Russian “spy bank” tried to “pressure” Hungary as it faces bankruptcy

Leaked internal files exposed that the Russia-linked International Investment Bank (IIB) tried to put pressure on the Hungarian government. The situation within the “Russian spy bank” is dire, and the Hungarian government could lose serious investment with very little return.

The International Investment bank, in which Russia holds a 45.4 percent share and Hungary has a 25.27 percent share which is increasingly likely to go under. Direkt36 got access to several leaked emails from the company. They show that the Russian bank either goes bankrupt or leaves Hungary, in which case it is unclear whether the money invested by the Hungarian government will be repaid.

As we have previously written, following the exit of the Czech Republic, Slovakia, Romania, and Bulgaria, Hungary remained the only European shareholder in the bank. The country’s shares increased by a massive 8 percent, to the current 25.27 percent.

Between two walls

However, the company is in a dire state. Only 4 days after Russia’s invasion of Ukraine, Belgian-based institution Euroclear blocked the bank’s funds, according to the leaked documents reviewed by Direkt36. Although the IIB has its headquarters in Budapest, the bank’s account was opened by a Russian financial institution, Rosbank. Therefore, Euroclear argues that the bank falls under the EU sanctions against Russia.

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Curiously, the bank was also affected by Russian counter-sanctions. To lift those sanctions, CFO Elliott Auckland tried to show the IIB “as Russia-friendly as possible” to Moscow. With that, they successfully avoided a downgrading Moscow-based rating agency ACRA. However, that in itself couldn’t save the bank.

The IIB also tried to sell its office in Moscow, which was valued at EUR 48.5 million. But a senior executive argued that Hungary should not be notified of the sale. According to Direkt36, the thought was that “the Hungarian government should not think that the IIB could easily solve its problems on its own.”

“We need to pressure them as the only country who can give us liquidity (and not let them think we can survive comfortably on our own)” – the unnamed executive wrote to his colleagues.

Next, Russia tried to transfer EUR 67.6 million paid-in capital to Hungary, which would then immediately transfer EUR 20 million to the then potentially new member country Serbia, according to a document dated August 23, 2022. But that option failed, as “such transactions would fall under EU sanctions that prohibit any investments in Russia.”

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Hungary tried to lift the sanctions

According to the leaked documents seen by Direkt36, a letter was drafted by Minister of Economic Development Márton Nagy to Belgian Minister of Finance, Vincent Van Peteghem, in which he asked Belgium to unfreeze the bank’s account with Euroclear, with no success.

To save the bank, Hungary could theoretically increase its shares, but according to Balkan Insight, that’s an unlikely option, as officials are aware that it is very risky to invest money in the IIB.

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No moneyback guarantee

If Russia increases its shares above 50 percent, then the IIB must leave Hungary and the EU as it would count as a Russian bank, which falls under the sanctions. In that case, it is also unclear, whether Hungary will be refunded. The Hungarian government invested HUF 74 billion (EUR 200 million) of public money in the IIB.

“Poland, which left the IIB after the democratic transition, did not get a dime back. There is simply no payback guarantee in the bank’s regulations” – says András Rácz, Senior Fellow at the German Council on Foreign Relations to Balkan Insight. “Countries which joined the IIB should have known better.”

Source: direkt36.hu, Balkan Insight