The US Department of the Treasury's Office of Foreign Assets Control (OFAC) has placed the Budapest-based and Russian-dominated International Investment Bank (IIB) and three of its senior executives on its sanction list, US Ambassador to Hungary David Pressman announced at a press conference in Budapest on April 12.

Individuals designated for sanctions include two Russian nationals, IIB chairman Nikolai Kosov, and deputy chairman Georgy Potapov. Imre Laszloczki, deputy chairman in charge of strategy and policy, is the only Hungarian national targeted.

According to the statement released by OFAC, the IIB’s presence in Budapest enables Russia to increase its intelligence presence in Europe, opens the door for the Kremlin’s malign influence activities in Central Europe and the Western Balkans, and could serve as a mechanism for corruption and illicit finance, including sanctions violations. 

On Wednesday, OFAC targeted a total of 25 individuals and 29 entities from 20 jurisdictions. The sanctions aim to impose severe costs on third-country actors who support Russia’s war, OFAC said.

Local media, citing diplomatic sources, had earlier speculated that the rumoured sanctions might entail a travel ban of government officials or people close to the government.

IIB was originally established in 1970 as the Comecon bank serving the then Soviet bloc’s economic area and third-world countries and was revitalised in the early 2010s under Putin. Hungary, which re-joined the IIB in 2015, is now the second-biggest shareholder after Russia, with 25.3% compared to Moscow's 45.4%. 

The development bank, which moved its headquarters to the Hungarian capital from Moscow in 2019, is seen by critics as a "spy nest" of the Kremlin and has been accused of taking part in money laundering, allegations it dismisses. Four years ago, the Hungarian government agreed to limit the number of people who could receive diplomatic immunity.

Following Russia’s invasion of Ukraine in February 2022, Bulgaria, Czechia, Romania, and Slovakia ended their participation in the IIB, bringing the number of shareholders to just five (Cuba, Mongolia, Russia, Vietnam) with Hungary being the only EU member state left. The IIB has dragged its feet on repaying the capital committed by these countries, amid press reports that the bank is in financial crisis.

Pressman told reporters at the US embassy in central Budapest that the Orban government had dismissed US concerns raised over the presence of the Russia-controlled bank.

The US diplomat said Washington was concerned that Hungarian leaders are seeking ever closer relations with Russia, despite the brutal aggression. "Close economic cooperation with Russia feeds the Russian war machine and threatens the security of the transatlantic alliance," he added.

Pro-government media launched a pre-emptive communication offensive before the press briefing. The narrative was that the US was intervening in Hungary’s sovereignty, while some media outlets tried to make Pressman look bad for inviting Marton Gyongyosi, the chairman of the opposition Jobbik-Conservatives party, to the Passover Seder at the US Embassy in Budapest last week.

Gyongyosi caused an international outrage in 2012 when he called for drawing up a list of cabinet members and MPs of Jewish origin. Jobbik was a radical right-wing party until 2018 when it steered to the centre with the financial support of former Fidesz cashier Lajos Simicska, who fell out of grace with the Orban regime in 2015.

Government-loyal media seized the chance to blast the diplomat for the move, which has also caused great uproar among Jewish religious leaders and drew criticism from abroad. Gyongyosi has apologised for his earlier anti-Semitic comments.

The US Embassy has launched a billboard campaign with a caption in English and Russian reading: "Russians go home", citing the slogan of the 1956 revolution and drawing comparisons between Hungary’s freedom fight, crushed by Russia, to the war in Ukraine

"There can be only peace in Ukraine when the Russian occupying army withdraws," reads the text, presented in the commonly used blue-white style of the Hungarian government. The campaign seems to be a reaction to the massive Russian propaganda in local media and has immediately triggered a swift response from the government.

"US diplomacy has not given up on efforts to pressure Hungary into taking a pro-war position," head of the Prime Minister's Office Gergely Gulyas said before Pressman’s press briefing, repeating the government’s narrative that supporting Ukraine would further escalate the crisis and Hungary remains on the side of peace.

Gulyas said the US embassy began "running a direct campaign" in Hungary, which is "unusual among allies".

US diplomacy has not given up on trying to squeeze Hungary into a pro-war position, but there is no alliance, diplomatic or even friendly pressure that Hungary will not resist", the government’s official Facebook page read after the press conference.

Analysts argue that sanctions by Washington will do little to turn Orban’s most loyal base against Russia, on the contrary, it could further stoke anti-American sentiment.

Over the last 13 years, Hungary’s strongman, the leader of a radical anti-Communist and liberal youth movement in 1988,  has switched from a pro-Western centrist conservative position to a stance critical of EU institutions and the country’s transatlantic ties, while pursuing closer links with dictators such as Russia's Vladimir Putin.