Real-Life Russian Nightmare

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FAREED ZAKARIA, HOST: This is GPS, the GLOBAL PUBLIC SQUARE. Welcome to all of you in the United States and around the world.

We have a great show planned for you today. It’s three of the most compelling, fascinating interviews we’ve done on GPS. First up, a real-life thriller with a tragic ending. William Browder was once the biggest foreign investor in Russia. That made him a target. Browder himself got out alive, but one of his loyal lieutenants was not so lucky. It’s an amazing story. You won’t want to miss it.

Then we hear so much about the entrepreneurial class in China. But who are they? Well, I’ll introduce to you a woman who went from working in sweat shops to working in Goldman Sachs, and now is one of the richest women in China. Her wealth said to be on par with Oprah Winfrey’s.

And finally, have you ever actually met a jihadi? We’ll introduce to you one today. On a recent trip to London, I met a man who will not rest until Islamic law is the law of the world and who glorifies the terrorists who killed thousands on 9/11 and London’s 7/7 . Another can’t miss conversation.

Let’s get started.

What we have for you now is an extraordinary story: hundreds of millions of dollars stolen, fingers pointed at top government officials, torture, abuse, death. And that’s just the beginning of what sounds like a best-selling thriller. But tragically, it is actually real life, and at the center of it all is our guest, William Browder.

He runs Hermitage Capital Management, once the largest foreign investor in Russia. Let’s listen to the story.

(BEGIN VIDEOTAPE)

ZAKARIA: Bill, thanks for joining us.

WILLIAM BROWDER, CEO, HERMITAGE CAPITAL MANAGEMENT: Thanks for having me.

ZAKARIA: 1996, you decide to go to Russia and set up an investment company that is going to invest in Russia.

BROWDER: So what happened was Russia at the time, in 1996, had gone through this enormous privatization program where the philosophy of the government was in order to go from communism to capitalism, let’s just give everything away for free. And so we set up a business to invest in Russia, and it had gone very, very well for a number of years.

And then we discovered that Russia — well, they had set up capitalism, they hadn’t put the — essentially building a house without putting the plumbing in the house. There was no laws and there was no rules at the time. And as a result, there was an enormous amount of corruption, malfeasance, and other terrible things going on inside the companies we invested in. And I felt like the only way that I could responsibly be an investor in these companies was to fight the corruption in the companies.

ZAKARIA: And you, at this point, are — or perhaps pretty quickly become the largest foreign investor in Russia. Right?

BROWDER: I became the largest foreign investor in Russia. Our funds at the peak of our success was about $4.5 billion of foreign money invested in the Russian stock market. And so we developed a strategy which seemed a bit crazy at the time, which was let’s research how they do this dealing, let’s figure it all out, and then let’s share the research with the international media. And we did that.

ZAKARIA: And this is just about the time that Vladimir Putin has come to power in Russia. So why is Putin allowing you to do this?

BROWDER: I was fighting with oligarchs who were trying to steal money from the companies I was investing in, and Putin was fighting with the same oligarchs who were trying to steal power from him. And so for that period of time, as we were exposing the corruption in these companies, the government was acting.

ZAKARIA: And was there public approval of what you were doing?

BROWDER: Well, everybody — there’s only one group of people that didn’t approve of what I was doing, and that was the people who were stealing the money from the companies. I mean, of course, who wouldn’t be happy if you find out that the bad guys are getting fired and can’t steal money from the gas or the electricity company or whatever? But everything changed all of a sudden in 2003.

In 2003, in October, Mikhail Khodorkovsky, who is the richest man in Russia and the head of the Yukos Oil Company, was flying on a private jet to Siberia, and he was arrested on the runway in Siberia. And when they did that, they did one thing which was psychologically devastating for all the other rich people in Russia, which was they took the richest man in Russia and they put him into a cage, and they allowed all the television cameras to come in and film him sitting in a cage. And imagine that you were the 17th richest guy in Russia sitting in your yacht parked off the Cote d’Azur in France, and you turn on CNN and you see the richest guy sitting in a cage. And what do you want to do? You want to make sure you’re not sitting in a cage. And so, one by one by one, they went back to the Kremlin and they declared their allegiance, and all of a sudden, Putin —

ZAKARIA: Declared their allegiance to Putin?

BROWDER: To Putin. And all of a sudden, Putin no longer was at odds with the oligarchs. Unfortunately, I still was.

ZAKARIA: So, you go for a business trip abroad, November, 2005, and you come back to the airport in Russia. And what happens?

BROWDER: So I arrived at the airport as I had 250 times before in the past decade. I went to the VIP lounge at Sheremetyevo Airport, handed them my passport. And what should have been a five-minute process while they process the passport turned into an hour.

And after an hour, there was a bunch of commotion, and a bunch of officers came into the lounge, and they came up to me and said, “You’re not allowed into Russia. Follow me, sir.” And they took me down to the detention area of the airport, where they kept me for a day, and then they deported me out of Russia.

ZAKARIA: But then Russian government decides to go after you in another way which is quite extraordinary.

BROWDER: So this was nothing. This part of the story was nothing compared to what happened next.

So, after a while, I give up on trying to go back to Russia, and I do something which I’m thankful that I was able to do, which is I took all the money that we had in Russia and I liquidated it and took it out of country. I then took all of my people out of the country, and I thought, more or less, OK, that was an unpleasant situation, that was pretty bad, but, you know, time to move on.

Well, I wasn’t really able to move on because something truly extraordinary happened, which was in June of 2007, 25 officers from the Moscow Interior Ministry raided our office in Moscow, and another 25 officers raided the office of our law firm in Moscow with a very specific target, which is they wanted to get hold of the stamps and seals and articles of association of our investment companies that we — through which we had invested in when we made our investments in Russia. And —

ZAKARIA: These were the proofs of ownership of the companies so if they had them, in effect, they could exercise authority of those companies?

BROWDER: Exactly. In order to transfer ownership, to do almost any important activity of the company, you need to have these special documents. So these guys, the police, the Moscow police, take away these documents, and then the next thing we know, we no longer own our companies. The companies have been transferred into the name of a convicted murderer.

So — and the only way they could have transferred the companies was using the documents that the Moscow police had taken. But that was just the beginning of the unbelievable thing that happened.

The next thing we discovered was that our companies had apparently been sued in court without our knowledge based on forged, backdated contracts that were created using all of those stolen papers from our offices. And after the — during the lawsuit, some lawyers show up that we’ve never hired, that we never knew about, to defend our companies.

ZAKARIA: Claiming to represent you?

BROWDER: Claiming to represent us. But instead of defending our companies, they plead guilty. And in five-minute hearings, the judge in St. Petersburg and Moscow and Kazan, which are three cities in Russia, award more than a billion dollars to three shell companies against our companies which we no longer owned.

ZAKARIA: So, at this point, they have tried to take this money out from your companies. But actually, there’s no money in your companies because you’ve transfer it all back to London and given it back to the investors. Correct?

BROWDER: There wasn’t a penny in Russia. So the billion dollars of judgments got them nothing from me. They went around to our banks looking for assets, but there was nothing in the banks.

ZAKARIA: And at this point you hire a bunch of lawyers in Russia?

BROWDER: Well, we hired a bunch of lawyers the moment that they had raided the offices. But at this point, as all these strange court decisions come in and strange transfers of ownership, we hire a bunch of lawyers. We hired seven lawyers from four different law firms, including one very special man named Sergey Magnitsky. He was a 36- year-old lawyer at the time working for an American law firm called Firestone Duncan, and he was one of these extremely hard-working, earnest-type people who you could call up at 7:00 in the evening when you discover some big question you have, and he would cancel his dinner plans and stay in the office until midnight to figure out the answer. A real sort of decent, hard-working young man.

And we said to Sergey, “Help us figure out what’s going on with all these lawsuits and all this strange stuff.” And he was the one who figured out that the companies had been stolen and transferred to the convicted murderer. He was the one that figured out that these judgments had been entered into — these huge billion-dollar judgments had been entered against our companies. And he was the one who figured out that the police were the ones who had the documents that made this all possible. And then he figured out something else, and this is the most astounding part of the whole story, that the reason to steal the companies, the reason to create these billion dollars of judgments, was in order for the people who stole our companies to then go to the tax authorities and claim that a billion dollars of profit that these companies had made in previous years and $230 million of taxes that we had paid in previous years shouldn’t have been paid because there was a fake billion dollars of losses. And they took these fake losses, along with the companies that they stole, and they went to the tax authorities in Moscow, and they applied for a $230 million tax refund, which was awarded to them in one day.

ZAKARIA: Would this have been the largest tax refund ever made?

BROWDER: This was the largest refund in the history of Russian taxes in one day, which tells you for sure that they had people on the inside of the Tax Ministry involved in the scam.

So, so far what, do we know? We’ve got judges, we’ve got police officers, we have tax officials, we have lawyers, all these different groups of people involved in this conspiracy to defraud us and to defraud the Russian government.

(END VIDEOTAPE)

ZAKARIA: And we will be back with more of this extraordinary story right after this.

(BEGIN VIDEO CLIP)

BROWDER: They put him in pre-trial detention, and they then started to put pressure on him to withdraw his testimony. His health just precipitously went over the edge. He was in excruciating pain. He was in such pain, he couldn’t even lay down.

This went on and on. Things got worse and worse.

(END VIDEO CLIP)

(COMMERCIAL BREAK)

(BEGIN VIDEOTAPE)

ZAKARIA: And we are back with William Browder, once Russia’s largest investor, to tell an extraordinary story.

So, they first tried to steal the money from your companies. But when they discover your companies don’t have any money left in them, they steal the money from the Russian state.

BROWDER: So — exactly. So you basically have sharks feeding on their own blood. It’s the most extraordinary thing.

Everybody asked me, how can the government have allowed this to happen? And the answer is because high-up officials in the government were part of the conspiracy to do this. So Sergey Magnitsky was the brilliant lawyer who was able to figure this out. It wasn’t easy to figure out. An enormous amount of investigative work, 14 months of investigation went into figuring this whole thing out. And once we figure it had out, he helped us then draft a criminal complaint which we filed with the Russian general prosecutor, and then did he something which was extraordinary.

In October of 2008, he went and gave sworn testimony to the Russian State Investigative Committee, which is like the FBI of Russia, in which he named the police officers who were involved in the theft of our companies and the theft of $230 million. He named names.

One month after he gave testimony against those officers, three other officers who reported to one of the officers he testified against came to his house at 8:00 in the morning in front of his wife and children, and arrested him and put him in pre-trial detention. So, essentially, the same people he testified against arrested him.

They put him in pre-trial detention and they then started to put pressure on him to withdraw his testimony. They did really horrible things.

They put him in a cell with eight inmates and four beds so that the inmates had to fight over the beds and sleep in shifts. They put him in cells without any windows in the Moscow winter so the cold air just blew in. They put him in cells where there was no toilet, just a hole in the floor, and sewage would bubble up from time to time.

After several months of this, they came to him and said, everything can improve if you withdraw your testimony against us and plead guilty to a trumped-up charge to justify why we’ve done this to you. And Sergey was a man of intense integrity. He was a man who said no, it doesn’t matter what you do to me. I’m not going to withdraw my testimony. I certainly will not perjure myself.

And so they put more pressure on him. They moved him from cell to cell to cell. I think he was moved more than 10 times in a very short period of time. And every time they moved him, they would lose his belonging, including one very crucial belonging which was a water boiler, because the water is undrinkable in the prison, and then lost his ability to sterilize the water.

And so after about six months of this, he started getting very ill. He started getting sick all the time. He lost 40 pounds. He had intense, excruciating stomach pains.

And he was eventually given an appointment at the prison hospital, and they said, “It looks like have you pancreatitis and gallstones. And you should come back in about a month’s time and we’ll do an ultrasound. And if nothing is improved, then we have to perform an operation.”

It wasn’t an operation — it wasn’t a complicated operation, but it was a life-saving operation. They came to him again and asked him to withdraw his testimony. He refused. One week before his operation, they then abruptly moved him to Butryka Prison, which is a maximum security prison, the harshest, toughest prison in Moscow, and there was no hospital there. And at that point, his health just precipitously went over the edge.

He was in excruciating pain. He was in such pain, he couldn’t even lay down. His cell mate would have to bang on the door for hours trying to get medical attention. And when they got there, they said, “You can have the medical attention when you get out of jail.”

This went on and on. Things got worse and worse. And on November 16, 2009, Sergey Magnitsky died in prison at the age of 37.

ZAKARIA: He was 37 years old?

BROWDER: He was 37 years old. He was a lawyer, a father of two, married, and he died right in the heart of his life.

ZAKARIA: And he was not a great human rights advocate. He was a tax lawyer who just happened to be an honorable man, who wouldn’t give into this kind of pressure.

BROWDER: He wasn’t an oligarch, he wasn’t a human rights activist. He wasn’t a journalist uncovering — going after people.

He was my tax lawyer who happened to be assigned this situation where he was trying to figure out what was going on. And then when he saw what was going on, he said, “This is unbelievable. This is my country. These people can’t be allowed to do this.”

He wasn’t a person going out and looking for trouble, but when trouble found him, he did what he had to do, which was stand up to it. And it cost him his life.

He was a young urban professional working at a law firm who buys a Starbucks in the morning, who was plucked out of his job, put into a prison, and tortured to death. We all could be Sergey Magnitsky, is what they said.

And this thing bubbled up to the surface, it bubbled up in the press. And eventually, President Medvedev had to do something about it.

He called for a criminal investigation into what happened to Sergey Magnitsky. But even President Medvedev, even the president of the country, after calling for a criminal investigation, we’re now six months later. There hasn’t been a single person charged with any wrongdoing. Not a single person charged.

ZAKARIA: What does this say about Russia today?

BROWDER: Well, unfortunately, what it says is that there’s criminality that permeates the government and the law enforcement agencies at the highest level. And it’s impossible if the president of the country who calls for an investigation can’t get an investigation, it says to you how difficult this problem really is and how Russia really doesn’t operate in the same legitimate manner that you would assume other countries to operate in.

ZAKARIA: So this is a kind of — almost a state run by the Mafia.

BROWDER: It’s a state which many, many important organs of the state are Mafia-controlled, for certain.

ZAKARIA: And you’re not optimistic that much is changing?

BROWDER: Well, the one thing I can say about Russia is that it’s always changing. It may change for the worst, it may change for the better. Russia is never a static country. But where we are today is an extremely bad situation.

ZAKARIA: William Browder, thank you very much.

BROWDER: Thank you very much.
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