers does not fully include the implementation of all EU economic restrictions and financial sanctions. In this sense, they should be further developed as the primary bodies responsible for ensuring that obliged entities in Bulgaria comply with applicable requirements and implement effective mechanisms for control and tracking. Of course, this model could be realized through another institutional structure, but it is of essential importance that the necessary changes be introduced within a short timeframe. The entry into force of the new European requirements is expected in 2027, leaving a limited time horizon for preparation.