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Putin ally Hungary’s Viktor Orbán could be cut off from EU funds

The European Union is moving to cut off funds to Hungary after accusing its leader Viktor Orbán of eroding the country’s democracy and ruling as an autocrat, further isolating one of the continent’s last Putin supporters.

The southeastern European country of Hungary, which has been led since 2010 by Prime Minister Viktor Orbán, may have to forgo as much as €7.5 billion in funds from the European Union, which is accusing the country’s leaders of democratic backpedaling and corruption. 

Lawmakers say that Orbán’s history of anti-democratic governance in Hungary, which EU lawmakers said last week could no longer be considered a “full democracy,” is concerning enough to cut the country off from the EU’s €1.2 trillion ($1.2 trillion) shared budget. 

On Sunday, the European Commission announced that lawmakers had proposed “budget protection measures” that would severely limit funding to Hungary under the current EU budget regime. If it goes through, it will be the first time the EU enacts a 2020 law designed to protect the bloc’s budget from being “misused by EU governments who bend the rule of law.”

But beyond that, it would be the latest effort in democratizing Hungary after years under Orbán, a man who has opposed more aggressive Western sanctions against Russia, has been called Vladimir Putin’s Trojan Horse within the EU, and has implemented policies ranging from banning the dissemination of LGBTQ-related content in schools to blocking Muslim immigrants at the border.

European autocrats

Moving to cut off Hungary from EU funding is the latest effort by democratic Europe to limit the spread of authoritarianism and democratic erosion on the continent.

The law was implemented in response to criticisms that EU budgets were being used to help support populist and increasingly authoritarian regimes in portions of Eastern Europe. 

In 2015, former European Commission President Jean-Claude Junckner jokingly greeted Orbán at a EU summit in a way that dispensed with protocol: “Hello dictator!” Junckner said.

But after years of right-wing turns by the Hungarian government, what was once a joke is now becoming a growing concern for Europe’s leaders.

In his 12 years in charge of Hungary, Orbán—who also served as Prime Minister between 1998 and 2002—has taken control of the country’s independent media outlets, illegally forced hundreds of judges to retire, changed the country’s voting laws, and openly endorsed discriminatory rhetoric against the LGBTQ community and immigrants.

Orbán’s behavior—as well as rumors of corruption linked to members of Fidesz, his ruling party—have pushed the EU to consider limiting how much the bloc actually funds his government.

“It’s about breaches of the rule of law compromising the use and management of EU funds,” EU Budget Commissioner Johannes Hahn said of the proposed measures. “We cannot conclude that the EU budget is sufficiently protected.”

The European Commission now has up to three months to decide on whether to cut Hungary off from the bloc’s budget. Within that time, Hungary will have to implement reforms that make its legislative process more transparent and set up an effective system of anti-corruption watchdogs if it wants to keep receiving EU money.

Putin’s inside man

In the past 12 years he has been in power, Orbán has remained close with Putin.

Since returning for his second stint as prime minister in 2010, Orbán’s style of governance has been remarkably similar to how Putin has ruled Russia in the past two decades. Both governments have employed coercive means to censor the media, and both leaders have created support for themselves through oligarchs—wealthy industry leaders planted in the upper levels of government. 

The two leaders have backed each other on multiple occasions. Orbán publicly disapproved of EU sanctions against Russia following its annexation of Crimea in 2014, and last April, Putin hailed Orbán victory in Hungary’s most recent general elections.

Hungary’s economy is deeply tied to the EU’s, the destination of nearly 80% of its exports. It also remains highly dependent on Russia for its energy use, importing 65% of its oil and 80% of its natural gas from Russia, significantly more than other European nations. Maintaining Hungary’s link with Russian energy has been called central to Orbán and Fidesz’s hopes of staying in power.

Hungary’s reliance on Russian energy—and its willingness to buy even more—is partly why Orbán has publicly opposed EU measures to ban Russian oil imports and plans to sanction Russian gas imports.

Orbán has been a useful ally to Putin since Russia invaded Ukraine earlier this year. The Hungarian leader has been vocal in the EU when Russia-related sanctions have come up, delaying progress on the EU’s long-awaited Russian oil ban and repeatedly threatening to derail sanctions packages, with no signs that he will stop doing so anytime soon.

In response to the EU’s decision on Sunday, Orbán’s Fidesz party sought to discredit the bloc for singling Hungary out for blame instead of focusing on the continent’s mounting energy crisis, caused in large part by Putin’s willingness to use energy imports as blackmail in an effort to have Western sanctions lifted.

“It is astounding that even in the current crisis the leftist majority of the European Parliament keeps busy only with attacking Hungary,” Fidesz said in a statement last week.

“The left in Brussels want to punish Hungary over and over again and withhold the funds due to our country.”

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Wall Street hit with $2 billion in fines over employees using WhatsApp and other unauthorized messaging apps

U.S. regulators reached settlements with a dozen banks in a sprawling probe into how global financial firms failed to monitor employees’ communications on unauthorized messaging apps, bringing total penalties in the matter to more than $2 billion. 

The Securities and Exchange Commission announced $1.1 billion in fines and the Commodity Futures Trading Commission disclosed $710 million in penalties in separate statements Tuesday. Those levies — against firms including Bank of America Corp., Citigroup Inc. and Goldman Sachs Group Inc. — combined with JPMorgan Chase & Co.’s $200 million in fines from December, bring the total to $2.01 billion, making them the biggest penalties ever against US banks for record-keeping lapses. 

“Finance, ultimately, depends on trust. By failing to honor their record-keeping and books-and-records obligations, the market participants we have charged today have failed to maintain that trust,” SEC Chair Gary Gensler said in the agency’s statement. “As technology changes, it’s even more important that registrants appropriately conduct their communications about business matters within only official channels, and they must maintain and preserve those communications.”

Tuesday’s announcements cap months of discussions between regulators and the banks. Morgan Stanley said in July it was nearing a settlement that would see it pay a $200 million fine, with other major banks also disclosed setting aside similar figures as part of their second-quarter results without specifying the reason.

JPMorgan had been the only bank until now to reach a settlement with the regulators, and was the first to report the fines, in December. Even managing directors and other senior supervisors at the largest US bank had skirted regulatory scrutiny by using services such as WhatsApp or personal email addresses for work-related communication, regulators said at the time.

Finance firms are required to scrupulously monitor communications involving their business to head off improper conduct. That system, already challenged by the proliferation of mobile-messaging apps, was strained further as firms sent workers home shortly after the start of the Covid-19 outbreak.

In the SEC probe, eight firms agreed to penalties of $125 million each: Barclays Plc, Bank of America, Citigroup, Credit Suisse Group AG, Deutsche Bank AG, Goldman Sachs, Morgan Stanley and UBS Group AG. Jefferies Financial Group Inc. and Nomura Holdings Inc. agreed to pay $50 million apiece, and Cantor Fitzgerald LP agreed to pay $10 million.

Bank of America had the biggest CFTC penalty, at $100 million, followed by Barclays, Citigroup, Credit Suisse, Deutsche Bank, Goldman Sachs, Morgan Stanley and UBS at $75 million each. Nomura was fined $50 million, Jefferies $30 million and Cantor Fitzgerald $6 million.

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Ray Dalio says the U.K.’s policies ‘suggest incompetence’ and warns other governments not to make the same mistakes

Ray Dalio added his name to a growing list of critics of the U.K.’s new spending plan, unveiled last week by Prime Minister Liz Truss and Chancellor of the Exchequer Kwasi Kwarteng.

The billionaire investor—who founded what is now the world’s largest hedge fund, Bridgewater Associates, in 1975—argued the plan’s aggressive tax cuts will raise the U.K. debts to an unsustainable level and cripple the pound.

“Investors and policymakers: Heed the lesson of the UK’s fiscal blunder,” Dalio wrote in a Tuesday tweet. “The panic selling you are now seeing that is leading to the plunge of UK bonds, currency, and financial assets is due to the recognition that the big supply of debt that will have to be sold by the government is much too much for the demand.”

On Monday, in response to Truss’ new spending plan, the U.K.’s bond market experienced the largest one-day sell-off in its history, pushing the total losses in the country’s stock and bond markets since Truss’ appointment as prime minister on Sept. 5 to over $500 billion. Meanwhile, the pound sank to a record low of $1.05 against the U.S. dollar on Monday morning, and although it has since risen to $1.07, the currency remains near a 40-year low vs. the dollar. 

After the new Truss spending plan was announced, the U.K. Debt Management Office said that it will raise its debt issuance by 72.4 billion pounds for the current fiscal year to 234.1 billion pounds.

The new spending plan will also push the U.K.’s debt to GDP ratio to around 101%, the highest level of debt the U.K. has held since 1962, according to Deutsche Bank.

Deutsche Bank, UK Office of Debt Management

In Ray Dalio’s view, this rapid increase in debt, coupled with the lack of demand for the pound on the global stage, is a recipe for disaster.

“That makes people want to get out of the debt and currency. I can’t understand how those who were behind this move didn’t understand that. It suggests incompetence,” Dalio said. “Mechanistically, the U.K. government is operating like the government of an emerging country, it is producing too much debt in a currency that there is not a big world demand for.”

The investor went on to argue that this should be a teaching moment for governments around the world to not increase their debts to unsustainable levels.

“I hope, but doubt, that other policymakers who are doing similar things…will recognize that they are risking a similar outcome—and that investors will see this too,” he said.

Analysts are also worried that the U.K.’s new spending plan, which was designed to spur economic growth and help alleviate the effects of high energy prices in the short term, could end up exacerbating inflation in the U.K. overall. And consumer prices already jumped 9.9% from a year ago in August.

“The government is trying to balance support for consumers and businesses with measures that might trigger further inflation, whilst also trying to reinvigorate a stagflationary economy,” Giles Coghlan, chief market analyst at global Forex broker HYCM, told Fortune. “Such a large fiscal package could contribute to elevated prices in the medium to long term that could inflict further damage to an economy and currency that are already on their knees.” 

The potential inflationary impact of the new spending plan has increased calls for the Bank of England (BoE) to dramatically hike interest rates, with some economists even calling for the U.K.’s base interest rate to move from 2.25% to as high as 6% next year

That’s bad news for the U.K.’s homeowners. Monthly mortgage rates will increase immediately for 2 million people on tracker or variable interest rate plans if the BoE follows through with its next rate hike. And another 1.8 million homeowners with fixed-rate deals will also be forced to pay significantly higher rates next year, according to U.K. Finance.

With the U.K. facing more interest rate hikes ahead, rising government debts, a sinking pound, and a European energy crisis, Deutsche Bank’s chief economist, David Folkerts-Landau, said he now believes the country will experience a severe recession that lasts three to four quarters.

“We’re thinking in terms of a recession that will be deep and long,” he told Bloomberg on Tuesday. “It’s the price we have to pay for financial stability and for getting on the right track.”

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Russian billionaire Petr Aven used estate management companies as a personal ‘piggy bank’ British authorities say

Petr Aven does not have a bank account himself, authorities say.  

Instead, he has been using his wife’s account, and that of other estate management firms, as his personal “piggy bank” to support his lifestyle, lawyers for the National Crime Agency (NCA), a British law enforcement agency, told Bloomberg Tuesday.

The Russian oligarch is under investigation for allegedly routing nearly £3.7 million from an Austrian trust into the U.K. hours before Europe imposed sanctions on him following Russia’s invasion of Ukraine in late February. British authorities are now accusing Aven of using the funds of his companies for personal expenses, with no personal bank account of his own.

The Kleptocracy Unit, a new team within the NCA created to monitor sanctioned Russian oligarchs, says it was alerted to the last-minute fund transfer by Monzo Bank and HSBC Holdings. Authorities ultimately froze £1.5 million of the funds linked to the billionaire, Bloomberg reported. 

Aven has said that the transfer was meant to pay for things like security at his Surrey mansion and London property, Bloomberg reported. He is worth $4.98 billion, per the Bloomberg Billionaire Index

In a lower court hearing, a judge relaxed some of the restrictions on Aven’s estate accounts, allowing him to pay for “basic needs.” Lawyers representing Aven’s estate companies suggested that the NCA was looking for criminality in the money transfer by tying it to sanction evasion. Lawyers for Aven’s companies are now challenging the decision to keep his accounts frozen in London’s High Court, Bloomberg reported. 

Adrian Waterman, a lawyer for the companies that manage Aven’s household, told Bloomberg Tuesday that the NCA painted a “muddled factual picture.”

Waterman did not immediately return Fortune’s request for comment. 

Aven, along with his business partner, Mikhail Fridman, made a considerable amount of his wealth from oil-related investments, especially after selling stakes in TNK-BP to the state-owned Rosneft in 2013. The duo also built a banking and financial services empire in Russia. They served on the boards of Alfa-Bank, Russia’s largest private bank and Luxembourg-based investment firm LetterOne, stepping down from their directorial roles days after they were sanctioned.

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