Europe

Where to Look for Covert Russian Influence in the West

A European commissioner's flight on a lobbyist's private jet may have led to the approval of a major Russian project in Hungary.

He has his ways.

Photographer: MICHAEL ECKELS/AFP/Getty Images

Stories of shady Russian influence abounded during the U.S. election campaign, but the evidence in them was often sketchy and the eventual benefits to Russia questionable. The European Union, for its part, is dealing with a scandal in which both the Russian connection and the gain for the Kremlin are far less nebulous.

On May 18, EU Commissioner Guenther Oettinger -- the German representative on the European Commission and a member of Chancellor Angela Merkel's CDU party -- flew from Brussels to Budapest to attend a conference on the "car of the future." He made the flight on the private jet of Klaus Mangold, a businessman who served on the management board of Daimler and who, more importantly, ran the Eastern Committee of the German Economy between 2000 and 2010. The Committee is a lobby group for German companies doing business in the former Soviet Union.

Mangold developed extensive ties in Moscow. He now runs a consulting company whose main area of expertise is navigating Russia, and he serves as Russia's honorary consul to the German state of Baden-Wuerrtemberg. His public stance on ties between Russia and Europe is, unsurprisingly, conciliatory. Earlier this year, he told the Russian state-owned agency RIA Novosti: "For 20 to 30 years we built an excellent relationship with Russia, and now because of sanctions we've been thrown back many years. It's necessary to stop this negative development." Mangold, in other words, is far more pro-Russian and well-connected in Moscow than any of the Donald Trump aides who have been portrayed as agents of Russian influence.

According to a June report on the 444.hu news and investigative journalism site, the real reason for Oettinger's trip had nothing to do with driverless cars. Hungarian Prime Minister Viktor Orban allegedly wanted to talk to the commissioner, who used to have the energy portfolio before taking over the digital one, about the Paks 2 nuclear plant project -- a controversial deal between Orban and Russian President Vladimir Putin.

In early 2014, just before Russia annexed Crimea, Orban flew to Moscow to agree the building of two reactors at the Paks power plant south of Budapest. Russian state-owned Rosatom would be the contractor, and Russia would finance the project with a 10 billion euro ($10.6 billion) credit line. This was a breakthrough for Rosatom, whose attempts to drum up business in eastern Europe had recently stalled, in part due to the efforts of major U.S. competitor Westinghouse. Even then, there were fears that the EU would object to the choice of contractor without an open tender, but Oettinger as energy commissioner apparently gave preliminary approval to the deal.

Mangold is on the supervisory board at Rothschild, the investment bank which produced a favorable report to the Hungarian government on the economics of the Paks II project in September 2015.

After the Crimea annexation, the EU introduced sanctions against Russia, energy security became a hot topic, Westinghouse secured EU funding to diversify the fuel sources of Russian-built reactors in eastern Europe, and the Paks deal grew toxic. In November 2015, the European Commission opened an investigation into the procurement procedure for the nuclear plant and a separate one into potentially illegal state aid. 

In May, when Oettinger took his Budapest trip, the Commission was working actively on the cases. Days after, Hungarian government minister Janos Lazar flew to Brussels to discuss Paks 2.

In July, two members of the Green faction in the European Parliament submitted a written question to the Commission, asking Oettinger to explain the trip. On Nov. 3, a terse reply arrived from Oettinger. He wrote he had used Mangold's plane "due to the lack of commercial flights to arrive in time for the meeting with Prime Minister Orban," and the meeting was all about automated driving. "The Paks II nuclear project was not discussed," Oettinger wrote.

The answers were unsatisfactory: It's unclear what was so urgent about a Hungarian driverless car conference that Oettinger had to risk his reputation by hitching a ride on a known Russian lobbyist's jet. It's still unclear who paid for it, though Oettinger has since said the Hungarian government had offered the option. Besides, Oettinger failed to declare the flight as a meeting with a lobbyist, though he spent 90 minutes alone with Mangold on the jet. The Commission has tied itself into knots trying to explain how Oettinger's flight was within EU ethic rules and did not constitute a meeting. "There is a clear difference between a meeting and a journey," commission spokesman Margaritis Schinas said. He added that Mangold had nothing to do with Oettinger's current digital agenda, so no conflict of interest was apparent.

Be that as it may, the Commission has just closed the Paks II procurement investigation, effectively clearing the project. The state aid inquiry continues, but it's not an existential threat to the nuclear plant expansion. On Thursday, a note on the closure of the case appeared in the Commission's database -- but, despite the high exposure the case has received, not on its regular "key decisions" factsheet. Only the Hungarian government trumpeted the end of the investigation, saying it was now ready to begin construction.

The European Commission appears to be making a series of quiet compromises with Russian energy interests in Europe. Last month, similarly without much fanfare, Commissioner Margrethe Vestager suggested the EU antitrust authorities were nearing a settlement with Gazprom, the state-controlled Russian natural gas producer, that would exempt it from fines for abusing its monopoly position in a number of eastern European countries in exchange for a promise to behave in the future. Unlike U.S. companies such as Apple and Google, which have had a hard time dealing with the Commission recently, Russian entities do not make much public noise about their negotiations or try their cases in the media. They resort to sophisticated behind-the-scenes lobbying, and they are unusually good at it.

While pundits' attention is drawn to Russia's overt and covert support of hard right political forces, matters important to the Kremlin are being settled in quiet negotiations with technocrats. A talk on Klaus Mangold's jet is worth far more than Retired General Michael Flynn's much-publicized seating next to Russian President Vladimir Putin at a dinner hosted by the propagandist RT television channel. With Serb film director Emir Kusturica sitting on Putin's other side, it's unlikely that the next U.S. national security adviser was involved in any secret dealings there. Putin and his men don't do business in public settings.

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

    To contact the author of this story:
    Leonid Bershidsky at lbershidsky@bloomberg.net

    To contact the editor responsible for this story:
    Therese Raphael at traphael4@bloomberg.net

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