Noose tightens around rascals

Riigikontrolli VEB fondi auditi tutvustus. Riigikontrolli avalike suhete juht Toomas Mattson, riigikontrolör Alar Karis ja tulemusauditi osakonna peakontrolör Tarmo Olgo.

PHOTO: Mihkel Maripuu / Postimees

The report published by National Audit Office yesterday revealed details on how intentional activity at Eesti Pank, 22 years back, left local entrepreneurs in the cold and awarded Russian cheats dozens of millions of Estonian’s dollars.

«The activity was obviously premeditated, and Estonian state helped along,» noted NAO performance audit department chief auditor Tarmo Olgo.

How else would you call a situation where Estonia’s central bank governor Vahur Kraft, in 1995, up and signed $32.2m of Estonian entrepreneurs’ money unto the name of a Russian company TSL International – out of nothing. Then, Eesti Pank let Union Baltic Bank (UBB) transfer it by three separate payment orders. And, finally, Mr Kraft approved the transfers in a letter sent to Russia.

Actually, this is just one episode in a long string: errors in solving the VEB crisis started three years before that.

Disservice to Estonia

In 1992, Presidium of the Supreme Council of Russian Federation froze use of foreign currency in  the country’s Bank for Development and Foreign Economic Affairs (Vnesheconombank, VEB), in order to help it out of solvency problems. By that, accounts of two Estonian banks – Eesti Pank foreign operations authority and UBB – got stuck in Russia, by which cash flows from Russia had been moved.

As established by National Audit Office, instead of notifying the unsuspecting depositors in Estonia of the bank assets having been frozen in Russia, the banks continued with payments and pretended nothing had ever happened.

«Surprisingly, no steps were taken. Probably, it was hoped it was just temporary disorder in Russia, and it’ll pan out,» suggests Mr Olgo.

By that, the banks later did the Estonian state a disservice as payments by Russian companies to these accounts continued and the amount stuck there swelled to be five times what it initially was. As did the sum Estonian state had to pay, afterwards, to save these banks.

By the fall of 1992, the banks in Estonia were so short of money as to threaten the entire state with a crash. A moratorium was declared towards the banks and, in January 1993, the Riigikogu took a drastic measure: 890.5 million Estonian kroons worth of frozen claims burdening the banks were lifted from their books into VEB Fund.

Moving on from there, the government and Eesti Pank bought out the banks’ certificates using government bonds, so these would escape liquidity crisis. Other entrepreneurs left in the fund were deprived of everything. To this day, it is not known who exactly decided whose claims to transfer into VEB Fund.

«Altogether, 58–59 percent of the deposits were transferred there. The rest could continue using their money once the moratorium was over,» the chief auditor said, pointing to yet another example of arbitrary approach.

Back then, the plan looked good: to issue certificates to back the claims, to set state bank as manager of the fund, and to aim at getting the money back from Russia – fast. NAO, however, established that the idea was nothing but to maintain liquidity of the kroon.

For example, the government and central bank decided that, out of the money put into VEB Fund, 357 million will be named the banks’ money, and the rest would belong to depositors.

«In reality, dividing it up like that was artificial. They just figured out the amount the banks needed to make it,» said Mr Olgo.

Two schemes at once

Eesti Pank, however, declined to fulfil the task given by Riigikogu altogether, did not create a VEB Fund register, and years later handed the task to North Estonian Bank (Põhja-Eesti Pank). By all of that, a situation was caused where sums at VEB und started to move as related to foreign exchange rates, hopes to get the money back were lost, and the value of certificates nosedived.

By that, fertile ground was provided for crooks who, by scheming, wanted to turn the claims into cash. For instance, as established by the audit, North Estonian Bank owners were brazenly selling nonexistent certificates.

Though the audit failed to establish who wove the €32m scheme, Mr Olgo believes two schemes were running at once. «The first was the government and Eesti Pank scheme how to save the banks. The other scheme – the one with the certificates – came later, as these decisions hanged upon the Russian bank which, at a certain moment in time, decided to compensate,» he said.

As assessed by Mr Olgo, the cheats did have to know details of both schemes, as well as what was happening across the border.  

After the paper signed by Mr Kraft in 1995 gave Estonian-Russian businessman Aleksandr Matt’s company TSL International $32.3m worth of claims, the man was not yet able to withdraw the money. He also needed an order by Eesti Pank to UBB, for UBB to transfer the money unto TSL in VEB Bank.

According to Mr Olgo, TSL purchased in 1997–1998 only bought the same worth of certificates as a smokescreen.

«If they had not done that, at some point a situation would have arisen where, after making payment to TSL, VEB Bank balance would have shrunk by half – but not so in VEB register. Clearly, sooner or later that would have raised eyebrows and pointed towards an offence,» said the chief auditor.

Second audit coming

One-time Eesti Pank president Vahur Kraft, his predecessor Siim Kallas and other banking executives claim not to remember who issued the order to make the payment. Meanwhile, the paper sent by Mr Kraft did greatly endanger Estonian finance.

«If, for instance, TSL had not bought up the certificates and Russia had decided to unfreeze the accounts, TSL could just have walked into the bank and say half the money is money is mine as confirmed by Estonian state bank,» said Mr Olgo.

To cover tracks, great efforts were made. For instance, in 2004 it was detected by National Audit Office that 1996 file for VEB Fund audit was missing. To our knowledge, this is the only NAO file that has gone missing. 

Who bears responsibility? «In this wording, we have not seen documents that this was deliberate action by Vahur Kraft and Siim Kallas,» said Auditor General Alar Karis, diplomatically.

Riigikogu VEB Fund investigation committee head Rainer Vakra (SDE) was not that timid and promised that their audit would be tougher on the culprits.

«The top executives from these times back then have all adopted the principle that the less you talk the better. No-one has come and honestly said why decisions like that were taken,» said he. «I am troubled by the mutually supportive failure to remember. Public condemnation of that would be even more important than somebody being fined or criminally punished.