Czechia is stepping up leaving multilateral banks IIB and IBEC, both of which feature Russia as their largest shareholder. Romania is following the Czechs’ lead, though Hungary, where the IIB is based, is unlikely to join the exodus.

Czechia and Romania Accelerate Escape from Soviet-Era ‘Spy’ Banks

Photo: IIB

The Czech government is accelerating a drive to quit two Soviet-era banks in response to Russia’s invasion of Ukraine and its call to other eastern EU states to do likewise has prompted Romania to announce on Saturday its decision to leave.

The recently-appointed government in Prague was already working on leaving the International Investment Bank (IIB) and the International Bank for Economic Co-operation (IBEC), both of which feature Russia as their largest shareholder. Should both Prague and Bucharest exit, Russia’s share in the IIB would surpass 50 per cent. However, the move is likely to be frowned upon by Hungary, which has hosted the headquarters of the IIB since 2019.

Insisting that the government sees little benefit in remaining partners in the two multilateral development banks, the Czech Finance Ministry said on February 25 that it hopes to leave both institutions within three months.

“We will call on other member states from the European Union to take the same course of action,” the ministry said in a statement. “We strongly perceive that our participation… raises security and political questions for our western allies, which need to be dispersed also in the context of the current Russian invasion of Ukraine.”

Romanian government spokesman Dan Carbunaru told a press conference on Saturday that his government too will start the procedure to withdraw from the IIB, part of a series of actions undertaken by a special task force set up to manage the consequences of Russia’s invasion of Ukraine, SeeNews reported.

The US has been pressing the Czechs to quit the institutions, warning that they’re a security risk. Former prime minister Andrej Babis failed to act, but after being appointed in December, the centre-right government of Prime Minister Petr Fiala had recently started the process.

The Finance Ministry said that it will now speed things up and call 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 inside the EU and while he has now condemned the Kremlin’s attack on Ukraine, he had rejected criticism at the start of the month as he met with Vladimir Putin and blasted EU sanctions against Russia.

Similarly, in 2019, Orban invited IIB to set up its headquarters in Budapest, granting it full diplomatic immunity. That allows staff to enter Hungary freely – and therefore the wider EU – potentially undermining sanctions. The Hungarian authorities are also unable to oversee any of the bank’s activities.

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

The Hungarian government said that hosting the bank would help make the country a financial hub. Noting that IIB holds assets of just 2 billion euros, critics suggested it was more likely to make Hungary a spy hub.

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

The official also noted that Czechia could seek to create bigger problems for the IIB because it has still not officially signed off on the bank’s move to Hungary.

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

Czechia holds a 13.34 per cent stake in the 400 million euro registered capital of IBEC, which it joined in 1963. A plan to fold that bank into the IIB, joined by the Czechs in 1970 with an 8.89 per cent stake, is being prepared.

The Finance Ministry noted that should Czechia persuade other EU partners to quit the IBEC, the bank’s activities would be terminated due to the exit of two-thirds of the membership.

The ministry also stressed that it will strenuously ensure compliance with the new EU sanctions placed on Russia, and added that it plans to inspect companies with Russian ownership in relation to the use of public funds.

Hungary’s united opposition, which will contest the elections on April 3, has demanded the country leaves the IIB and kick the institution out of the country. The government has yet to comment.

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

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