Politicians in both Hungary and abroad fear the bank is being used as a conduit of the Russian intelligence service (ATTILA KISBENEDEK)

Budapest (AFP) – Called “Putin’s Trojan horse” by Hungarian opposition politicians, a small Russian-dominated bank in Budapest has sparked unease ahead of Russian President Vladimir Putin’s visit to the capital Wednesday.

The International Investment Bank (IIB) officially completed the move of its headquarters to Budapest last month.

But concerns persist that it is a vehicle for extending Russian political influence in Central Europe, and potentially for intelligence-gathering.

Hungarian opposition politicians have described the bank as a “national security threat” and a “nest of spies”.

And in September, nine US senators and two Members of Congress set out their concerns in a letter to Washington’s ambassador in Budapest.

The bank “is widely seen as an arm of the Russian secret service,” they wrote.

– Major shareholder –

Founded in 1970 by the Soviet Union to foster links within the communist bloc, the IIB is registered as an official Russian state organ.

Billed as a version of the London-based European Bank of Reconstruction and Development (EBRD), albeit smaller, the bank distributes loans to firms and projects in member countries.

Five of its nine current members are EU and NATO countries Bulgaria, Czech Republic, Hungary, Romania and Slovakia. The other members, besides Russia itself, are Cuba, Mongolia and Vietnam.

Hungary left the bank during nationalist Prime Minister Viktor Orban’s first term in 2000, citing a lack of transparency. But three years after Putin revamped it in 2012, Hungary rejoined, and is now its second biggest shareholder.

The move to Budapest will “strengthen the role of Hungary and Budapest as an international financial centre”, the Hungarian government’s press office told AFP in an email.

– Security risks –

The bank is expected to have more than 100 international staff when fully operational in a permanent office next year, but the background of some senior figures has raised concerns among some observers.

Although the bank has firmly denied ever carrying out spying activity and rejects the ‘Trojan horse’ analogy, its chairman, veteran diplomat Nikolay Kosov, has alleged family links to the Russia’s KGB.

Hungary’s delegate to the bank, Imre Boros, worked for Hungarian intelligence during the country’s pre-1990 communist era. 

Legislation approved by Budapest in March, meanwhile, grants wide-ranging diplomatic immunity to some of its foreign staff.

“Staff regulations follow the usual practise for significant international organisations like the IMF,” the government’s press office told AFP. 

The IIB says it is entitled to such privileges as it is registered with the United Nations as a multilateral, intergovernmental development bank. 

It “receives no more” immunity than the EBRD or the World Bank in the US, said IIB senior official Imre Laszloczki in a recent interview in Hungarian media. 

But observers like Andras Racz, a Russia expert at the German Council on Foreign Relations, argue that the leeway given to the IIB is much wider.  

“There are clear security risks that don’t look to be addressed properly,” Racz said. 

Nor will the bank’s activities be subject to financial control or regulatory supervision in Hungary, he told AFP. 

“The language of the bank is Russian, the headquarters was in Moscow for the last 49 years, the director is Russian. They have de facto control due to the decision-making structure. It is a Russian-dominated bank,” he said.

– Economic opportunities? –

According to Budapest, the move “will bring shareholders, including Hungary, positive results, and will offer players of the Hungarian economy further new opportunities”.

But some analysts suspect the bank’s loans could easily be funnelled toward business allies of Orban.

Others however point out that the bank’s lending portfolio — around 750 million euros ($830 million) in 2018 — is dwarfed by those of western development lending institutions.

“The IIB may have a bit of an economic impact, but the size will be small,” Andras Deak, an expert at the Hungarian Academy of Sciences, told AFP.

Moscow’s leverage with Hungary has grown since Orban adopted a policy of “eastern opening” toward Russia, Turkey and China after returning to power in 2010. 

In 2014 he signed a 10-billion euro ($11 billion) loan deal with Putin to expand Hungary’s only nuclear plant at Paks, south of Budapest.

The IIB is likely to be discussed this week in Budapest during a meeting between Putin and Orban.

They are also due to sign a major gas energy supply deal and finalise a Hungarian-Russian consortium to produce railway carriages for Egypt.

Disclaimer: Validity of the above story is for 7 Days from original date of publishing. Source: AFP.