Vneshekonombank, the Soviet foreign trade bank, has in many ways followed the same tortuous path as Russian reforms.


When joint ventures first appeared in the Soviet Union they were required, under then-effective banking laws, to maintain their foreign currency accounts at Vneshekonombank.


But in late 1991, when it was apparent the Soviet Union would soon be no more, rumors began to circulate about the insolvency of Vneshekonombank. In January 1992, the rumors became law when the Supreme Soviet of the Russian Federation -- in one of newly independent Russia's first legislative acts -- adopted a resolution freezing all foreign currency accounts at Vneshekonombank.


This resolution robbed many joint ventures of their operating capital, profits and prospects. Although freezing the accounts may have been justified at the time, the government's action dramatized for potential investors Russia's political instability and legislative unpredictability.


In 1993, Russian reforms turned the corner and with them so did Vneshekonombank and its luckless depositors. In March 1993, Prime Minister Viktor Chernomyrdin's government approved the issuance to all depositors (other than individuals who had been paid out in cash) interest-bearing government bonds denominated in U.S. dollars, commonly known as "Vneshekonombankovki."


Since the issuance of those bonds, fortunes have been made by traders and financial investors in the secondary market for these bonds, and their appearance contributed to the creation of a liquid securities market in Russia.


What is important for Vneshekonombank account holders and investors to understand is that even during the tumultuous days after the demise of the Soviet Union, as sovereign authority had been ceded by Soviet President Mikhail Gorbachev's government and not yet grasped by Russian President Boris Yeltsin's team, Russia was not a country without law, and the freezing of accounts was made pursuant to a legislative act of the Supreme Soviet.


The precise text of that Supreme Soviet's resolution provided for the cessation of activities involving foreign currency credited to Vneshekonombank accounts prior to Dec. 31, 1991. Despite the freezing of the accounts, many joint ventures and other account holders continued to receive money into their frozen accounts after Dec. 31, 1991. These transactions were based on contracts concluded earlier or through their counterpart's oversight. Vneshekonombank and most account holders assumed that sums received in 1992 were likewise frozen.


But earlier this year Moscow's Arbitration Court upset that assumption by affirming the position of the plaintiff account holder that funds credited between January and April 1992 were not subject to the "freeze order." Citing the plain language of the statute, the Arbitration Court ordered Vneshekonombank to release those funds to the account holder.


This decision represents an important affirmation of the "rule of law," although it is unlikely to be the last twist in the Vneshekonombank story.





Leonid Rozhetskin, a graduate of Harvard Law School and a native of St. Petersburg, is now in private practice in Moscow.