Budapest: a welcoming gateway to Europe for a Russian bank

The management board of the Russian-led International Investment Bank (IIB) held its first meeting in its new headquarters, Budapest, this week. The move of IIB from Moscow to Budapest has been controversial since it was announced: experts, historians and the media have been worried that the bank would be a tool for the Kremlin to plant spies in the EU or launder money – which both IIB and the Hungarian government denied several times, claiming that it was a regular international bank. However, a regional overview by VSquare reporters reveals that out of the Visegrad countries, it was only the Hungarian government that did not have reservations about IIB. Poland left the bank in 2000 and never returned, the Czech government tried to block certain parts of the new charter of the bank and then Slovak president Andrej Kiska withdrew his support for IIB opening an office in Bratislava.

The International Investment Bank was founded in 1970 with the aim of supporting trade within the Soviet bloc – to create the communist alternative of the World Bank or the European Investment Bank.

It was too small to fulfill this purpose and that has not changed even today. Its capital is 326 million euros, comparing to the capital of the European Investment Bank, which is 243 billion euros. Today, the biggest shareholder of the bank is Russia (46.03 percent), while the others are Bulgaria (12.95 percent), Hungary (12.27 percent), the Czech Republic (11.47 percent), Slovakia (6.59 percent), Romania (7.04 percent) and with smaller shares Cuba, Vietnam and Mongolia are also members.

By the 1990s, after the fall of the Soviet Union, it was ‘hybernated’ and practically ceased working. Hungary left the bank in 2000 – at the time when Viktor Orban was prime minister of Hungary. The Hungarian government claimed that the bank was ‘inefficient.’ Poland left within the same year.

Hungary returns to IIB, IIB goes to Hungary

The Russian government decided to revive IIB in 2012, and appointed Nikolay Kosov to do the job. Very soon after that, in the beginning of 2013, the government of Hungary – still under the leadership of Viktor Orbán – signalled its interest in re-joining the bank, which eventually happened in 2015.

The Hungarian Ministry for Economy told the official Hungarian New Agency, MTI in 2014 that the government of Hungary left the bank in 2000 because it had been non-transparent and inefficient. However, according to the Ministry, the bank was transformed and from then on was working according to the best practices of the international banking community and was expanding in a dynamic manner. The ministry also mentioned IIB’s improved credit rating. ‘Weighing these changes, the decision to re-join was made,’ the ministry told the news agency.

After a meeting between Viktor Orban and Nikolay Kosov in Budapest in January 2019 where they spoke about the move of IIB to Budapest, Orban’s spokesman told the MTI that ‘the Hungarian government believes that the move of IIB’s seat to Hungary will strengthen Hungary’s role as an international financial center. There are five supra-national development bank HQ’s on EU territory but none of them are in Central Europe. This means that IIB’s move to Budapest can be regarded as a step forward.’

Shortly after this, the government of Hungary invited IIB to move its headquarters to Budapest. The fact that Orban’s government initiated the move and that the offer was made shortly after the country re-joined IIB was confirmed by both IIB officials at their June 25 press conference in Budapest and by the press secretary of the Czech foreign ministry who answered VSquare reporters’ questions.

Non-Russian Russian bank

IIB’s leadership often denies that the bank should be categorized as a ‘Russian’ bank and it claims that it is an international organization. However, Andras Racz of Hungarian think tank Political Capital reviewed the founding documents of IIB and concluded that its management and decision-making are both dominated by Russia. He told VSquare reporters that, according to these documents, the day-to-day management of the bank (lending, hiring, financial operations) is completely controlled by its Russian chairman, Kosov. This is usual for bank management. However, the supervisory structures of IIB (the board of governors and the board of directors) are also controlled by Russia because at these levels all decisions need to be made by a ¾ majority, for which country representatives’ votes count based on their country’s shares in IIB. As Russia has more than 46 percent of the shares, this means that no decision can be taken against Russia’s will.

The Kremlin’s influence over the allegedly independent international bank is raising many concerns among foreign diplomats, historians, analysts and political commentators, especially in Hungary. They are all afraid IIB might be a tool for the Kremlin to base intelligence agents inside the EU under the bank’s cover and that IIB might be a tool for money-laundering. Renowned Hungarian historian Krisztián Ungváry, for example, said in a  interview that letting IIB into the country was equal to ‘treason’ and that ‘the management of the bank are most probably undercover intelligence agents.’

The bank has already moved to Hungary, but the controversies have not ended yet: the final location of the bank’s offices has not been picked yet. Hungarian daily Nepszava reported in June that IIB is considering to choose Lanchid Palota (Chain Bridge Palace), a very expensive office building on the riverside in Buda, on the west bank of the Danube in Budapest as their new home. According to the legislation on IIB passed by Hungary’s parliament in March, it is the Hungarian government’s responsibility to provide the bank with an appropriate office. IIB’s vice-chairman, Georgy Potapov confirmed in an interview with the daily that Chain Bridge Palace is indeed an option.

Potapov also revealed that IIB will employ about 110 people in Budapest, which is much more than initially reported. In April, VSquare partner Direkt36 wrote that the Hungarian parliament’s Committee on National Security received a briefing from Hungarian counter-intelligence where a total staff number of only 30-40 was mentioned.

Potapov also said that IIB will leave about 25 of its staff in Moscow, including their IT and administrative department, but he did not elaborate why. “We are not spies, we are not a spy organization, that is not the reason why we are in Hungary”, IIB’s vice-chairman stressed in the interview. However, Direkt36 also reported that the Hungarian government’s delegate to the bank’s Board of Directors, former minister Imre Boros, was accused of having ties to the former Communist secret service previously. Boros denied these allegations.

Click here to read the rest of the story on Vsquare.org

By Hana Čápová (Investigace.cz), Arpad Soltesz (Investigative Center of Jan Kuciak), Anita Komuves (Atlatszo.hu), Szymon Krawiec (Fundacja Reporterow), Eva Kubániová (Investigace.cz), Szabolcs Panyi (Direkt36.hu).