Dead Men Tell No Tales

Barron’s

Russia is about to put a dead man on trial, the whistle-blower Sergei Magnitsky who died in the custody of the police officials he’d earlier accused of taking part in what Magnitsky said was a huge 2007 Russian tax fraud. The $230 million swindle involved stealing the corporate identity of Hermitage Capital, a Western-run hedge fund and a legal client of Magnitsky’s firm (see “Crime and Punishment in Putin’s Russia,” April 16, 2011). When Magnitsky told Russian authorities in 2008 that corrupt tax and police officials seemed to have victimized Hermitage, it was him they arrested. Several weeks ago, Russian prosecutors set in motion a case that will blame Hermitage and Magnitsky for the frauds he alleged.

The prosecution may have trouble reconciling its theory of Magnitsky as mastermind with a newly-published investigation in Russia’s Novaya Gazeta. The newspaper reports that the same tax offices Magnitsky had fingered were the loci of apparent tax fraud even after the lawyer’s arrest and 2009 death in prison. Barron’s has reviewed prosecution documents that show the involvement of the FSB – successor to the KGB – in the activities that victimized Magnitsky and Hermitage, including the 2007 confiscation of Hermitage records and the 2008 arrest of Magnitsky.

“My investigation shows that after [Magnitsky’s] death, the very same tax office workers were continuing to steal from the people in the same exact way,” said Roman Anin, the reporter who wrote the Novaya Gazeta piece, in an interview with Barron’s. “This has to do with every single Russian citizen. If you add up the fraud from 2007 to 2010 committed by these tax officers, you would see that they stole the equivalent amount to the pensions of 20 million Russian citizens.” Barron’s tried, without success, to reach Russian tax officials responsible for what’s now alleged to have been a total of more than $700 million in fraudulent refunds.

Despite Russia’s efforts to attract foreign investments, net capital outflows from the private sector were $84 billion in 2011, up from $34 billion the previous year, according to Fitch Ratings, as political and economic risks continue to scare investors.

The Novaya Gazeta article reports numerous cases of what it says were empty shell companies getting quick tax refunds in 2009 and 2010. It reported that a total of $371 million worth of these refunds went through Moscow tax bureau #25 and tax bureau #28, headed at the time by Olga Stepanova. Barron’s discovered last year that Ms. Stepanova, her husband and deputies collectively received millions of dollars through secret Credit Suisse (ticker: CS) accounts, buying mansions in Moscow and Dubai even as they reported modest official incomes.

Stepanova’s husband said they’d earned their wealth through legitimate businesses. Refunds reported by the Novaya Gazeta story allegedly went to shell company accounts at banks run by the same financiers who Magnitsky accused of helping make off with the $230 million refunded in Hermitage’s name in 2007, and a previous $120 million in 2006, according to allegations made by Magnitsky before his arrest.

The Novaya Gazeta’s Anin told Barron’s that all the cases he uncovered were confirmed by the Federal Finance Ministry and had been referred two years ago to the police at the Interior Ministry. The police had opened a case against unidentified tax officials, he was told. But that case has since ambled along, Anin said, passing from one detective to another with no action for the past two years. Barron’s couldn’t reach representatives of the finance ministry.

Oleg Yelnikov, spokesman for Russia’s Interior Ministry, told Barron’s that he had read the Novaya Gazeta article. Asked if the criminal case against Magnitsky is still open, Yelnikov replied, “I have no idea,” and hung up.

The Novaya Gazeta says that the article became one of the most widely read and commented upon pieces in the history of that newspaper, known for its exposes. The article, Anin learned from a colleague, also landed in the hands of an assistant to President Dmitry Medvedev before publication. “Supposedly Medvedev read it and passed it along to his anti-corruption committee,” said Anin. “I highly doubt anything will come of that. If they wanted to, they would have done something a long time ago.”

The article did prompt Andrei Illarionov, former chief economic adviser to Vladimir Putin and now an opposition supporter, to write about the new tax fraud allegations in an open letter to former finance minister Alexei Kudrin, also now in the opposition. Illarionov asked why Kudrin’s treasury kept refunding the allegedly false claims approved by the tax offices. Kudrin responded on his website that the Finance ministry had no authority to dispute returns approved by the tax offices.

With or without the help of allegedly corrupt officials, financial crime seems rampant in Russia. According to the official statistics of the Interior Ministry, the police identified 202,500 economic crimes in Russia in 2011. The crimes caused a loss of about 160.7 billion rubles or about $5.4 billion. The FBI, by comparison, pursued 242 economic crime cases and secured $2.4 billion in restitution orders in the fiscal year ended September 2011. By Russia’s own count, therefore, its economic crimes cost more than double the amount of those in the U.S., even though Russia’s gross domestic product is just about a sixth that of the U.S.

None of the tax officials mentioned by Magnitsky, and now Novaya Gazeta, have been named as targets of any criminal investigations in Russia. Indeed, the Interior Ministry exonerated those officials as innocent dupes, when Ministry made a 2010 report blaming the complex $230 million scam on Magnitsky, Hermitage and four people who had died in the intervening time — plus a sawmill worker and a convicted thief who served short sentences after their guilty pleas.

Hermitage’s Browder announced Friday that bipartisan sponsors in both houses of the U.S. Congress had drafted bills calling for the U.S. to freeze assets and ban visas for dozens of Russian officials alleged to have persecuted Magnitsky. The British Parliament has already passed a similar resolution.

When a Russian human rights panel told President Medvedev last year that Magnitsky had probably died from a prison guard beating and medical neglect, two prison doctors were charged with criminal neglect. This month, prosecutors dropped charges against one of those doctors because the statute of limitations had run. In a complaint filed last week, Magnitsky’s mother alleged that the doctors’ prosecution ignored crucial evidence. Magnitsky family lawyers are so far boycotting his posthumous criminal proceeding.

But from the safety of the U.K., Hermitage Capital co-founder Bill Browder has sent lawyers to examine the prosecution’s documents. A Barron’s review of those documents found official FSB records that included the spy agency’s order for Magnitsky’s arrest and its original authorization for the confiscation of Hermitage corporate seals – which somehow later wound up in the hands of tax fraud impersonators. Interior Ministry records seen by Barron’s show that the prosecution’s tax expert was the head lawyer at Olga Stepanova’s Tax Office #28 – the scene of much of the tax crime alleged by Magnitsky and the Novaya Gazeta. Barron’s couldn’t reach Stepanova, who got a higher-paying job in a Russian military agency after Magnitsky’s death.

“Russian officials not only killed Sergei Magnitsky after he exposed their crime, they then tried to blame him for the crime they committed after he was dead,” Browder wrote to Barron’s. “Most shockingly, they carried on stealing . . . in multiple transactions using the same exact scheme and same officials for the next two years after he was dead.” займ на карту займы без отказа https://zp-pdl.com/emergency-payday-loans.php https://zp-pdl.com/emergency-payday-loans.php быстрые займы онлайн