Central Europe reveals holes in tightening Russia sanctions net

Present and justified

Of course, Central European governments can only apply sanctions to what is actually present in their country. One of the reasons British sanctions against Russian companies and individuals are making headlines around the world is that for so many years the UK has been, in the words of Transparency International, a ” global money laundering hub.

Perhaps the most striking example of Hungary’s contradictory stance on sanctions is the continued presence of the Russia-based International Investment Bank – a multilateral development institution that has been headquartered in Budapest since 2019. Considered by much like little more than a “banking spy” beyond the purview of Hungarian regulators, Orban’s government has granted him full diplomatic immunity, which allows staff to enter Hungary – and therefore the country – freely. wider EU – potentially undermining sanctions.

Yet despite the open friendship shown towards Russia by Orban and his ruling Fidesz party, Hungary has not been a particularly favorite playground for Russian oligarchs, and the presence of Russian businesses is – at least on paper – pretty negligible.

Apart from the Hungarian subsidiary of the nuclear holding Rosatom – responsible for the extension of the Paks 2 nuclear power plant, a project which the Hungarian government still insists, with some optimism, to go ahead – only a few Russian companies are officially established in Hungary.

Steelmaker Dunaferr, a renowned industrial company dating back to the communist era, is directly owned by Cypriot company Steelhold Ltd. Steelhold is owned by the Donbass Industrial Union, one of the largest holding companies in eastern Ukraine, but is mostly controlled by Russian shareholders. Speculation grew last year that Russia’s Metalloinvest would take over the company, owned by Alisher Usmanov, the sixth-richest Russian, now also on the EU sanctions list, but the deal did not work. never materialized.

As such, Steelhold is still 50% owned by Russian state development institution VEB, which is on the EU sanctions list. The impact of sanctions on company operations is unclear; officially, he will only say that he is “facing supply problems”. Dunaferr has around 3,300 employees, but a long-running feud between its Russian and Ukrainian owners has led to a management vacuum.

Another interesting case is that of the railway and industrial site of Dunakeszi Jarmujavito, 50% owned by Transmashholding, Russia’s largest rolling stock manufacturer. The remaining 50% of Dunakeszi, which holds a major contract for the modernization and production of wagons for the Hungarian national railway company, is held by the Hungarian entrepreneur Kristof Szalay-Bobrovniczky, who has just been appointed as the next Minister of Defense of Orban.

Transmashholding is not on the sanctions list, but the company’s chairman, Andrei Bokarev, had to resign at the end of April after being placed on the UK sanctions list, although he is still missing from the EU list . Even so, the arrangement means that a defense minister from a NATO country has a close business relationship with a Russian company that manufactures equipment for the Russian war machine in Ukraine.

When it comes to favorite places for wealthy Russians in Europe, the spa town of Heviz, some 200 kilometers west of Budapest, tops the list. Featuring a huge thermal lake, Heviz has been a popular meeting place for Russian intelligence services. In 2017, Austrian ex-Colonel Martin Möller allegedly handed over classified NATO documents to Russian spies in Heviz – one of several rendezvous points in Central Europe chosen by Möller, which also included Bratislava and Štrbské pleso in the High Tatras.

The five-star Lotus Therme Hotel & Spa in Heviz is owned by Russians, but people who have lived in Hungary for decades with no obvious connection to Putin’s regime. The spa town has also been a favorite destination for Russian tourists, many of whom own real estate. There is even a Russian Orthodox Church being built in Heviz, with significant support from the Hungarian government.

Image: EC

Similarly, Poland has been of limited interest to the Russians due to the country’s long-standing antipathy to their presence, as the government in Warsaw felt pressured to unilaterally change its national legislation. to create room for its own sanctions targets.

This led to the announcement in April that another 50 people and companies from Russia and Belarus would be subject to measures, including a ban on entry into Poland and on participation in public tenders as well as a freeze on assets. Those found guilty of breaching the sanctions face fines of up to €5 billion.

“The Polish sanctions list is a complement to the EU list,” Interior Minister Mariusz Kaminski explained. “This applies to Russian entities and oligarchs with real interests in our country.”

The list also includes companies linked to the Belarusian regime of Alexander Lukashenko as well as companies previously involved in importing Russian coal to Poland. Russian gas company Gazprom is also on Poland’s list, believed to have been the spark that led Russia to cut off gas supplies to Poland in late April.

A much bigger playground for Russian interests has been the Czech Republic. As an expert who monitors Russian-speaking organized crime once told BIRN, examination of private school listings shows it has been the preferred destination of wealthy Russian “second” families – a mix of oligarchs and “criminal entrepreneurs” – for the past. two decades.

Yet after the mass expulsion of Russian diplomats in 2021 following the revelation that Russian intelligence officers were in all likelihood behind the explosion of an ammunition depot in southeast Czechia and now the war in Ukraine, a strangely high number of luxury properties find their way to the Czech market, at sale price, say real estate professionals.

The Czechs are “handling the assets of several people and dozens of entities on EU sanctions lists for a total amount of hundreds of millions of Czech crowns”, a finance ministry spokesman said. at Birn.

Asked to specify some of the assets affected, the spokesperson noted that the Ministry of Finance had acted in mid-April against the West End Hotel in the spa town of Marianske Lazne. The station is owned by Dmitry Pumpyansky, whose main activity is the production of pipes for the Russian oil and gas industries. The action taken against Pumpyansky means that while the hotel can continue to operate, it cannot be sold or distribute profits to Pumpyansky.

A hotel of the same name in nearby Karlovy Vary, owned by Vladimir Yevtushenko of telecommunications and banking conglomerate Sistema, is also in the crosshairs. Other targets include a member of the Russian State Duma and the wife of another. In addition to real estate, frozen assets include bank accounts and company shares.

However, the management of certain assets is more difficult. Skoda JS, for example, is owned by Gazprom (which is not yet on the EU sanctions list). Yet the vital role of Skoda JS in maintaining and servicing the two Czech nuclear power plants means Czech state-controlled energy group CEZ has no choice but to continue cooperating with it.

The Ministry of Industry and Trade admits that Russian ownership of what is a key strategic partner for Czechia’s energy security poses a significant risk. “The fact that Skoda JS has Russian owners can clearly be seen as a mistake,” a spokesperson told local media.

Privately, officials say a solution is being sought, which could include either a purchase by CEZ via expropriation or the imposition of a trustee. However, both paths require new legislation, another stumbling block to the effective imposition of sanctions.

Mary I. Bruner