Czechia and Romania are stepping up their escape from Soviet-era ‘spy’ banks

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Photo: IIB

The Czech government is stepping up efforts to exit two Soviet-era banks in response to Russia’s invasion of Ukraine and its call for other eastern EU states to do the same has prompted Romania to announce his decision to leave on Saturday.

The newly appointed government in Prague was already working to exit the International Investment Bank (IIB) and the International Bank for Economic Cooperation (IBEC), both of which have Russia as a major shareholder. If Prague and Bucharest were to exit, Russia’s share in the IIB would exceed 50%. However, this decision risks being frowned upon by Hungary, which hosted the Headquarter from the IIB since 2019.

Insisting that the government sees little benefit in remaining partners in the two multilateral development banks, the Czech finance ministry noted on February 25 that he hopes to leave the two establishments within three months.

“We will call on other member states of the European Union to follow the same line of conduct,” the ministry said in a statement. “We strongly perceive that our participation… raises security and political issues for our Western allies, which also need to be dispersed in the context of the ongoing Russian invasion of Ukraine.”

Romanian government spokesman Dan Carbunaru told a press conference Saturday that his government will also begin the process of withdrawing from the IIB, part of a series of actions undertaken by a special task force set up to manage the consequences of the Russian invasion of Ukraine, said reported SeeNews.

The United States has pressured the Czechs to leave the institutions, warning they pose a security risk. Former Prime Minister Andrej Babis did not act, but after being appointed in December, Prime Minister Petr Fiala’s centre-right government had recently started the process.

The finance ministry said it would now speed things up and called on Bulgaria, Hungary, Romania and Slovakia to follow suit.

However, Hungary is unlikely to join the push. Hungarian Prime Minister Viktor Orban is one of Moscow’s closest allies in the EU and while he has now condemned the Kremlin’s attack on Ukraine, he dismissed criticism earlier this month in meeting Vladimir Putin and lambasting EU sanctions against Russia.

Similarly, in 2019, Orban invited IIB to set up its headquarters in Budapest, granting it full diplomatic immunity. This allows personnel to freely enter Hungary – and therefore the whole of the EU – which can potentially undermine sanctions. The Hungarian authorities are also unable to supervise the activities of the bank.

Raising his eyebrows further, the bank’s CEO, Nikolai Kosov, is the son of parents who were both in the service of KGB officers in Budapest when the Soviet machine crushed the 1956 revolution. Kosov Jnr is reputed to be a confidant of Putin.

The Hungarian government said hosting the bank would help make the country a financial center. Noting that IIB holds assets of just €2 billion, critics suggested he was more likely to turn Hungary into a hub for espionage.

Unsurprisingly, IIB’s freedom to move to an EU and NATO member state sparked alarm among US officials, who have since lobbied Prague. “Our security partners have been alerting us for a long time,” Czech Deputy Foreign Minister Jiri Kozak said last week. “We will consider whether there are other NATO member states that would like to leave the banks to us.”

The official also noted that Czechia could be looking to create bigger problems for the IIB as it still hasn’t officially approved the bank’s transfer to Hungary.

“The Czech Republic has not yet agreed to move the seat to Budapest, so it is a conditional seat. We will also analyze what… will happen if we do not agree to the transfer,” he said.

Czechia holds a 13.34% stake in the 400 million euro share capital of IBEC, which it joined in 1963. A project to integrate this bank into the IIB, joined by the Czechs in 1970 with an 8.89% stake, is being prepared.

The Ministry of Finance noted that if Czechia persuaded other EU partners to leave IBEC, the bank’s activities would be halted due to the exit of two-thirds of the members.

The ministry also stressed that it will rigorously monitor compliance with new EU sanctions imposed on Russia, and added that it plans to inspect Russian-funded companies with regard to the use of public funds.

Hungary’s United Opposition, which will take part in the April 3 elections, demanded that the country leave the IIB and expel the institution from the country. The government has yet to comment.

Peter Marki-Zay, the united opposition candidate for prime minister, will address a protest to be held outside the IIB headquarters on March 1.

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