Results of Eesti Pank's audit of the VEB Fund



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.

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 Põhja-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 Ühispank 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 Järvelill, 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 Ühispank converted its kroon assets in the Estonian register into US dollars. This allowed Ühispank 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 Ühispank 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 Ühispank 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 Ühispank.

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.


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.


Before the VEB Fund
A lot was happening in the banking world in 1992 in Estonia. In the first half of the year Vnesheconombank announced the correspondence codes for the Estonian banks. Currency reform followed in Estonia in June. In early autumn a moratorium was declared for the Tartu Kommertspank, a pioneer of Estonian commercial banking, which ended up by going bankrupt. As there was no deposit insurance fund at the time, the bankruptcy affected depositors above all as they lost their money, but the whole of the new kroon-based financial system suffered a blow to its reputation.

In November moratoriums were declared for two more banks, PEAP and UBB. The decisive factor was the assets frozen in Vnesheconombank, which meant the banks was no longer liquid.

To prevent a repeat of the events following the bankruptcy of the Tartu Kommertspank, Eesti Pank and the government decided to join PEAP and UBB together and clean their balance sheets of the assets previously held in Vnesheconombank.

The result of this operation was that Põhja-Eesti Pank, or PEP, was created and the claims on the frozen assets were collected into the VEB Fund.

The creation of the VEB Fund
The main role of the VEB Fund was set by the parliament as finding solutions for settling the claims on Vnesheconombank of Estonian banks and legal and physical persons. Certificates were issued to the owners of assets to prove their claim.

However the Russian position had been communicated to the Estonians by the start of 1993 and was that the question of unfreezing the accounts could only be discussed in conjunction with a discussion of how to divide the external debt of the Soviet Union, and so it was unrealistic from the very beginning that the VEB Fund would be able to carry out its main task.

As manager of the VEB Fund, Eesti Pank did take some steps towards that end, through direct contacts, international negotiations and memorandums on joint work on the question of unfreezing the accounts, but this led to no real results.

The operation of the VEB Fund
Russia did not recognise the state VEB Fund, which meant that it could only carry out a registry function. Eesti Pank delegated the registry keeping to PEP two months after the VEB Fund was created, as PEP had been recognised by Russia as the sole real asset-holder.

Changes within the register of VEB Fund assets came from the sale and purchase of freely tradable certificates. Some of the certificates were bought by firms that wanted to settle their debts to Vnesheconombank. Some of these were venture capitalists who bought the rights to assets from the market with the aim of realising them at better terms.

The account statements of Vnesheconombank and other documents have been used to identify all the movements within Vnesheconombank up to the year 2000.

The exception for unfreezing of Russian assets
Russia made an exception for the use of assets frozen in Vnesheconombank by allowing payments to physical persons and to legal persons resident in Russia. When PEP paid the frozen sums out to private clients and turned to Vnesheconombank for compensation for this however, it received a negative response and a further reference to the unresolved problem of the Soviet-era debt.

Legal persons registered in Russia did in some circumstances succeed in getting the assets from the frozen accounts, particularly when they had received permission from the Russian finance ministry to do so. The conditions under which this was possible remain unclear to Eesti Pank.

Audit summary and base materials (more than 150 document, in Estonian)

Further information:
Viljar Rääsk
Public Relations Office
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