Correspondence spanning over six months reveals how Freeh Sporkin & Sullivan and the Estonian finance ministry traded flattery, veiled threats and obtuse legal back-and-forth – all for €200,000 and a bunch of documents.
"The decision to pay invoices from mid-February has been made in the cabinet, and I hope we can thus conclude this less than pleasant episode."
The words are those of Minister of Finance Keit Pentus-Rosimannus (Reform), uttered 216 days after the conclusion of the contract between the Estonian finance ministry and Washington law firm Freeh Sporkin & Sullivan (FSS).
"Prior to January this year, €581,000 had been paid," the minister now says. "Outstanding invoices for a part of January and February come to €190,000," Pentus-Rosimannus adds, suggesting that the exact sum depends on the euro-dollar exchange rate.
The latter sum is what caused a number of letters to cross the ocean – some of which were friendlier than others. The main point of contention was whether the law firm is obligated to surrender all the material it collected during its work.
There is no reason to believe, however, that the legal nature of the correspondence makes for dull reading. The reader is treated to threats, alleged mortal fear on the part of anonymous witnesses and the peculiar way of doing things at the ministry in the 21st century.
The fact that the whole matter concerns the largest money laundering scandal in the history of Estonia might also have something to do with it. Estonia's former finance minister Martin Helme (EKRE) hired Louis Freeh to help unmask the wrongdoing of Scandinavian banks and for Estonia to walk away from the scandal with a substantial payment.
But perhaps things went so wrong between the law firm and the Estonian state at the beginning of the year that there was no way of ending a simple business dispute sooner.
It was day two of coalition talks, January 15, when incoming PM Kaja Kallas (Reform) said she wanted to terminate the contract with Freeh's firm.
"If there are additional expenses, they need to be weighed against the anticipated result," Kallas said.
This was hardly a surprising development as the Reform Party had been against the contract, first signed in June of last year, from the outset.
"Investigative agencies were skeptical in terms of value added," Pentus-Rosimannus now says regarding why the contract was terminated.
Reform Party deputy head Jürgen Ligi was even blunter in a social media post on January 18: "Freeh basically represented the other side even during our investigation, despite certain legal maneuvering."
Important letters from Washington
The new government took office and Minister of Finance Keit Pentus-Rosimannus received a colorful letter on February 10 that started with pleasantries and a recollection of a meeting with "accomplished artist" Lennart Meri in the 1990s, the first president of Estonia. Next, as if out of the blue, Freeh wrote how the new U.S. administration is in as much of a hurry as the newly sworn in Estonian cabinet.
"Our President, a friend and Delaware neighbor for 30 years, nevertheless found time to attend Sunday Mass in our Wilmington, Delaware Parish this past Sunday," Freeh said, referring to Joe Biden.
Freeh explained he has made "excellent" progress and established high-level contacts between the Estonian finance ministry and U.S. authorities. "Given our prior service with those agencies (especially DOJ) and our good reputation and credibility, the prosecutors and regulators have welcomed our role and tasked us with continuing to work with the FSA and PGO to provide evidence that is critical for a successful US prosecution." Freeh wrote.
The tone of the letter soon changed. Freeh assured Pentus-Rosimannus that he was not a Kremlin agent, which has been suggested in the media, and warned Estonia of the potential consequences of ending the contract.
"I believe that our abrupt termination at this point will send confusing and counterproductive messages to the USA authorities," Freeh wrote, adding: "It would be very disadvantageous to Estonia to terminate what is now a very successful undertaking."
The lawyer closed by promising to fly to Estonia and talk about his plans in more detail. Freeh offered to introduce the Estonian finance minister to her American colleague.
The letter went unanswered.
Five days on, Freeh sent a new letter, this time to Prime Minister Kaja Kallas. He once again recalled his visit to post-Soviet Estonia and his 30-year friendship with Biden.
Freeh got to the point sooner this time, recommending Kallas uphold the contract.
"Also, as a highly-regarded attorney, you can certainly appreciate the fact that I have been the target of very defamatory statements and false allegations, particularly from one of your Party's deputy chairpersons, who appears to be a bit deranged."
Freeh did not say who he meant.
But the lawyer was not simply speaking his mind. "We have carefully cataloged these false and reckless comments and they are actionable both in U.S. and EU courts, particularly in the context of an arbitrary contract termination." The letter did not mention the reason a certain Reform Party member's unfavorable statements and termination of the €3 million contract ended up in the same sentence.
Pentus-Rosimannus was not quick to characterize Freeh's letter as a threat. "I would rather describe it as a standard, albeit unpleasant, practice of a firm that realizes it is about to lose favorable contract using somewhat surprising methods that are not exactly in line with best practices," Pentus-Rosimannus says.
"Perhaps such tactics have proven successful on other international markets. However, they are not in Estonia," the minister adds.
Freeh also named the Kanal 2 reporter who allegedly referred to him as a Kremlin and even Satan's agent. "You did nothing to correct this falsehood," Freeh criticized Kallas, adding he hopes the PM will do so at the earliest opportunity.
Freeh sent his third letter to members of the government just a day later when news of the potential termination of the contract had reached Bloomberg. "To avoid media reports of your comments from confusing U.S. authorities and thereby preventing Estonia from rightfully sharing in U.S. prosecution proceeds, we urge you to confirm publicly that the FSS engagement will remain in full force with the same intended goals."
The PM did not accommodate Freeh, while the lawyer did not visit Estonia. In his final letter, he was prepared to fly over whenever it suited the Estonians.
Race to terminate the agreement first
Instead of replying to Freeh, members of the government convened for a meeting on February 18 and decided the FSS agreement needed to be terminated. The proposal was forwarded to the law firm on the day, with Pentus-Rosimannus promising to pay the €60,000 contractual penalty this would activate.
"We hope you will agree to our proposal to terminate the contract with mutual consent," the finance minister wrote, adding that the matter could be concluded inside ten days.
Freeh did not wait that long and saved Estonia from having to pay the contractual penalty. A few hours after Pentus-Rosimannus' dispatch, a letter arrived in which Freeh rushed to mention that work on preparing it had started some time ago.
Freeh criticized Estonia on all the same points. That Estonians refuse to cooperate, the prime minister speaks ill of a contractual partner and letters go unanswered.
"For these reasons and as further explained below, you are hereby notified that FSS is proactively withdrawing from this engagement and discharging the Ministry of Finance as its client, effective Friday, February 19, 2021."
Freeh wrote that "Prime Minister Kallas appears to misunderstand the nature of our work and the U.S. law concerning the ways the people of Estonia can obtain important remedies for any misconduct by the Scandinavian banks."
The lawyer had no encouragement in store for the new government in Estonia, finding that terminating cooperation would leave the people of Estonia with no remedy for the Scandinavian banks failures in preventing money laundering. "The idea of using a judicial attache to perform this important work is weak and ineffectual," Freeh found.
He repeated that his efforts have been productive. That new witnesses and documents have been found, new line of communication opened between Estonia and USA, and that the work had been done relativity cheaply.
"Instead, these politicians appear intent on protecting the Scandinavian banks from paying stiff fines and facing the consequences of their actions," Freeh wrote, adding: "Ironically, it was the Prime Minister's party which led the government during the massive money-laundering scheme which is being investigated by U.S. authorities."
"There have been many ironic aspects about this process," Pentus-Rosimannus says, adding that it is better for Estonian and U.S. authorities to communicate directly, without intermediaries.
The law firm's letter continues: "FSS cannot continue to work with such an uncooperative and uncommitted group. We therefore withdraw and will present a demand for payment of the value of our work and other significant losses caused by defamatory, irresponsible and unsupported statements by members of your Government and political party."
FSS: We found 70 former bank employees
While the law firm did not file any damage claims, it wanted to get paid for work done. By the time the agreement was terminated, Estonia had paid Freeh's bureau €581,500. The firm billed the ministry for 1,050 work hours, to which airline tickets and hotel bills were added.
The company now requested payment for January and February for a total of a little under €200,000. Estonia did not rush to pay. First, the authorities wanted to know what the law firm had done for Estonia.
FSS had presented its work overview in mid-February. The Ministry of Finance was given a seven-page overview of how Estonia had benefited.
For example, it was allegedly FSS that convinced the U.S. government that the Estonian FSA has exercised supervision over banks and can share the results with the Americans.
The firm also completed an analysis on what the U.S. would take into account when redistributing money received in fines. It turned out that those who have added "significant" and "essential" evidence and taken "innovative steps" can hope for an equitable share of any fines that might be imposed.
To accomplish this, the law firm started looking for witnesses in Estonia. Freeh said in February that his bureau has talked to a number of people the Estonian authorities had not contacted.
"We have identified around 70 former employees of Scandinavian banks who held executive or internal audit positions," FSS wrote, adding that it has met with around ten people.
Witnesses allegedly afraid of retribution
Despite the law firm's clarifications, Estonia did not rush to make the payments. The finance ministry on March 11 wrote it wants all the material FSS has collected in its work. Attached was a long list of documents Estonia wanted.
While most of the results were sent over by late April, the invoices remained unpaid.
The site Estonia was given access to using a one-time password did not include a single witness interview.
On May 5, Estonia received a letter from FSS partner Benito Romano who said that many people the firm interviewed were afraid of retribution from the Estonian government and institutions. "The witnesses often pointed to issues such as the mysterious death of a former bank executive, which the witnesses still believe has not been adequately explained," Romano wrote, referring to Aivar Rehe who died two years ago. According to Romano, the witnesses asked the firm not to disclose their identities.
Romano also noted that the ministry has accepted witnesses remaining anonymous in the past. "The Ministry did not want there to be even the suggestion that they would take any action to harm or benefit the witnesses," Romano wrote.
In other words, the firm said it has no intention of releasing the names of interviewees and that it had made corresponding promises to sources.
"In closing, FSS expects payment from the Ministry of Finance within a week as our invoices are well past due and we have complied with all of your requests," Romano wrote.
Former Finance Minister Martin Helme confirmed in April that the ministry was never meant to access all of the information.
"Our task was to create a framework to facilitate these investigations and anti-money laundering efforts. And ours was the role of mediator bringing different agencies together," Helme said of the ministry's involvement.
However, this was not enough for Pentus-Rosimannus. "It would be a very peculiar situation indeed where the party being invoiced is told that while we did the work, we won't tell you what it is," she now says. The minister sent FSS a letter a day before Midsummer, once again demanding the names of the interviewees.
"Your reference to an alleged agreement between you and the former finance minister does not change obligations pursuant to the agreement and the Estonian Law of Obligations Act," the minister wrote.
It is unclear whether the might of the Estonian Law of Obligations Act was to blame, but the law firm had changed its position ten days on. Estonia was promised names of sources and interview notes.
What followed was another two months of correspondence to determine whether the money or documents held by the Americans would have to be sent over first. Estonia received everything it had requested by late August.
"We were sent the list of interviewees and a laconic summary of the conversations, while we learned nothing new," Pentus-Rosimannus says.
Vague agreement makes evaluating work difficult
The ministry's internal audit department admits that material received in spring were not much use either.
"The materials surrendered include an overview of U.S. settlement law, analyses of Danske and Swedbank anti-money laundering measures, news outtakes, a U.S. Congress report on Russian influence in American politics and Danske Estonia and Swedbank's in-house reports and procedural rules," head of the department Gert Schultz listed in a memo from May. He added that most of the material is publicly accessible.
"Banks' in-house documents are not public, while they are definitely in reach of Estonian investigative organs," Schultz noted.
Deputy Secretary General of the Ministry of Finance Märten Ross had told Schultz that contacts also proved largely useless for investigative agencies. "The contacts existed previously, with just one or two added," the memo reads.
Analyzing invoices the ministry had received over six months, Schultz noted that the Estonians were charged for conversations between lawyers. "While mutual conversations and briefings are entirely natural work processes, it still seems a lot of working time was spent on the team itself," he described.
The audit department stopped short of claiming unjust enrichment. "Even though work done fails to add much value to Estonia's investigation and has provided no important knowledge or contacts this far, it would be difficult to claim it has not been in line with expectations and the agreement as the latter have also been vague and nonspecific," Schultz admitted.
Information ended up in the hands of three peoplez
Evaluating the work in hindsight has been made more difficult by the fact the people who communicated with FSS no longer work at the ministry.
"Supervision of compliance was up to ministry advisers Kristel Menning and Kersti Kracht, with relevant information reaching them and the minister," Schultz said, adding that ministry officials were not kept in the loop.
Menning and Kracht also approved the lion's share of FSS invoices. The ministry memo reveals that several invoices lacked details on Freeh's working hours. Meaning that while the hours were recorded, how they were spent remains unclear.
There were also problems with expenses. For example, Freeh wanted over €5,000 for miscellaneous expenses in October. He was likely after money for airline tickets, while the latter were not attached.
In December, an invoice for €250 for translation services was filed, whereas it once again remained unclear who had translated what. "There is no information whether these additional expenses were coordinated with ministry advisers," Schultz added.
A strange occurrence took place when Freeh visited Tallinn last July. According to the agreement, Estonia was obligated to pay for economy tickets. The Washington lawyer flew first class and attached tickets worth €17,000.
"The sum was adjusted on the invoice (€6,185), whereas it remains unclear based on what this was done. Proof, such as competing offers for economy class tickets, has not been provided.
However, FSS will not be asked to return sums paid.
Keit Pentus-Rosimannus says that the fact Estonia has already accepted the invoices once needs to be considered, albeit by the previous government.
"I hope that both sides want to end this uncomfortably long epic and draw the line here," she says.
Editor: Marcus Turovski