OREANDA-NEWS. January 21, 2013. The audit team was able to use the extensive existing documentation to establish quite well what actually happened. However, in several places it was unclear why things happened as they did, reported the press-centre of Eesti Pank.

Key Findings:

The letter containing the false data which credited TSL International with an additional 32.3 million dollars in assets at Vnesheconombank was created in Eesti Pank

It was not possible to discover which individual person involved in the process of creating the letter was responsible for inserting the false data

The audit finds that there was no theft of state assets

All the completed transactions were successfully traced, but not all of their consequences and causes

VEB Fund archive materials

The VEB Fund was set up in January 1993 and Eesti Pank managed the documentation of the fund until April 1993, when this task was taken over by Pohja-Eesti Pank (PEP), which was recognised as the sole owner of the frozen assets by the Soviet-era Vnesheconombank. Later the documentation was handled by the legal successors of PEP, which were Eesti Uhispank and SEB, and the archive was handed over to the VEB Foundation in 2008.

Although the events surrounding the VEB Fund date back as far as 20 years, a surprisingly large number of documents have been preserved in the archive. However it is not possible to judge whether all of the documents are there, because no document register or list of contents has been preserved as stipulated under the Archives Act and the guidelines of the the State Archives.

The audit team was able to use the extensive existing documentation to establish quite well what actually happened. However, in several places it was unclear why things happened as they did. Firstly this is because some background materials are missing that would explain the reasons why certain decisions were taken, even when the documents confirming the decisions exist. Secondly, the participants in the events could not recall all the details, as the events happened 15-20 years ago. Thirdly, a gap in the archives was created because in the early years the managers of the VEB Fund were also employees of Eesti Pank and they didn't put everything down in writing when passing instructions between the two institutions, or in effect from themselves to themselves.

Previous assessments of the VEB Fund

The two previous audits by the National Audit Office still apply. The assessment of Rein Jarvelill, who liquidated the Foundation, is also accurate, except for his estimate that unrecorded transactions worth 108 million kroons took place.

The VEB Fund register shows that around 108 million kroons are in the wrong place in the balance of assets and liabilities, but these are not unrecorded transactions but rather a consequence of poor record keeping. For a start, not all the original documents have been kept for some of the transactions in the registry, but the documents have mostly been well enough preserved for the content of the transactions to be clear and recoverable.

The balance was out because one part of the assets in the VEB Fund register were recorded in kroons, while the accounts held in Vnesheconombank were in other currencies, and the exchange rate of the kroon to the dollar fluctuated widely. Further disparities were caused because Uhispank converted its kroon assets in the Estonian register into US dollars. This allowed Uhispank to sell the necessary amount of dollar assets to TSL International.

On top of this, it should be emphasised that the VEB Fund transactions, including the improperly recorded transactions, represented only the movement of data within the VEB Fund register, and not real transactions with Vnesheconombank.

The documents from Eesti Pank containing false data

The document containing the false data adding 32.3 million dollars to the assets of TSL was created in Eesti Pank in 1995. However, it was not possible to discover which individual person involved in the process of creating the letter was responsible for inserting the false data. Indirect evidence suggests that it was a deliberate act.

The letter containing the false data later helped TSL realise its assets in Vnesheconombank, as the Russian government had announced that legal persons resident in Russia would be allowed to access the frozen accounts and exchange the sums contained in them for Russian state bonds.

TSL was not able to access its assets from Vnesheconombank by using the Eesti Pank letter alone. More important were the payment instruction from PEP and the permission of the Russian finance ministry. In some cases, assets from Vnesheconombank were realised even without further confirmation from Eesti Pank.

Two facts suggest that this was a deliberate act. Firstly the assets listed in the letter and valued at 32.3 million at the exchange rate of the start of 1995 matched fairly precisely the total sums of assets held by the government, the central bank, PEP and another company belonging to the owner of TSL. Secondly, TSL realised three transactions several years later for all the assets received from Uhispank and held in Vnesheconombank for exactly the amounts confirmed in 1995.

Certificates belonging to the state and to Eesti Pank

Eesti Pank sold the certificates it owned with a nominal value of 103 million kroons to Uhispank for 12% of their nominal value. This can be considered a very reasonable price for unrecoverable assets, and it was higher than the bids in the earlier public auction, which had been for between 8% and 9.2% of nominal value.

The government transferred its assets, which had a nominal value of 243.9 million kroons through Eesti Pank to PEP, which was once again in difficulties, and this allowed PEP to join Uhispank.

As the central bank sold its certificates at the current market price and the government transferred its own certificates to a state-owned bank in difficulty as an injection of finance, no theft of state assets took place.

Risks identified by the audit

The audit identified discrepancies between the total amounts of the claims of creditors and the balance of the accounts shown in the fund's reports as frozen in Vnesheconombank, as a consequence of inaccurate record keeping. As a result it is not possible in theory to settle all the dollar claims. However, it is possible to settle all the claims by using other currencies, which are in surplus in the accounts, instead of dollars. The probability of the claims being settled remains theoretical, as there is no reason to believe that Vnesheconombank will decide to return the frozen assets.

Conclusion
Eesti Pank has gone through and published all the material on the VEB Fund. Eesti Pank is not able to investigate the subject any further, as the central bank has no authority to interview people from outside the bank or to demand documents from them.