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National Audit Finds 'Major' Irregularities in Management of VEB Fund

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Today, the National Audit Office released the conclusions of an audit into the VEB Fund, a financial instrument set up by the Estonian government for depositors who lost money in the Soviet Union's Vneshekonombank 20 years ago. It found serious problems: murky transactions with certificates, unequal treatment of depositors, non-matching amounts in accounting, and spotty oversight.

The audit office said that "there were noteworthy shortcomings in the activity of the Bank of Estonia and the VEB Fund it managed, including in establishing the fund, maintaining the registry of claims and organizing fund management."

Shortly after re-independence, the freezing of Estonian banks' money in the Vneshekonombank threatened to derail the economy, so in early 1993, Parliament created the VEB Fund, in which  50 million euros of claims were parked - about 30 million of it depositor money and 20 million banks' own funds. The Estonian government bailed out two keybanks - something that the National Audit Office said today was the most cost-effective course of action - but made no promises to the depositors whose claims were securitised in the VEB Fund.

The National Audit Office said in its findings that it wasn't possible to determine on the basis of the existing records what principles were used to decide which depositors' claims were entered into the VEB Fund.

The National Audit Office said these depositors lost out the most, as the Estonian state did not guarantee compensation of their claims.

The National Audit Office also agreed with the findings of a Bank of Estonia internal probe into  a spurious attempt made on an official central bank letterhead to credit a little-known Russian company as a creditor, saying it was a premeditated attempt. But it, too, said it was unable to find out who had compiled the letter. In this case, over 30 million dollars was successfully recovered from Russia, but the final whereabouts of all of the money is unknown.

(This story is being updated.)


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