The International Investment Bank (IIB), a former development bank of the Soviet Union, is on a Europeanization mission. The bank is trying to abandon its legacy of KGB connections.

It also aims to alleviate worries over Russia’s dominance, but Brussels and Washington are worried about espionage.

But, IIB is still pegged at the center of Cold War-era espionage fears. The tension between its history and the new European image that it is trying to forge keeps increasing ahead of September celebrations when the bank will mark its 50th anniversary.

The deputy chair of the IIB’s management board, Imre Laszlóczki, told the Moscow Times:

“Of course, we would like to get rid of this Comecon heritage and legacy. But history is history, and you cannot change what has happened. My big aim is to make the bank more European. It was always a goal, but now we have a real chance, being in Europe. The next strategy will be all about Europeanization.”

Europeanization brings more European scrutiny, and the bank’s relocation from Moscow to Budapest encountered uproar from the Hungarian opposition and civil society.

Also, the many immunities that the Hungarian President Viktor Orban awarded the bank increased security fears in Washington and Brussels.

The worries

All these immunities awarded to IIB have the US State Department worried that the relocation might help Russia grow its malign influence in Hungary and across the region. Significant links between the IIB and Russian intelligence agencies were endemic all through the cold war.

Nikolai Kosov, the bank’s current chairman, appointed to revive and Europeanize IIB in 2012, also has extensive ties with the Russian intelligence services.

Expansions

The IIB has been bullish in pushing back against what they term as ‘unfounded allegations.’ Laszlóczki said he found the media coverage “boring” while speaking in an interview in the bank’s newly-downsized Moscow office.

He chose to focus on the overhaul of its governance networks since 2012 that the World Bank helped create. The deputy chair said that these moves are evidence that IIB is serious about becoming an established multinational development bank by 2032.

Russia has reduced the control of its bank to 43% while the EU members hold a combined 53%. Critics say that its voting system allows any member with over 25% of the shares can veto decisions, but the bank uses the reduced Russian hold to support its European credentials.

This transformation won support from investors and rating agencies who bought bonds issued by the IIB in Europe at tight spreads. These tight spreads indicate strong demand. The managing director of global sovereigns and supranational at Fitch Ratings, Tony Stringer, said:

“They’ve moved away from being a more Russian-centric institution to becoming a more European institution. With the relocation, the whole culture and base of the organization have shifted to Europe. They’ve made some positive steps in the area of governance, and this is an area that since the relaunch, they’ve focused on improving … meaning the bank’s governance structure is now more aligned with international best practice.”

Russia’s share will decline further as part of the Europeanization strategy. The IIB seeks to bring in new countries to add to the current nine.

Laszlóczki says there are plans to add a potential new member in Asia and un-named medium-sized European economies.

Suspicious alliance

The bank’s small size increased concerns about last year’s relocation. Many analysts believe that the move was not a simple economic partnership; it was seen “as further evidence of an unholy alliance between Putin and Orban.” Gabor Gyori, a Hungarian political analyst, commented:

“The problem is, the Hungarian government has cordoned off all of its activities. It is known for its lack of transparency, which leads analysts and journalists down this realm of conspiracy theories. If you don’t have specific information, you need to give your narratives about what’s happening.”

The espionage concerns were “overblown” because nothing has to happen in that context since the relocation in 2019, according to Mark Galeotti, an expert Russian spy-watcher. But, the scrutiny will remain as the bank continues to expand and Europeanize.

Many European lawmakers (MEPs) still want the European Union to keep a close eye on the IIB’s activities.