Russia: why Magnitsky matters, even to hard-headed investors

Financial Times

By curious coincidence, Russia is prosecuting a dead man on the 60th anniversary of Stalin’s death. Just days after the commemoration of the Soviet leader, the trial is due to start on of Sergei Magnitsky, the lawyer who died in a Moscow jail after accusing officials of fraud.

It perverts the law in a way which even the ruthless Georgian did not attempt. But Stalin would have appreciated the idea: like his show trials, it is a demonstration of power, not of justice. Many foreign investors will say this has nothing to do with them. They are wrong. It has.

Indeed, Russian prosecutors have established a direct connection with the investment world by naming as Magnitsky’s co-defendant his former client, Bill Browder, a UK-based American fund manager, who was once the biggest investor in Russia.

Browder’s troubles began after he criticised the management of Gazprom, the state-run gas monopoly. He was denied entry into Russia and put under investigation by interior ministry officials whom he and Magnitsky later accused of involvement in a $230m tax fraud.

Magnitsky was arrested and pressed to withdraw his claims, which he refused to do and died in jail. His family was then shocked to learn that the dead lawyer was accused of tax evasion in 2001-2002. Browder was named as a co-defendent in the case which is to go ahead later this month despite the absence of both men. To add to the legal complexities, Browder was this week separately accused of illegally obtaining Gazprom shares worth $70m in 2001-2004.

Could this happen to anyone else? No, say the Russia bulls. Browder was uniquely persistent in pursuing Gazprom and ignored warnings to back off. He, like most other investors, knew that there is no equality before the law in Russia. He should have known better. And he should never have allowed his Russian lawyer to be left to the tender mercy of the authorities.

Anybody investing in Russia, say the bulls, should recognise the country for what it is – an imperfect place in which foreigners should proceed with caution, not least in publicly giving advice to the rich and powerful when they don’t want it (as Browder did with Gazprom).

As the economy modernises and the legacy of Soviet rule fades, say the bulls, Russia will become a more law-abiding country. In the meantime, Russia needs to develop – and there is money to be made in giving it every assistance.

The bears say no. Browder was simply doing his job as an activist fund manager at his company Hermitage Capital. He was entitled to expect the protection of the law both for himself and for those working with him, including Magnitsky.

If Russia is to modernise and develop as the bulls suggest, foreign investors need to play their part in pressing for change, both at the company and the national level. In any case, even if Browder and Magnitsky did infringe the law (which Browder denies), the lawyer should not have died in jail. His family claim he was mistreated and was refused medical treatment.

What’s the conclusion? For foreign investors wanting to do business in Russia despite the shadows cast by this tragic affair, there are important lessons.

First, only pick fights you have a chance of winning. David v Goliath was an exception, as Browder discovered to his cost.

Next, make sure that your business operates legally at all times. The Browder case shows that officials guard their files and can confront you a decade after the alleged offence. Russian law has sometimes struggled to keep pace with the demands of modern commerce but it cannot be ignored.

Also, while the law is growing in its reach and usefulness, the courts don’t have the last word in Russia. The Kremlin does. As the stakes in any legal dispute get bigger, so does the danger that it might touch on the interests of powerful officials. Understand your limitations. And, where necessary, cut your losses.

Royal Dutch Shell did as much when it bowed to pressure from Gazprom in 2006 and, together with other foreign partners, handed over control of the Sakhalin-2 gas project. If one of the world’s most powerful companies can bend in the wind, so can others.

Finally, lobby your own government to press Russia to improve the rule of law. The US has rightly passed the Magnitsky Act, which imposes visa restrictions and asset freezes on officials allegedly involved in the lawyer’s death. The EU, which is discussing similar measures, should follow suit with sanctions of its own.

This isn’t interference in Russia’s internal affairs. It’s a matter of protecting basic human rights, including the right to life and the right to a fair trial. Russia, after all, ratified the European Convention on Human Rights in 1998. Nothing about posthumous trials in there. займы на карту без отказа срочный займ https://zp-pdl.com/fast-and-easy-payday-loans-online.php https://zp-pdl.com/get-quick-online-payday-loan-now.php займы на карту без отказа