Tallinn’s bank operating with taxpayer money

Despite the fact a commercial association founded as a Center Party initiative in Tallinn two years ago failed to secure a banking license, the body started issuing loans to companies last month. As the bank does not have deposits, it is using its €6.3 million equity to issue loans, of which more than €6 million came from the city of Tallinn that no longer has control over the association.

Tallinn’s opposition and former members of the Center Party make no secret of the fact the Association Bank was to become one of the supporting pillars of Edgar Savisaar’s state within the state. Savisaar already had the city shop and markets, television, newspaper, and even a municipal police force. Businessmen could be managed by way of controlling detailed plan proceedings. What was missing was the opportunity to influence people with money – there is no worse slavery than debt slavery - writes postimees.ee.

“Financially speaking, Tallinn’s association bank is as much a bank as Lipo (municipal shop – ed.) is a store,” one of Savisaar’s former allies, now evicted from the veteran politician’s inner circle, said. “I can only guess the mayor’s intent was to demonstrate that he is also a big shot businessman. That he can open shops and create police forces at will. And because everyone who is anyone has created at least one bank in Estonia, he will too. The difference is that while businessmen founded banks on their own dime, Savisaar did it, as always, at the expense of others. In that sense, he has always been plagued by a slight inferiority complex.”

So, why the uproar surrounding what seems to be just another association bank? After all, such banks have been created before, both in Estonia and abroad, and one such institution is successfully operating in Tartu right now.

“There is one very big “however” here – nowhere have these kinds of institutions been operated by local governments,” said Tallinn city council audit committee member Priidu Pärna (IRL). “Tallinn gathered its economic vassals and those interested in detailed plans (for a total of approximately 200 people and companies) and set about imitating cooperative activity. 95 percent of the bank’s capital has come from the city – others have not dared place funds in the venture.

A quick glance at the list of the Association Bank’s founders. The city has put down the lion’s share of the bank’s equity, or €5 million. The other 150 founders have contributed based on a rather similar pattern: leading members of the Center Party have surrendered €350, while companies directly dependent on the city (mainly in terms of real estate) have placed either €1,500 or €3,000 in the bank.

This comes to total equity of €5.26 million five million of which has come from Tallinn’s taxpayers. The latter have added another million euros since then.

Reins held by two people

However, the bank has a much bigger problem next to ideological dubiety. The Estonian Association Bank has existed for over two years but has not been issued a credit license.

The Financial Supervision Authority refused to issue the bank a license because heads of the largest founder, the city of Tallinn, stand suspected of corruption crimes, because information was scarce and trust virtually nonexistent. While the bank has contested the decision in court, even the date for the opening session has not been set.

The Association Bank has to pay salaries and cover daily expenses, while it cannot accept deposits. The institution is itching to act as the €5 million contributed by the founders is running out and the bank is looking at bankruptcy in the near future in light of expenses of €368,000 and profits of just €1,610 last year.

The bank has not deemed it necessary to file a new complaint, nor is it content to just wait. Instead, the board decided to start putting out the money without the watchdog’s supervision. The first loan of €100,000 is said to have reached a catering company from Viimsi a month ago.

Where does a bank that lacks an activity license and deposits get the money to issue loans? “We issue loans based on equity,” said CEO Ülle Mathiesen.

The unlicensed bank is offering business loans not subject to credit rules that is eating away at the association’s equity – mostly taxpayer money. Tallinn city council, that contributed most of the equity, has absolutely no control over these activities as the bank is an independent business association and the city foundation that created it has been dissolved. Taxpayer millions are put out as loans by the bank’s two-member board: Ülle Mathiesen and Alar Kaljuvee.

The bank’s website doesn’t even have a proper loan application form. “State your target and contact information in the first letter. We will contact you for additional information,” the website reads. It offers loans of up to €150,000 for a maximum period of three years until the bank is issued a license.

The only way for the capital’s taxpayers to learn where their money ends up would be for the companies that have borrowed it to publicly reveal that information.

However, companies lending money to each other is common practice – why couldn’t the Association Bank issue loans? It could, were it not its primary economic and professional activity.

The bank’s founding documents read that the association’s primary activity is issuing loans. This means that the bank has engaged in its primary activity without a license.

The penal code reveals that unlicensed credit, insurance, or financial services activity is subject to a punishment of a fine or up to three years imprisonment.

Head of the financial inspectorate Kilvar Kessler said he is troubled by the Association Bank’s actions. He said that while the watchdog will not intervene at this time, it is considering asking the bank for an explanation as their activities could be illegal. The key question being based on what the bank is issuing business loans.

“It is probable the association has carefully weighed its decision and managed legal risks,” Kessler said.

Who needed it?

For whom was the Association Bank necessary in the first place, a banking sector executive asked. “Even if a client’s access to financial services is complicated, it is usually due to regulations or high risk.”

Businessman Jüri Mõis, who sat on the association’s supervisory board from the bank’s founding until he was kicked out this summer, said the association is an utterly centrist construct the meetings of

which host all high-ranking city council and city government members, as well as a notable part of Center’s MPs.

“It left me feeling hollow,” Mõis said. “The city’s holding is 98 percent, and they keep pumping in more money. The centrist city government is using its official position and presence in the bank to make use of city funds for their own benefit.”

Priidu Pärna said he regards the Association Bank as a part of Savisaar’s parallel state that is being built using taxpayer euros.

“We do not know where the money the bank puts out ends up!” Pärna said. “It could have been Savisaar’s plan, in addition to building a reputation of an economic catalyst, to use the bank to finance his party and election campaigns in the future.”

Why did the bank’s founders need it?

“I believe that association banks can unite communities. No one foresaw that the Association Bank could run into trouble securing a license,” said Urmas Viilma, archbishop of the Estonian Evangelical Lutheran Church (EELK). The bank’s founders include EELK’s holding company Kiriku Varahaldus that also operates a joint venture with another founder Fund Ehitus.

Founders also include ecological farm Saidafarm, run by Helve and Juhan Särgava. “We got a spontaneous wish to be among the founders of at least one bank based on Estonian capital. We weren’t ready before, when other banks were being founded, while not all of them made it,” Juhan Särgava said. He had a number of good acquaintances among the founders. “The wife warned against it, but who listens to their wife in such “manly matters!”

Representative of Silikaat Grupp Manuela Pihlap said the group is interested in maintaining a versatile investment profile. “We treat this particular investment as a long-term project,” she added.

Endover Real Estate said it supports creating competition in the banking sector. “Real estate development is a capital-intensive field, and the more banks, and therefore competition on the market, the better the terms offered to individuals and companies,” the company told Postimees.

Read also: Working in Estonia

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