The Russian-dominated International Investment Bank (IIB) will leave Budapest and move back to Moscow after it was sanctioned by the US and the Hungarian government withdrew its membership of the development bank under intense US pressure, the bank said on April 19.
Earlier this week the IIB admitted it could not meet its obligations to partners but blamed difficulties caused by sanctions rather than a liquidity crisis.
Set up in the 1970 as a Soviet-era development bank for COMECON countries, in recent years the bank has been positioning itself as a leading development bank in the Central Europe region and used to count many of the former Warsaw Pact countries as shareholders.
In order to get out from under the stigma of its Russian roots, IIB moved its headquarters to Budapest at the personal invitation of Hungarian Prime Minister Viktor Orban. After the imposition of sanctions on the IIB, Orban surprised observers by calling the US a “friend” and withdrawing from the bank.
The withdrawal of Hungary ends Moscow's dream of building a European-focused international financial institution (IFI) such as the EBRD or EIB, leaving Russia as the last significant shareholder.
The decision also marks a humiliating defeat for Orban's project to attract the IIB to Budapest in 2019 and thereby forge closer financial ties with Moscow and strengthen Hungary's role as an international financial centre. Hungary was the second-largest shareholder in the bank with 25.4% of the share capital.
In its new statement on April 19, the bank said: "Due to US sanctions and the designation of International Investment Bank in the US OFAC SDN list, the bank is currently deprived of the ability to conduct financial operations."
IIB said it had exhausted the basis for further operations from its headquarters in Budapest and in the European Union. As a result, the IIB has proposed to Hungary to start the renunciation of the agreement regarding its Budapest headquarters.
The bank has also stated that it adheres to the policy of fulfilling its obligations and will use all available resources to protect its legitimate interests.
The IIB has been dogged by controversy, as it has been claimed that there are spies among its staff, some of whom enjoy diplomatic immunity due to its development bank status.
The US Treasury announced sanctions against the IIB and its leaders, including two Russian citizens and one Hungarian citizen, on April 12.
The department of the US Treasury's Office of Foreign Assets Control (OFAC) alleged that the bank allowed Russia to increase its intelligence presence in Europe, opened the door to the Kremlin's malign influence and activities in Central Europe and the Western Balkans, and could also be used for corruption and illegal financing, including sanctions circumvention. Hungary declared that it would withdraw from the financial institution's activities the following day.
In recent years, the Czech Republic and Slovakia have left the organisation, while Bulgaria and Romania have stated their intention to leave. Vietnam, Cuba, Mongolia and Russia will remain members of the bank when the Central European countries exit. Meanwhile, Serbia has expressed its desire to join.
IIB still maintains offices on the iconic Mashi Poryvayevoy street in the former huge Soviet-era Gosbank building in Central Moscow.