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News 18 March 2019, at 16:41

New York Times Hungary Rolls Out Red Carpet for Obscure Russian Bank, Stoking Spy Fears

Marime Font

 BUDAPEST — The International Investment Bank, an obscure Russian financial institution with a small-time balance sheet, is an unlikely source of global intrigue. In more normal times, its plans to open a new headquarters in Budapest would pass unnoticed.

 But the bank’s chairman has longstanding ties to Russian intelligence agencies. And the Hungarian Parliament has effectively granted the bank diplomatic immunity from any scrutiny by police or financial regulators — leaving Western security officials concerned that Russian spies could use it as a base to conduct European intelligence operations.

Several European nations have expelled Russian agents and cracked down on Kremlin finances in an effort to present a united front as Moscow is accused of meddling in the American election, poisoning a former spy in Britain and targeting European think tanks with hacking attacks.


And if the Europeans are now concerned about the Russian bank, so are the Americans, especially since the Trump administration has cultivated Hungary’s prime minister, Viktor Orban, as an ally. Days before Parliament granted immunity to the Russian bank, Secretary of State Mike Pompeo met Mr. Orban in Budapest and warned against allowing Russia to drive a wedge between friends.

“Hungarians know all too well from their history that an authoritarian Russia will never be a friend to the freedom and sovereignty of smaller nations,” he said.

Europe has always been divided in its attitudes toward Russia, a split evident now in the number of far-right parties that are embracing the Russian president, Vladimir V. Putin. But the bank caught the attention of Western officials because Mr. Orban — the leader of a country that is a member of both the European Union and NATO — has stirred anxiety by steadily forging closer ties with the Russian leader.

An anti-immigrant, far-right leader who has systematically weakened Hungary’s democratic institutions, Mr. Orban has pointed to Russia as a beacon of his model of so-called illiberal democracy. He has worked to keep Ukraine from joining NATO and routinely lashes out at European Union leaders in Brussels, accusing them of endangering national security through immigration.

Then late last summer, Hungarian officials stunned their American counterparts. The two countries had worked together in Hungary to capture a pair of Russians suspected of being arms dealers. The Justice Department moved quickly to extradite the two men to face trial in the United States, but Hungary sent them to Russia instead. “It is unclear whether they will face trial,” the State Department said in a pointed public statement.

Mr. Orban has awarded a Kremlin-owned company a no-bid contract worth billions of dollars to upgrade Hungary’s nuclear power plant and has criticized Western sanctions against Russia.

Hungary also secretly granted residency permits to a Russian lawmaker, Vladimir Blotskiy, and his relatives, as well as family members of the head of the Russian Foreign Intelligence Service, Sergey Naryshkin, leading to accusations that Hungary has become a backdoor for Russians who otherwise would struggle to settle in the European Union.

But only recently have analysts begun to question whether Mr. Orban was genuinely pivoting toward Moscow.

“A few years ago I would have said, ‘Yes there is this eastern shift by the Hungarian government, but Hungary still respects its European and American partnerships,’” said Peter Kreko of Political Capital, a research group based in Budapest. “I think it’s less and less the case today.”

Mr. Kreko said there was a paradox in Mr. Orban’s willingness to grant immunity to a Russian bank on Hungarian soil: Mr. Orban had been reluctant to renew a military treaty with the United States over concerns it interfered with Hungary’s sovereignty.

“If that’s the case,” Mr. Kreko asked, “why are you giving these immunities to a Russian bank when there are these strong suspicions that it can be cover for Russian intelligence operations?”

The Hungarian foreign minister, Peter Szijjarto, said the bank’s relocation “serves to further reinforce Budapest’s international financial positions.” The Finance Ministry said the move would provide “new opportunities for stakeholders from the Hungarian financial and economic sectors.”

During the Cold War, the bank served as a financial center for the Communist trade bloc. It fell into disarray with the collapse of the Soviet Union, but Mr. Putin’s government resurrected it under a new management team. It counts Cuba, Bulgaria, Hungary and Vietnam among its members, who govern the bank on a one-country-one-vote system. Russia is the largest contributor to the bank, controlling 40 percent of its assets, records show.

The bank’s chairman, Nikolay Kosov, comes from a prominent K.G.B. family, according to Western officials and a former Russian official. His father was the top Russian spy in Budapest during much of the 1970s, and his mother was hailed by the Russian news agency TASS as “one of the most extraordinary spies of the 20th century.”

Western security officials believe that Mr. Kosov himself served in Russian intelligence, according to officials who spoke on condition of anonymity because they were not authorized to discuss intelligence matters. In a statement, the bank said he was “in no way linked to K.G.B.” His official biography says he served in various diplomatic postings during the Soviet era. The bank dismissed questions about his background as biased.

“They have absolutely nothing to do and have no relation to the bank, its chairman and shareholders, and therefore need no comment,” the bank said in a statement. It said moving to Budapest was a natural step in its expansion. The bank noted that it had a diverse staff of multiple nationalities, and that more than half the assets had come from European countries.

The immunity deal passed in Parliament recently is not unusual for a multilateral investment bank, but government officials and experts say the arrangement makes little sense.

“It’s very difficult to say why this bank is coming to Hungary now,” said Julius Horvath, an economics professor at Central European University in Budapest. “It doesn’t appear to be based on economic considerations, rather political.”

One European security official said the banking arrangement presented an opportunity for Mr. Putin to replenish his spy corps after the expulsion of scores of Russian officials from Europe and the United States. The expulsions were in retaliation for the poisoning of a former Russian spy in Britain.

Agnes Vadai, an opposition lawmaker in the Hungarian Parliament, said: “Now, people can be sent into this bank with full immunity, and we don’t know anything about who they are.”

By Matt Apuzzo and Benjamin Novak


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