Estonia

Estonia will compensate financial damage to the undertakings who suffered due to the VEB Fund

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An Estonian Parliament session, known as Riigikogu
An Estonian Parliament session, known as Riigikogu

Draft Resolution on compensation for the damages related to the VEB Fund passed the first reading in the Riigikogu (Parliament of Estonia)

At tuesday’s sitting, the draft Resolution initiated by members of the Riigikogu Jaak Madison, Artur Talvik, Jaanus Karilaid, Toomas Paur and Martin Helme passed the first reading. It provides that the Estonian state should compensate for the financial damage to the undertakings who suffered due to the VEB Fund.

Initiators of the draft Resolution (515 OE) “Determination of the amount, and payment, of the real monetary compensation by the Republic of Estonia for the claims of the customers of the North-Estonia Bank Corporation and the United Baltic Bank relating to the accounts frozen in the former Foreign Economy Bank of the USSR, collected to the National VEB Fund” propose to compensate for the damage on the basis of a formula in which inflation is determined through the consumer price index. According to the draft Resolution, payment would be effected to the extent of a half of the profit of the Bank of Estonia appropriated into the state budget, until the whole amount would be compensated.

During the debate, Jürgen Ligi, Reform Party, said that the draft Resolution was in conflict with two basic Acts, and the claim for damages against the Estonian state was unjustified.

Mihhail Stalnuhhin, Centre Party, expressed support to the draft Resolution and proposed to extend the range of the recipients of the compensation, and to include specific amounts, instead of the formula, in the draft Resolution. He added that he could see no possibility of the Resolution on the compensation coming into force already the following year.

Mart Helme, Estonian Conservative People’s Party, said that the draft Resolution had a moral dimension and it was intended to get justice done.

Enn Meri, Estonian Free Party, said that the Free Party supported the draft Resolution in principle, but the compensations paid should remain symbolic.


 

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.

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.

BACKGROUND

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)

 

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