Dramatis personae

VEB -  the Bank for Foreign Economic Affairs of the USSR

UBB - Union Baltic Bank, Estonian commercial bank 

VOV - the Estonian central bank's Foreign Operations Administration, which later was transformed into the North Estonia Bank

PEAP/PEP - the North Estonia Bank, a state-owned commercial bank. Later PEP. 

VEB Fund - an instrument approved by Parliament on January 20, 1993, that was to give individual and corporate Estonian creditors certificates stating right of claim to the frozen funds in VEB. Liquidated this year with a value of zero.

TSL International - little-known Russian-registered company that was one of six depositors to get money out of VEB, with help from a falsified letter prepared at the Estonian central bank in the mid-1990s. TSL got tens of millions of dollars despite having less than a million on account in VEB by late 1992. 

Did VEB Bank freeze the hard currency deposits of two Estonian banks (the equivalent of 57 million euros' worth) in one fell swoop in early 1992?

No, at that point PEP and VOV had only around the equivalent of 11 million euros in currency there. The majority was money that continued to accrue after the accounts were blocked. The 57 million euro-equivalent figure dates from November 1992.

So transfers continued to be made from the banks' accounts after the freeze?

Yes. At least 59.9 million USD came in and 14.3 million USD was paid out. The National Audit doesn't know on what conditions the transactions were allowed. In general, receipts were not blocked.

Did VEB also freeze the settlement accounts of UBB and VOV/PEAP at VEB?

No. VEB froze correspondent accounts. The depositors had regular bank accounts at UBB and VOV, not directly with VEB.

Was the VEB fund the only option considered for solving the problem of the frozen funds at VEB?

No, the plan to establish the VEB Fund was one of six options considered by Eesti Pank to solve the problem.

The Cabinet did support it, though, and the VEB Fund was the only option ultimately discussed by the Parliament.

Were Estonian banks' depositors given equal treatment when the VEB Fund was created?

No. A number of the banks' customers were allowed to withdraw or "evacuate" their funds in 1992 after the freeze.

Others lost their money, or rather their money was securitized in the VEB Fund.

Was the actual aim of the VEB Fund to free the money frozen in VEB Bank?

No, the primary goal was to get UBB and PEAP liquid again, to keep the reputation of the country's banking sector and national currency high.

UBB and PEAP were compensated by the state in the form of cash and government bonds. Depositors were not paid, their money was transferred to the VEB Fund, meaning that they were deprived of the right to demand recompense from UBB or PEAP.

Who chose which claims would be transferred to the VEB fund?

It wasn't possible for the national auditors to determine who chose the individuals and companies whose claims became a part of the VEB fund. Interviewees claimed not to remember.

When was the official VEB register created and who maintained it?

Again, it wasn't possible to determine who created it, and no one appears to remember. The function of the central bank as the VEB fund manager was to make sure that there was a proper register of the certificates issued to creditors. The first known official register was compiled as of mid-1995.

Did the amount in bank depositors' claims transferred to the VEB match the stipulations in the Parliament decision?

No, analysis by the National Audit Office showed that 1.6 million euros more in UBB and PEAP depositor claims were transferred to the fund than Parliament had envisioned.

Was the VEB accounting kept properly?

No. The VEB Fund books were mildly cooked so that the fund balance matched the VEB Bank balance data.

As close to 40% of the claims were transferred to the VEB fund in Estonian kroons, even though no kroons were frozen in the VEB Bank, the amount in VEB fund claims did not match the frozen funds balance in VEB, due to currency rate fluctuations.

This amount was not recognised in accounting and instead the clients' frozen funds row was adjusted accordingly.

Were unclear transactions executed with VEB Fund certificates?

Yes, in the case of some transactions, it isn't known why the claims were transferred to the VEB Fund register or deleted from there. The audit found the volume was reduced by 9.8 million kroons and increased by 9.4 million kroons (more than 500,000 euros in either direction). Ninety-two percent of the murky transactions were performed by PEP, the registrar. For example PEP sold 1 million USD in certificates to a omcpany linked to TSL International - certificate sit actually didn't have. The central bank's oversight was deficient.

Did the VEB Fund serve its main purpose, which the Parliament imposed on it - finding ways of satisfying claims regarding the frozen VEB accounts?

No. Even though Estonian and Russian delegations met tens of times, they did not get to free upo the money. Most persons whose money - formerly in Estonian banks - was securitized in the VEB - never saw it again.

Besides TSL International, which was able to obtain the equivalent of one-half of the VEB Fund in the form of Russian bonds (and cash), five other legal persons were able to transfer money out of VEB Bank. In March 1999, VEB was restructured into a foundation, and it was dissolved in May 2014.

Did this company, TSL International, have 32.3 million USD blocked in VEB?

No, only 915,000 dollars - less than 1/32 of that amount. But due to an error, TSL received 3.5 million USD on its account with UBB. The company didn't return the money but transferred it to other companies. In any case, by November 1992, TSL had under a million dollars, and this amount was transferred to the VEB fund. In April 1995, when Bank of Estonia claimed that TSL had 32.3 million dollars frozen, TSL actually didn't even have any certificates in the VEB Fund.

But TSL got 32.3 million dollars from VEB?

That's what materials indicate - about 20 million in money and the rest in Russian government bonds.

Did Estonia assist TSL in getting this money?

Yes, without the Estonian central bank vouching for TSL with falsified documentation and letters and a payment order made to PEP, TSL would not have got the money or bonds. But the consent of the Russian Finance Ministry was also necessary.

The 32.3 million USD matched up with the amount held by the government, central bank, PEP and another company belonging to the owner of TSL. 

Only later, 1997-1998, did TSL International actually acquire, through the successor of PEP, the government and central bank certificates that the central bank letter of 1995 falsely credited it with. 

The National Audit doesn't know who compiled the Estonian central bank letter or whether the people on the Estonian side received any kickbacks or part of the money.

Did the Estonian state sustain financial losses by falsifying the letter?

Not to the National Audit's knowledge. But Estonia did take a big risk by doing so. It gave TSL the right to claim around half of the money frozen in VEB Bank. Had Russia decided to let the money go and TSL hadn't bought certificates, the letter would have entitled Russia to forgo compensating about half of the money to Estonia.

Sources: uudised.err.ee, National Audit Office