The Moscow-backed bank’s staff are reportedly being granted full diplomatic immunity by their Hungarian hosts.

The Russian-led International Investment Bank is set to complete its complex reformation with its relocation to Budapest, the Hungarian capital, despite the diplomatic controversy surrounding the bank reportedly linked to the Kremlin’s spy agencies.

The Moscow-backed development bank announced at the weekend it will in September hold its first board of governors meeting since moving to the European Union, signalling a start to operations at its new base.

The nationalist-populist Hungarian government of Prime Minister Viktor Orban insists that hosting the IIB will expand his country’s economic horizons and promote Budapest as a regional financial centre for Central and Eastern Europe (CEE). However, critics say the bank is a front for a Russian intelligence operation that threatens the EU and NATO.

Revived by President Vladimir Putin from the ashes of the Soviet Comecon development bank, the IIB boasts nine states as members. Five – Hungary, Bulgaria, Czech Republic, Romania, and Slovakia – are former communist countries now in the EU and NATO.

Cuba, Mongolia, Vietnam and Russia make up the rest. The IIB insists it is not Russian, despite Moscow controlling a 47 percent stake in the bank. Hungary holds 12.87 percent.

The IIB will be “the first and only multilateral development bank with headquarters in the CEE region”, according to a blog written by government spokesman Zoltan Kovacs, who did not respond to questions from Al Jazeera.

The bank will offer Hungarian companies access to the international market and significant financing, he wrote.

Critics argue, however, this money goes almost exclusively to a network of oligarchs Orban has established to control certain economic sectors and to benefit from huge volumes of EU funding flowing into Hungary.

Playing both sides

With a balance sheet estimated at just 1.3 billion euros ($1.4bn), the “supranational bank” is not even among the 10 largest in Hungary, but will have a staff of about 100. That has provoked worries that Budapest is not opening the door to bankers only.

“It’s more likely to make Budapest a Russian intelligence centre than a financial hub,” said Andras Biro-Nagy of Policy Solutions, a liberal Budapest-based think-tank.

IIB CEO Nikolai Kosov is another concern. His parents were both KGB officers in Hungary as the Soviets crushed Hungary’s 1956 revolution. He is also a Putin confidant, according to Attila Ara Kovacs, a Member of the European Parliament for the Demokratikus Koalicio opposition party, who sits on the EP’s security and defence subcommittee.

The government has reportedly granted the IIB full diplomatic status. Staff and guests will be able to enter the EU state freely, potentially undermining the Western sanctions on Moscow that Orban has so often criticised. The Hungarian authorities will have no right to oversee the bank’s activities.

“It’s foolish to believe the Hungarian security services have the ability to control the Russian ones in any way,” said independent MP Akos Hadhazy.

Instead of defending Hungary against Russian malign interference, Orban appears to have welcomed it. US Senate Foreign Relations Committee

However, Mark Galeotti, an analyst on Russian security issues, called the level of concern “overblown”.

“If the IIB becomes too obviously the kind of den of spies that some fear, the Hungarian government can and likely would retaliate,” he asserted.

Nevertheless, concern persists that the arrival of the IIB is just the latest step in Orban’s pivot to the east. The Hungarian prime minister is viewed as the closest of any EU leader to Putin, with whom he shares a penchant for what Orban has described as “illiberal democracy”.

“Instead of defending Hungary against Russian malign interference, Orban appears to have welcomed it,” a report from the US Senate’s Foreign Relations Committee stated last year.

While Orban has also sought to cosy up to US President Donald Trump with recent weapons deals, diplomats and analysts report that Washington’s intelligence agencies and NATO have become wary of Budapest’s geopolitical commitment, especially due to difficulties Hungary has created for deepening ties with Ukraine.

US Secretary of State Mike Pompeo cautioned Hungarian Foreign Minister Peter Szijjarto over the IIB on a recent visit, noted Daniel Berg of Hungary’s opposition Momentum party.

190805172749625

In mid-August, Hungarian media reported Orban had privately promised US Ambassador David Cornstein he would keep an eye on his new guests. Washington reportedly blocked plans for the IIB to move in across the street from its Budapest embassy.

“Orban has been trying to perform a delicate balancing act between East and West for most of the last decade,” said Biro-Nagy.

No strings attached

While he admires Trump’s politics, Orban’s regime also “needs financial and political ties to the autocratic regimes in the east”, pointed out a diplomatic source in Budapest, speaking on condition of anonymity.

The EU is seeking leverage to slow the prime minister’s efforts to tighten his grip on the levers of power, and threatening to reduce subsidies to Hungary, which totalled 25 billion euros ($27bn) in the 2014-20 funding window.

Orban wants alternative sources of financing that don’t come with such strings attached. He’s courted China for years and Turkey is in his sights. Hungary re-joined the IIB not long after it agreed to borrow 10 billion euros ($11bn) from Russia to expand Hungary’s sole nuclear plant in Paks.

“NATO has recently started to share less information with the Hungarians due to fears it leaves the door open to Russia,” said the diplomatic source.

Orban is no “Muscovite mole”, insisted Galeotti. However, the friends whom he hopes will help him build his own mini-empire in Central Europe are raising suspicions.