Orban promises the U.S. counterintelligence measures against a Russian-led bank

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One after another, Russian names hang on the white doors of the International Investment Bank’s (IIB) temporary offices in the outskirts of Budapest. The nameplates on the rooms of the bank’s Hungarian, Slovak and Czech leaders were also out. The Russian-led, Russia-dominated IIB is currently moving its headquarters from Moscow to Budapest. “Sixty people can comfortably fit here. Thirty of our staff have already arrived, twenty more will arrive by the end of August,” a senior official of the bank explained to our journalist who visited the office, while conversations in Hungarian and Russian spilled into the corridor as young clerks hurried about.

Hungary’s government has received multiple criticism after the country’s parliament approved the IIB’s relocation and granted the bank a wide range of diplomatic immunities. The largely Russian-owned bank is linked to Russia’s top political circles, according to Direkt36’s investigation. Opponents of the move say that the bank could be used for espionage. IIB says these allegations are unfounded. It is backed up by the Hungarian government, who also claims that the bank is in fact not Russian as its shareholders include several EU and NATO member countries. The bank also tried to ease criticism by organizing a press breakfast for journalists in June, and they also emphasized their transparency.

Hungarian diplomacy is also making significant efforts to reassure its allies. For example, Direkt36 has learned that during a joint flight, Prime Minister Viktor Orban promised U.S. Ambassador to Budapest David Cornstein that the bank would not move its headquarters near the U.S. Embassy building. Orban also ensured Cornstein that Hungarian intelligence services would aggressively monitor the bank. In the meantime, however, Hungary’s government is lobbying in support of the IIB in the U.S. Congress, according to documents Hungarian diplomats compiled that were obtained by Direkt36 and 444.hu.

Following our inquiry, the U.S. Embassy in Budapest stated that Ambassador Cornstein stands by his earlier remarks, that he received assurances from Hungary’s government that the IIB would not be granted full diplomatic immunity despite it being required by law. A spokesman for Viktor Orban and the Hungarian Ministry of Foreign Affairs and Trade did not respond to our inquiry, and IIB also refused to reply our written questions. However, a senior IIB official, under condition of anonymity, went into details about their relocation, and stated with confidence that the agreement granting full diplomatic immunity to the bank is in effect.

Office with a view of the U.S. Embassy

High metal fences, roadblocks, security gates with sentry boxes and permanent police presence surround the Embassy of the United States of America on Liberty Square, Budapest. There is nothing unusual about this spectacle; the U.S. has taken the security of its foreign representations seriously everywhere since the terrorist attacks of the 2000s. In the spring of 2019, however, the Embassy suddenly began to worry about a completely different type of risk.

As Direkt36 reported in April, the International Investment Bank was shopping for a new headquarters, among other places, near Liberty Square. Multiple opinions published in American and British media suggested that the institution could serve as a cover for Russian intelligence. A common joke among diplomats from NATO and EU countries assigned to Budapest was – Would the bank move into that building full of empty offices just opposite the U.S. Embassy?

The joke almost turned into reality. The bank was actually assessing the building opposite the U.S. Embassy called the Exchange Palace, formerly the headquarters to Hungarian National Television. “We had a list of vacant properties in Budapest that we thought could potentially be our headquarters. Yes, the Exchange Palace was indeed on our list. Our experts went to survey the site sometime in the spring, as they did with other sites,” a senior IIB official told Direkt36.

Budapest’s Liberty Square – the U.S. Embassy building is on the left in the middle, the Exchange Palace is on the upper right. Photo: Google Earth

News of the bank’s interest quickly spread across Liberty Square, and to Washington. The U.S. government soon signaled its concern to the Hungarian counterpart. “One thing that the Russians should be respected for is that they will really try just about anything,” a U.S. government official commented jokingly. The Exchange Palace has a direct line of sight of the windows of the U.S. Embassy as well as of its main entrances, where diplomats, official guests and U.S. citizens coming for consular services enter and exit all day.

By that time, the U.S. government had been lobbying for months against the IIB’s relocation to Budapest and the bank’s extensive diplomatic immunities that are virtually equivalent to what a foreign representation would have. For example, they complained that under the exemption, Hungarian authorities would not be able to search the IIB’s offices and Hungarian police could only enter at the bank’s request. U.S. government officials have told Hungarian counterparts during several meetings that they fear the Russian state could use the bank, its officials, its guests, and evens its offices for hostile intelligence activities. The bank’s interest in the Exchange Palace only affirmed these fears.

According to the host country agreement between the IIB and Hungary, the government has to provide the IIB with an appropriate Budapest headquarters. Several U.S. government officials confirmed to Direkt36, that due to their objections, Hungary’s government conceded that the location of the bank’s new headquarters not be close to either the U.S., or other NATO member states’ embassies. According to the U.S. officials, they were promised that the bank would be located far away from their embassy, on the Buda side. Shortly afterwards, Hungarian daily Nepszava reported that the bank could be headquartered in the Chain Bridge Palace on Adam Clark Square.

A senior IIB official, however, claimed: “There was never a point where we definitely said that we are moving in the Exchange Palace. The place was too big for us, so we would have had to share it with somebody else.” The bank official also claimed they have no information regarding any attempt by the United States to influence their site selection.

The bank is currently operating in a temporary office. According to the IIB official quoted above, “Budapest’s real estate market was unknown to us and we soon realized it is a difficult market and that we will need a temporary office first.” However, the IIB headquarters was not the only problem that required Hungarian diplomacy to take action and negotiate with the U.S. on allowing the bank to enter Hungary.

What did Orban promise the U.S.?

U.S. Ambassador David Cornstein returned to his post on the Hungarian Prime Minister’s plane on May 13 following the White House meeting of Viktor Orban and U.S. President Donald Trump. In the weeks following the meeting, Direkt36 held background discussions on the issue of the bank in Washington and Budapest. According to U.S. government and congressional sources familiar with the content of the conversation during the trip, Orban made several promises to Cornstein regarding the IIB during their shared flight. Ambassador Cornstein referred to these promises two days later, in a televised interview. He said that “the Hungarian government ensured that specific immunities regarding the bank won’t be happening, there are certain requests and these will be met, so they won’t have diplomatic immunity.” Later, Nepszava wrote that the U.S. and other countries were putting pressure on the Hungarian government over the bank.

In early July, when talking in front of a U.S. congressional delegation in Budapest, Cornstein went into details discussing what kind of assurances he had received from Orban regarding the IIB. Sources familiar with the meeting told Direkt36 that, according to Cornstein, Orban had promised him that the bank’s employees would not automatically be granted diplomatic immunity. They would be thoroughly screened by the Hungarian secret services before receiving immunity. According to the U.S. Ambassador, cooperation with Hungarian security authorities is so excellent that the presence of the IIB in Budapest is actually an opportunity for the United States. In his words, the bank’s relocation to Budapest is a “two-way street,” and while the Russians can use the IIB for spying, allied Hungarian services will help the U.S. gather more intelligence about the bank.

The Hungarian government has not responded to our questions on the Orban-Cornstein conversation, and based on previous statements of Hungarian officials, the government’s position is unclear. Orban’s chief of staff, Gergely Gulyas said after Cornstein’s interview that he did not know what the U.S. ambassador was talking about. Gulyas also stated that the IIB would be granted all diplomatic immunities by law and that no change to the law was on the agenda.

According to U.S. government sources familiar with the details of the Orban-Cornstein discussion, Orban’s promise is not about amending or revoking the law granting diplomatic immunities to the IIB. It is about its strict application by authorities as well as information sharing and close cooperation between the two countries’ intelligence services. “For example, if the bank were to try to bring in spies, criminals, oligarchs or sanctioned individuals under diplomatic immunity, it would not work,” a source explained. The U.S. Embassy in Budapest wrote to Direkt36 that despite the statement of Gergely Gulyas, Ambassador Cornstein “stands by his earlier remarks to ATV concerning the International Investment Bank”.

There appear to be practical issues regarding the strict screening of bank employees. We talked with several Hungarian experts with previous experience in counterintelligence on what the usual procedure is when accrediting diplomats. They unanimously said that the counterintelligence has no capacity for pre-screening those who apply for diplomatic status, and typically this is not even their responsibility. Diplomatic accreditation is granted according to international agreements and is virtually automatic. Although the Ministry of Foreign Affairs and Trade may in theory ask the sending country to revise an application for diplomatic status, this would be a very offensive move, according to the experts.

“The counterintelligence will only receive the final list of diplomats. From there, they begin to flag those suspected of being intelligence officers and then process their case by conducting a reconnaissance of the target location, surveillance etc. In a few years, those diplomats peacefully return home, and everything starts over again,” explained a former Hungarian security officer. In the former security officer’s view, “we are only able to conduct a screening prior to someone’s arrival to the country as much as we were able to do it with the applicants of the residency bond program”. The former officer was referring to cases like when Direkt36, 444.hu and Novaya Gazeta uncovered that the Hungarian counterintelligence did not filter out direct relatives of Sergey Naryshkin, head of Russia’s foreign intelligence agency (SVR) when the Russian spy chief’s relatives received Hungarian residency permits through the country’s controversial golden visa program.

Hungarian diplomats hustling in Washington DC

Apart from Orban and Cornstein’s conversation, there is other evidence that suggests the Hungarian government takes this issue seriously and tries to deal with the criticism they receive because of the IIB. Direkt36 and 444.hu obtained two documents distributed by Hungarian diplomats to Republican staffers in the U.S. Congress in recent weeks. These papers seek to respond to the criticism and emphasize that the IIB is not a Russian bank but an international one with majority shareholders from the EU/NATO, entitled to diplomatic immunity under international treaties. The documents, circulated in July, specifically highlight that no IIB employees have been involved in illegal actions unrelated to normal banking activities, to date.

Handout on the IIB by the Hungarian government, distributed on Capitol Hill. Photo: Direkt36

Nevertheless, these documents also mention that the Hungarian government is cooperating with the United States in monitoring the IIB. “There are ways and means at the disposal of the two countries to check such (illegal) intentions, and Hungary has offered its cooperation more than once,” the paper states. This document also notes that although the Hungarian government facilitates smooth entrance into the country of the persons affiliated with the bank, “these persons are NOT immune from fulfilling conditions for lawful entry. (When) traveling to Hungary, persons related to the IIB will be checked and registered.”

Former Hungarian counterintelligence officers talking to Direkt36 said that Hungary’s counterintelligence did not possess the resources to check and monitor previous Russian presence in Hungary. There are around forty diplomats serving at the Russian Embassy in Budapest alone, while, according to a previous statement, the IIB will soon employ one hundred and ten people in Budapest. Although not all of their staff will be Russian, this could also overload Hungarian authorities. In theory, it could be a solution if allied NATO member states would help out Hungary’s counterintelligence.

According to the senior IIB bank official quoted earlier, the only thing that matters to the IIB is what they are entitled to under the host country agreement (HCA) approved by parliament, as they are going to receive everything. “I would not comment on the U.S. Ambassador’s remarks apart from that the HCA is enforced and working. Those remarks were not something we paid special attention to. Whatever you agreed in the HCA is going to happen. It already went into effect in April after the Hungarian parliament approved it,” the senior bank official added.

The IIB sees no sign of any strict measures by Hungarian authorities. „We have had people relocating to Hungary starting in June and nothing out of the ordinary happened. We have no information about what Hungarian security services are doing and that is not something we would know,” the bank official added. The IIB’s move to Hungary is advancing according to earlier plans, all of the bank’s decision-making bodies will be in Budapest by mid-August. „ We have no direct contact with the U.S. as they are not a member country of ours. Everything we know about U.S. involvement is what we read in the press as we do regional media monitoring. Hungary’s government has never told as anything about U.S. requests,” the IIB official told Direkt36.

The Hungarian Ministry of Foreign Affairs and Trade maintains a public online database of diplomats accredited to Hungary, which was officially last updated on August 8. For the time being, for the International Investment Bank, only bank chairman Nikolay Kosov’s name appears on the list. According to the senior official working at IIB, the others’ applications are probably also under review, however, the Hungarian Ministry of Foreign Affairs and Trade has not responded to our inquiries seeking clarification.

Meanwhile, the Hungarian documents circulated in the U.S. Congress claim that the debate around IIB is artificial and political, and that fears are baseless. For example, one document specifically emphasizes that until February 2019, neither the US, the EU nor anyone else had any concerns about the bank – which has good and continuously improving credit rating – relocating its headquarters to Budapest. Moreover, the document concludes that “the false public narrative around the IIB issue is originated by a well-definable circle of think tanks and mostly former Obama officials” who both attack the Trump administration and the Orban government with the accusation of “Russia friendliness”.

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