By John Christmas, exiled whistleblower against the EBRD frauds in Latvia and co-author of ‘KGB Banker’
I’ve written articles for years about the European Bank for Reconstruction and Development ‘EBRD’ using fraud to promote dictatorships and organized crime, especially Russian President Vladimir Putin’s oligarchy. The EBRD is funded by 74 countries to foster transparency, democracy, and development however media and government in all of those countries have failed to inform the public of the overwhelming evidence that the EBRD is doing exactly the opposite of its mission.
For this article, I studied three bank sagas in Hungary, looking for connections with the EBRD and other fraud or corruption. Hungary is an interesting case because its leader, Prime Minister Viktor Orban, is Putin’s biggest supporter in Europe with the possible exception of Latvia’s prime minister who is, according to Eurostat, currently running a fraud with the EBRD which protects Putin’s money launderers in Latvia.
I emailed several Hungarian journalists to prepare this article however nobody replied. This is typical because from emailing journalists in the past in Latvia, Lithuania, Serbia, Slovenia, and Ukraine about EBRD frauds in their countries, none of them were interested either. In all of these countries, journalists repeat press announcements from the EBRD without questioning the veracity.
The first bank history in Hungary which is of interest is about MKB Bank. In 2015, the United States commenced prosecution of Pavel Semenovich Flider, an American citizen of Russian origin. The case involved arms dealing and movement of $20 billion, some of which passed through MKB. MKB started working with Flider in 2012.
MKB had been nationalized in 2014, before the US prosecution began, because of its bad loan portfolio. The Hungarian government paid 55 million euros to buy MKB from the previous owners who waived 270 million euros of receivables, making this deal also a recapitalization. Later, the National Bank of Hungary (the central bank) did a special audit of MKB’s financial statements from 2012 to 2015 and discovered deficiencies such as failure to register collaterals which could indicate purposeful looting instead of accidental loss.
In April 2016, Reuters reported that Hungary sold MKB to an investor consortium. Hungary had admitted to the bad assets at MKB and moved those into a separate fund. Then, real investors were willing to pay to buy shares in MKB.
The EBRD was talking with Hungary about having a role in this, however wisely the Hungarians declined. In Latvia (Parex/Citadele/ABLV), Lithuania (Ukio), Serbia (Kombank), Slovenia (NLB Bank), and Ukraine (Megabank) the EBRD organized cover-up deals where unknowing taxpayers paid huge fees to the EBRD which pretended to invest in insolvent banks in order to trick taxpayers and creditors that the banks weren’t insolvent. This allowed the governments to delay recapitalization expenses, while overall the governments caused themselves to lose even more money. Although the media is always criticizing Orban’s government, in this case Hungary’s rescue of an insolvent bank was done transparently and lawfully. Latvia, Lithuania, Serbia, Slovenia, and Ukraine embraced opportunities for fraud conspiracy with the EBRD and Hungary did not.
The second Hungarian bank history of interest is that of the International Investment Bank ‘IIB.’ The IIB is a Soviet-Russian multinational development bank which is often compared with the West’s EBRD development bank. IIB was headquartered in Moscow from when it was established in 1970 until 2019 when it relocated to Budapest. Orban asked Putin to move the bank to Budapest thinking this would help make Budapest an international banking center. That plan backfired. The IIB’s chief Nikolai Kosov had obvious connections with Russian Intelligence going back to childhood when his father was the top KGB operative in Budapest. The United States sanctioned IIB in 2023 and Hungary withdrew its investment. The IIB headquarters moved back to Moscow.
Hungary’s action of divesting and removing IIB from Budapest is something Latvia should have done with Parex Bank which had multiple connections with Putin. Instead, while paying the EBRD to cover-up Parex looting, Latvia allowed Parex activity to move to new Citadele Bank (Latvia) and to established money-laundering banks ABLV (Latvia) and Ukio (Lithuania) plus a rogue cell at Danske Bank (Estonia). Over $1 trillion of money laundering, the most in world history, was organized by this network and much of this could have been prevented.
The third and final Hungarian banking history of interest is about Erste Group Austria and its subsidiary Erste Bank Hungary. Erste Bank Hungary suffered heavy losses in 2015 because the Hungarian government forced conversion of non-forint loans into forints at non-market rates and also imposed increased banking levies.
In 2016, Erste Austria made an agreement with the Hungarian government and the EBRD. Erste Austria recapitalized Erste Hungary and then sold new shares in Erste Hungary giving the Hungarian government and EBRD each 15% ownership of Erste Hungary.
This deal was mysterious because it automatically reversed in 2023, in accordance with a reversion pre-negotiated in 2016. In 2016, it was admitted that the deal would reverse however the amount Erste Austria had to pay for the reversal wasn’t publicly announced. This deal wasn’t the most opaque the EBRD ever did. The EBRD admitted that there was a pre-negotiated reversion. Usually the EBRD keeps pre-negotiated reversions secret whereas in this case the existance of the reversion was made public although the price was not. This is fraud and it contradicts claims on the EBRD website about supporting transparency.
The EBRD-Erste deal was different from EBRD deals in other countries because normally the government is obligated to pay the expense of the secret reversion. This time the expense went to Erste Austria, a listed company with many shareholders, and not to Hungarian taxpayers. Also the situation at Erste was less terrible than usual because Erste Hungary had lost money in a transparent way. This is different from other EBRD deals like Parex Bank in Latvia and Megabank in Ukraine where the EBRD was covering-up looting, using public money secretly to protect criminals.
Francis Malige, EBRD Managing Director for Financial Institutions, said the purpose of the EBRD-Erste deal was to recapitalize Erste Hungary. However that wasn’t true because Erste Austria had plenty of capital and recapitalized Erste Hungary itself. The money from the EBRD was really a loan, since it had to be paid back with interest. Money from a loan is by definition not capital. Journalists didn’t pick up on this.
The EBRD paid Erste Austria 38.9 billion forints in 2016 and received back 87.6 billion forints in 2023. So why did Erste pay 48.7 billion forints to the EBRD for this temporary investment which was really a high-interest loan which Erste didn’t need? According to the Erste Group 2016 annual report, the deal was beneficial because it allowed Erste Hungary to reduce its Hungarian banking tax liability from 0.53% of assets to 0.24%. However later, during the temporary investment period, the Hungarian government raised the banking tax and charged a windfall tax which cancelled out the benefits Erste had anticipated. These taxes were in addition to the regular corporate income tax.
It isn’t clear whether Erste Group did its accounting properly, which means including the liabilities to the EBRD and Hungary in balance sheets for the years ending 2016, 2017, 2018, 2019, 2020, 2021, and 2022. One reason the EBRD keeps its reversions totally or partly secret, is to allow counterparties to falsify their debts by omitting the reversion liabilities until the reversions take place, surprising creditors. Latvia has been understating its national debt every year since 2009 in this way. Eurostat is supposed to force Latvia to correct its national debt, however so far refuses.
The deal was clearly beneficial for the Hungarian government. It got paid to provide a temporary investment into Erste Hungary. And, after enticing Erste to accept the deal by promising reduced bank levies, it increased the bank levies. Therefore this deal helped Orban grow his popularity. Since Orban is allied with Putin, this deal also helped Putin.
Then the final big question: Was the Kremlin somehow involved pushing the Erste deal? The Kremlin was definitely involved at the EBRD’s Parex and Citadele deals in Latvia since those banks organized massive money laundering for Putin. But was Erste Austria or Erste Hungary in any way involved with Putin, such that the Kremlin would have instructed the EBRD to make a deal with Erste?
Austria and Hungary have ties with the Putin Regime going way back. Austria has always refused to join NATO to avoid upsetting Russia, however Hungary did join in 1999. Both Austria and Hungary purchase gas from Russia and didn’t stop when Russia launched its full invasion of Ukraine in February 2022. Austrian Chancellor Karl Nehammer visited Putin in April 2022 and Orban visited Putin in July 2024.
Top Putinist gangster Semion Mogilevich was based in Budapest in the 1990s. He controlled the RosUkrEnergo gas transit business and ran money through EBRD subsidiary Raiffeisen Bank Ukraine according to the US Embassy. Mogilevich later selected Dmytro Firtash to run RosUkrEnergo. Firtash has been living in Vienna since 2014. Austria refuses to give him to the United States or Spain which both issued arrest warrants years ago.
Austria and Hungary have both accepted refugees from Ukraine. However both refuse to provide military aid to Ukraine. Orban’s government is protecting several of Putin’s oligarchs, arguing at the European Union level against sanctions.
But does Erste Group have any connection to Putin? No connections have been in the media.
Hungary made sound decisions by refusing to deal with the EBRD at MKB Bank and by kicking out IIB. Hopefully the full story will someday emerge explaining why Hungary, the EBRD, and Erste made their deal which didn’t make sense in multiple ways. The Erste-EBRD deal isn’t as bad as the EBRD’s other bank investments. However some aspects of it remain secret, confusing, and fraudulent.
References
https://english.atlatszo.hu/2017/04/14/hungarian-bank-tied-to-international-money-laundering-scheme/
https://bbj.hu/business/industry/deals/mnb-fines-mkb-bank-huf-34-7-mln-for-deficiencies/
https://en.wikipedia.org/wiki/International_Investment_Bank
https://bbj.hu/economy/finance/banking/ebrd-parts-with-stake-in-erste-bank-hungary/
https://www.erstegroup.com/en/investors/reports/financial-reports
FT.com subscribers can read these: ‘Hungary nationalises German-owned MKB Bank’ from 2014, ‘Russian development bank’s move to Hungary causes alarm’ from 2019, and ‘Hungary quits Russian-controlled investment bank in Orban U-turn’ from 2023