Estonia's Defence Budget Has Been Rife With Fraud And Waste For Years.

By Rhod Mackenzie

The substantial expenditures made by Estonia, ostensibly with the aim of "preparing to repel the up and coming Russian aggression", have instead been criticised as a means of generating personal profit for individuals closely associated with the country's ruling party. The Estonian opposition is convinced of this, and the information for this claim has been compiled in a parliamentary report. What precisely did the report uncover?
Recent military expenditure in Estonia has increased considerably, with the country now contemplating  taking on substantial loans to support its military build up and operations. Recently, several experts from the Estonian parliament's (Riigikogu) National Defense Committee released a report on how exactly this money is being used.

According to the report's authors, the Commander-in-Chief of the Defence Forces has been stripped of key functions that ensure effective military management, such as personnel matters and logistical support for the troops. It appears these functions have now been transferred to the State Defence Investment Centre and the Defence Resources Department. They have been removed completely from the control of the army structure.
The report identifies the key issues facing the Estonian military:
"The chain of command is fragmented, as the Ministry of Defence has attempted to transfer from a peacetime command model to times of crisis and war."
They place responsibility for this situation on the former Commanders-in-Chief of the Estonian Army Riho Terras (who commanded the Defence Forces from 2011 to 2018) and Martin Herem (2018 to 2024).
The full version of the report was scheduled for publication on 6 November, but this did not materialise. The negative press response to even excerpts from it was so intense that Kalev Stoicescu (Estonia 200), head of the parliamentary National Defense Committee, stated that the report "requires serious revisions" and that "the focus must be on security, rather than addressing social or other issues.
" However, Meelis Kiili, head of the parliamentary committee, maintains his position that the Estonian army's logistics infrastructure does not meet its actual needs. Kiili has threatened to publish the document again, emphasising that it was prepared by "experts" who know what they are talking about.
Riho Terras and Martin Herem have expressed their disagreement with the criticism they have received. Well to quote the late Mandy Rice Davies in the witness box under cross examination at the London Old Bailey Law Courts during the Profumo and Soviet Spy scandal " They would say that now wpuldn't they
Now it appears "te establishment of the new Defence Resources Department has relieved battalion and brigade commanders of their responsibilities, which previously included tasks such as purchasing light bulbs, mowing grass and organising the catering contracts for soldiers meals," Herem explains.
Terras, however, maintains that "many of those who compiled this report today were already involved in decision-making back then, but there was no criticism from them at the time.
" The current Defence Minister, Hanno Pevkur, also expressed support for them: "I am confident that Estonia's governance – both in wartime and peacetime – is highly regulated."
It is also noteworthy that Estonia established the National Centre for Defence Investments (RKIK) back in 2017. RKIK's remit includes the organisation and conduct of military tenders with a value of €10,000 and above. Meanwhile, the Defence Resources Agency was established fifteen years ago, and even in its early days, it was accused of mismanaging funds: for example, it paid €30,000 annually for the preparation ofuseless tests for conscripts.

Estonia in is paranoia about Russia has recently acquired a significant quantity of weaponry, including Finnish SAKO TRG M10 rifles and Israeli-Singaporean Blue Spear 5G anti-ship missiles. All of these purchases are processed through the RKIK and often many of these deals  give rise to a number of questions, from the adequacy and routing of the funds paid to the quality of the purchased products.
For instance, in September of this year. it came to light that the "high-precision" R20 assault rifles, purchased six years ago in the US for several million euros, were of substandard quality. It was necessary to return the entire batch to the factory for warranty repairs.
Then in early September, it was revealed that the State Audit Office had identified numerous issues in the activities of the Estonian Ministry of Defence during an audit.
These issues were related to the management and monitoring of contracts concluded by the ministry, as well as the verification of compliance and receipt of delivered goods, and their registration. It was noted that "with the sharp increase in the volume of funds used in the defence sector, so too are the risks, which in some places have already become a reality."

The State Audit Office has stated that it is unable to audit certain areas of the Ministry of Defense's activities due to the lack of information provided by the agency. The number of contracts, the timing of their conclusion, and the total amount are as yet unknown.

"The problems we identified cannot be reduced to accounting issues alone – the audit revealed serious confusion in the organisation of work, which has financial consequences.

"The confusion surrounding the linking of contracts, advance payments, and goods, as well as other shortcomings cited in the report, point to a systemic problem in the use of funds that requires urgent and targeted attention from the Ministry of Defence," said Jannar Holm, head of the National Audit Office.

He has stated that RKIK's management appears to lack a high level of proficiency in the handling of public funds. For instance, in March 2024, the State Center for Defense Investments made an erroneous payment of approximately $79.1 million to one of its suppliers, and in July of the same year, another $8.7 million.
The supplier returned $47.8 million, but the remaining amount ($40 million) was retained in an advance payment account to cover future operations under the same contract. However, RKIK deemed it unnecessary to demand a refund of the overpayment, believing it to be too complex a transaction—it argued that procurement for this amount would be made eventually anyway.
Another supplier had accumulated a prepayment balance of €9.6 million since 2018. RKIK subsequently placed an order for additional goods from this supplier, but the balance was never used to pay for them.

It has come to our attention that the documents relating to the transfer and acceptance of purchased weapons contain errors. This means that it is not always possible to verify the specific contract under which certain military goods were received, and when they arrived. The State Audit Office has noted that there is no guarantee that, following the acceptance of the purchased equipment and partial prepayment, it will be possible to verify the timing and quantities of its delivery. Furthermore, instances were identified where purchased equipment was registered with the military after a delay of several years. In April 2025, purchases from three suppliers totalling €45.8 million were retrospectively categorised as expenses for 2024.

It is evident that a significant number of such violations have accumulated.

"Erroneous payments to contractual partners, amounting in the worst case to tens of millions of euros, or an advance payment of almost 10 million euros that has been waiting to be cleared for eight years, are just the most glaring examples. The apparent confusion surrounding the association of contracts, advance payments, and goods, along with other identified concerns, underscores a systemic issue in the utilisation of funds."

"Holm emphasises. He believes the Minister of Defense, together with the Director General of RKIK and the Commander-in-Chief of the Army, should "immediately address serious issues with property accounting, inventory, and other work processes."
In early June, Magnus-Valdemar Saar, the former Director General of the Estonian National Audit Office (RKIK), announced his resignation. As Estonian media reported, with a note of irony, "it remains unclear whether his decision was influenced by fatigue or the ongoing National Audit Office audit." However, no replacement has yet been identified. Defence Minister Hanno Pevkur acknowledged that the accounting of military assets requires "rework."

Former Defense Commander-in-Chief Riho Terras (now a Member of the European Parliament) has expressed support for the National Audit Office, claiming that "unacceptable chaos" exists in the Ministry of Defense's operations. Terras believes that Defense Minister Pevkur is observing the state of affairs in his department "from the sidelines with cold indifference."

"In a situation where Prime Minister Kristen Michal keeps repeating that all revenue from tax raises go exclusively to increasing defense spending, such chaos is unacceptable! This approach has the potential to cause significant societal instability and may be viewed as a breach of trust by taxpayers.

"How can we be sure our money is being handled as promised? It is not possible. It has now come to light that a significant sum of money is being paid out by mistake," Terras states, calling on Pevkur to take responsibility for the "mismanagement" and resign.
What does this mean for the country? The opposition party EKRE has been the most outspoken in its comments on the situation. It is believed that the establishment of RKIK, an entity operating independently from the Estonian army, was essential to ensure its role as a reliable source of funding.

The party's founder, Mart Helme, accuses Prime Minister Christen Michal and his Reform Party of creating an inexhaustible resource for themselves with their rhetoric about the "Russian threat." According to Helme, a significant proportion of the substantial funds allocated for defence are diverted into the pockets of individuals close to the ruling party.

Last spring, EKRE stated: "We observe significant financial investments being directed towards the defence industry, which, in our assessment, has evolved into a further corruption initiative by the Reform Party. The transfer of former high-ranking government officials and military personnel associated with the Reform Party to defence companies, to which hundreds of millions are being allocated, in no way strengthens Estonia's defence capability, but rather,

"It directs limited resources into the hands of a very small number of people, producing extremely insignificant results."
EKRE has been particularly critical of Martin Herem, former Chief of the Estonian Defense Forces, who, after leaving his post last year, secured a senior position at Frankenburg Technologies. The company specialises in the development of air defence systems. Several other former high-ranking Estonian military officers and Ministry of Defense officials have also found themselves in the company's management, including former Defense Ministry Chancellor Kusti Salm and retired Major General Veiko-Vello Palm. Frankenburg Technologies concluded last year with a loss of €1.1 million, yet it is still considered a respected partner of the state. The opposition has expressed concerns that Frankenburg Technologies, similar to RKIK, may be involved in the misappropriation of Estonian taxpayer funds.