International Investment Bank

The International Investment Bank (IIB) is a sanctioned Russian government-controlled[1] multilateral financial institution. Initially formed by the Soviet Union in 1970, it was revived by Russia's government in 2019 when it relocated its headquarters from Moscow to Budapest.[2][3]

International Investment Bank
TypeInternational financial institution
FoundedJuly 10, 1970 (1970-07-10)
Headquarters
Budapest, Hungary
Key people
Nikolay Kosov (chairman)
Total assetsEUR 1720 million
Total equityEUR 2 billion (paid in capital EUR 378,71 million)
OwnerComecon member countries (1970–1991)
Websitewww.iib.int/en

Initially made up of all Warsaw Pact members led by the Soviet Union alongside Cuba, Mongolia and Vietnam under the Eastern Bloc during the Cold War, IIB's membership was largely maintained until that point. East Germany withdrew from the IIB in 1990 following German reunification, Poland left in 2000 prior to joining the European Union and the Czech Republic and Slovakia (formerly part of Czechoslovakia) exited the organization following the 2022 Russian invasion of Ukraine with Bulgaria and Romania to follow. In April Hungary announced it was leaving as a result of sanctions on the Hungarian management of the bank.[4]

History
The Vnesheconombank complex houses the IIB's branch in Moscow as of 2023[5]

Soviet era

IIB was established in 1970 under the auspices of Comecon. The agreement establishing it was signed by the member states on 10 July 1970 and registered with the UN Secretariat under number 11417. The Bank began its activities on 1 January 1971. The member states of the Bank at the time of its foundation were: the People's Republic of Bulgaria, the People's Republic of Hungary, the German Democratic Republic, the Mongolian Democratic Republic, the People's Republic of Poland, the Socialist Republic of Romania, the Union of Soviet Socialist Republics, and the Czechoslovak Socialist Republic.

After graduating in 1975 from the Moscow Financial Institute majoring in international financial relations, Albert Nikolaevich Belichenko (Russian: Альберт Николаевич Беличенко; born 2 July 1931), who is fluent in German, served as Chairman of the Board of the International Investment Bank from 1975 until his retirement in 1993. Previously, he was a director on the three-member Board of Directors of Morgenrot AG and, from 1966 to 1969, he headed the Wozchod Handelsbank (Zurich) which was the first Soviet bank in Switzerland opening on 22 June 1966.[6][7][8][9][lower-alpha 1]

Post-Communist era

Following the Soviet Union's unraveling, IIB membership declined until Russia was the only remaining member. In 2019, IIB relocated its headquarters from Moscow to Budapest.[13][14] Viktor Orbán gave IIB as well as "guests, business partners, experts" EU residence and full diplomatic immunity.[15] In 2020, the IIB acquired the historic Lánchíd Palace on a prominent location adjacent to Budapest's iconic Széchenyi Chain Bridge for its head office.[16]

A day after the 2022 Russian invasion of Ukraine, the Czech Republic announced it would speed up its planned departure from the IIB,[17] Romania then started the process to withdraw,[18] followed by Slovakia and then Bulgaria terminated its membership in the IIB.[19] All would request return of funds, including capital of €134.6 million euros.[20]

The exit of most members of the bank withdrawing their investments and the cost of sanctions against the bank, including first Euroclear and then the Belgian government blocking funds in October 2022, has resulted in the bank using up its liquid reserves, putting it at risk of bankruptcy.[21]

In January 2023 it was agreed that the capital of the bank be changed, with Russia converting some capital to debt, allowing the Czech Republic and Slovakia to withdraw their capital without Russia exceeding 50% ownership. Proposed new ownership: Russia 45,44%, Hungary 25,27%, Bulgaria 14,46%, Romania 8,94%, with Cuba, Mongolia and Vietnam holding less than 3% each.[22]

Russia announced in April 2023 that the bank will relocate its headquarters from Hungary back to Russia[23] after Hungary announced it was withdrawing from the IIB, which happened after the bank was sanctioned.[24]

Governance

The Board of Governors is the Bank's supreme collective governing body, consisting of representatives from the IIB's member states.[25] The board of directors is responsible for the general management of the Bank.[26] The Bank's executive body is the Management Board, whose members are appointed by the Board of Governors.[27] The Bank's activities are controlled by the Audit committee, which is made up of representatives from the IIB's member states appointed by the Board of Governors. The Bank's Financial statements are confirmed by a half-year compliance Audit review and an annual audit conducted by international auditors.[28]

Membership

Current members[29]

Former members

The IIB statutory documents allow for the admission of either sovereign states or international organisations as members.

Controversy

Connections to Russian spy operations

With the relocation of IIB's headquarters to EU member Hungary, critics raised that the bank serves as a "Trojan horse"[32] for Russian intelligence operations and spy activities against the European Union.[33] This claim is supported by the fact that the bank's former chief Nikolai Kosov has close ties with Russian intelligence agencies, and that his father was a KGB top operative in Budapest in the 1970s, while his mother was described as “one of the most extraordinary spies of the 20th century”. Kosov has rejected this claim.[34] 

Hungary's Russia-friendly government was also criticised for providing privileges to the IIB, including diplomatic immunity to its staff and exclusion from any regulatory supervision in Hungary.[35] The Government of Hungary announced [36] the withdrawal of its membership on the 13th of April, 2023.

Sanctions

In April 2023 the USA sanctioned the bank, IIB Capital and their management for potentially facilitating the evasion of U.S. sanctions against Russia.[37] Subsequently, all correspondent banking entities of IIB in the EU blocked transactions in connection with IIB, including Bank’s nostro accounts in EUR, USD, HUF, CZK and RON.[38]

Unpaid loans

In October 2023 the bank failed to repay two loans of 350 million lei ($70m) to five Romanian pension funds, due to accounts being blocked as a result of sanctions.[39] Romania is asking the US for assets to be unfrozen to enable Romanian investors to be repaid their loans from the IIB Romanian issued bonds, including another repayment due shortly of 200 million lei ($40m).[40]

See also

Notes
  1. From 1974 to 1986, Galina Apollonovna Titova (Russian: Галина Аполлоновна Титова; 7 April 1923 - 23 August 2017) was fluent in Russian, German, and English and was a deputy Head of Legal Department at the International Investment Bank (IIB) in one source[7] and was a Senior Assistant in the Resources Department of the International Investment Bank from 1975 to 1978 and Head of the Legal Department of the Main Monetary and Economic Department of the USSR State Bank from 1978 to 1986 in other sources.[10][11] While she was at IIB and later during the late 1970s until the late 1980s, she frequently travelled to the Singapore branch of the MosNarBank London which opened on 22 November 1971.[11][12] After those postings, she was a senior Legal Adviser to the Foreign Operations Department of the Central Bank of the Russian Federation from 1997 to 2006. Previously from 1957 to 1961, she was a lawyer in the Department of Foreign Operations of the State Bank of the USSR and, from 1961 to 1974, was a deputy in the Legal Department of Vneshtorgbank of the USSR.[7][10][11] In 1948, Titova graduated from the Faculty of Law at Moscow State University and, in 1949, travelled with her husband to the German Democratic Republic (GDR), where she worked as a legal adviser to the reparations department of the Soviet Control Commission (SCC) in East Germany.[11]

References
  1. "International Investment Bank (IIB) | US Sanctions Russian-Controlled IIB Bank, Executives in Hungary". news.yahoo.com. Retrieved 27 June 2023.
  2. András Rácz (18 March 2019). "A foot in the door? Russia's International Investment Bank moves to Hungary". European Council on Foreign Relations.
  3. Szabolcs, Panyi; András, Pethő (19 July 2021). "Hungarian journalists and critics of Orbán were targeted with Pegasus, a powerful Israeli cyberweapon". Direkt36 (www.direkt36.hu). Archived from the original on 5 September 2023. Retrieved 23 October 2023.
  4. "DEMOCRACY DIGEST: HUNGARY'S BALANCING ACT TOPPLES AS IT ABANDONS RUSSIA 'SPY BANK'". 14 April 2023.
  5. "contacts". International Investment Bank.
  6. "SCHWEIZ / SOWJET-BANK: Morgenröte AG" [SWITZERLAND / SOVIET BANK: Dawn AG]. Spiegel Online. Vol. 39. 19 September 1966. Archived from the original on 2 April 2015. Retrieved 23 October 2023.
  7. Кротов, Николай (Krotov, Nikolay) [in Russian] (2007). "Гонка на золотых тельцах" [Race on the golden calves]. «Неприкосновенный запас» 2007, №2(52) ("Emergency Reserve") (in Russian). Archived from the original on 20 March 2013. Retrieved 23 October 2023 – via magazines.russ.ru.{{cite news}}: CS1 maint: multiple names: authors list (link)
  8. "Беличенко, Альберт Николаевич" [Belichenko, Albert Nikolaevich]. fa100.ru (in Russian). November 2021. Archived from the original on 28 November 2021. Retrieved 23 October 2023.
  9. Избран новый совет директоров МБРР 27 April 2010
  10. "Титова Галина Аполлоновна" [Titova Galina Apollonovna]. letopis.org (in Russian). 23 October 2023. Archived from the original on 23 October 2023. Retrieved 23 October 2023.
  11. "Галина Аполлоновна Титова: В Сингапур я ездила разбираться десять лет" [Galina Apollonovna Titova: I went to Singapore to figure it out for ten years] (PDF). letopis.org (in Russian). Archived from the original (PDF) on 23 October 2023. Retrieved 23 October 2023.
  12. "Лондонский Московский народный банк (Моснарбанк, г. Лондон): ИСТОРИЯ" [London Moscow People's Bank (Mosnarbank, London): HISTORY]. VEB (letopis.ru) (in Russian). 21 April 2022. Archived from the original on 22 April 2022. Retrieved 23 October 2023.
  13. "Completion of relocation, increase in capital, new appointments – Budapest hosts the first meetings of IIB Board of Directors and Board of Governors after the Bank's move to Europe". International Investment Bank (IIB). Retrieved 22 September 2021.
  14. "International Investment Bank moved into Chain Bridge Palace".
  15. "International Investment Bank (IIB) | Putin's Resurrected Comecon Bank Will Have Diplomatic Immunity in Hungary (archive)". hungarytoday.hu. Retrieved 22 February 2019.
  16. "IIB acquires the historic Lánchíd Palota building for its headquarters in Budapest". International Investment Bank. 25 March 2020.
  17. "Czechs call on EU allies to quit Soviet-era banks, citing security". Reuters. 25 February 2022.
  18. "Romania to close its airspace to Russian airlines-govt spokesman". Reuters. 26 February 2022.
  19. "Parliament Terminates Bulgaria's Membership in International Investment Bank, International Bank for Economic Co-operation". www.bta.bg. Retrieved 10 February 2023.
  20. "Leaked files reveal panic at Russian-led bank in Budapest". 31 March 2023.
  21. "Budapest-based Russian 'spy bank' faces bankruptcy". 28 February 2023.
  22. "IIB Board of Governors meeting: important decisions and new perspectives". 30 January 2023.
  23. "'Spy bank' relocates from Hungary to Russia after U.S sanctions". 19 April 2023.
  24. "Hungary quits Russian-controlled investment bank in Orbán U-turn". 13 April 2023.
  25. "International Investment Bank (IIB) | Board of Governors". iib.int. Retrieved 22 September 2021.
  26. "International Investment Bank (IIB) | Board of Directors". iib.int. Retrieved 22 September 2021.
  27. "International Investment Bank (IIB) | Executives". iib.int. Retrieved 22 September 2021.
  28. "International Investment Bank (IIB) | Annual Reports". iib.int. Retrieved 22 September 2021.
  29. "International Investment Bank - Hungarian Banking Association".
  30. "Magyarország Kormánya - Government of Hungary".
  31. "The end of emerging Europe's involvement in Russia's 'opaque' development bank". 14 April 2023.
  32. "Spy accusation scandal breaks out over IIB's move to Hungary". 21 March 2019.
  33. Apuzzo, Matt (18 March 2019). "Hungary Rolls Out Red Carpet for Obscure Russian Bank, Stoking Spy Fears". The New York Times.
  34. Seddon, Max (26 March 2019). "Russian development bank's move to Hungary causes alarm". Financial Times.
  35. "U.S. Senators see security threat in Russian bank's move to Budapest". Reuters. 26 September 2019.
  36. "Magyarország kilép a Nemzetközi Beruházási Bankból".Magyarország Kormánya - The Government of Hungary
  37. "Russia-related Designations; Issuance of Russia-related General Licenses and Frequently Asked Question; Revocation of Russia-related General License". 12 April 2023.
  38. "Significant fact - Notice to Bondholders, Creditors and Clients". 25 May 2023.
  39. "An alarm signal. Five Pilon II private pension funds have 350 million lei locked up at the Russian-controlled International Investment Bank. The bank failed to repay two loans on October 7 and 19. Funds: "I turned to lawyers"". 19 October 2023.
  40. "Romania seeks to unfreeze IIB assets blocked by the US but claimed by local investors". 20 October 2023.
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