Sergei Magnitsky’s Investigation Prior to His Arrest

In late October 2007 when Hermitage received the call from bailiff from St.Petersburg court, Sergei Magnitsky started his investigation into fraud against Hermitage. He managed to find the details and prove that three Hermitage subsidiaries were stolen with the help of Interior Ministry officers Pavel Karpov and Artem Kuznetsov. He discovered that these three companies were fraudulently re-registered into the names of convicted criminals, members of the Klyuev Organised Crime Group. The companies were then sued in St.Petersburg Arbitration court in sham proceedings which resulted in false multi-billion liabilities against the stolen companies.

On the basis of these discoveries, Hermitage and its trustee – HSBC, filed six criminal complaints between 3 and 11 December 2007 with all law enforcement agencies in Russia. Five complaints were either ignored or handed over to Officer Karpov, implicated in Hermitage’s complaints, and a member of the Klyuev Organised Crime Group, who did not open any investigation into the crime.

In the meantime, the criminal directors appointed by the Klyuev Organised Crime Group to the stolen Hermitage companies, applied for the $230 million tax refund. It was granted on the same day, 24 December 2007, by other members of the Klyuev Organised Crime Group, heads of Moscow tax offices No 25 and 28, Elena Khimina and Olga Stepanova.

By summer 2008, Sergei Magnitsky through his investigation obtained evidence that prior to the tax refund application, the three stolen companies had opened bank accounts with Universal Savings Bank and bank Intercommerz, and pieced together the fraud against the Treasury.

On the back of this discovery, Hermitage and its trustee – HSBC filed further criminal complaints on 23rd of July 2008 with all law enforcement agencies in Russia about the $230 million tax theft perpetrated by the Russian government officials and their criminal accomplices.

In June and October 2008, Sergei Magnitsky gave testimonies about the crimes of the Klyuev Organised Group. He named Officers Kuznetsov and Karpov for their role in the theft of Hermitage Fund’s companies and $230 million theft.

At about the same time, Sergei Magnitsky discovered the refund of $107 million of taxes paid by the RenGaz Fund, that took place a year before the theft of taxes paid by the Hermitage Fund. Magnitsky learned that both tax thefts had been committed by the same officials, and that the Klyuev Organized Crime Group had been systematically stealing hundreds of millions of dollars from the Russian treasury. He gave an interview to Businessweek in which he described his latest discovery. The story describing the $107 million theft was published on November 6th of 2008.

It made it clear that taxes paid by RenGaz and Hermitage were stolen using the same modus operandi.

The story provoked an immediate reaction both from the tax officials who approved the $107 million refund.

Olga Stepanova, head of Moscow tax office 28, who approved the fraudulent refund and her husband, fled Russia to Dubai.

Shortly thereafter, on November 20th, Igor Sagiryan, the President of Renaissance Capital, who in 2002 brought in Klyuev to do tax refunds for Renaissance Capital, also flew to Dubai. He was accompanied by Vladimir Jabarov, another Renaissance Capital manager, formerly a General in the FSB, the Russian secret police.

Three days later the Stepanovs returned to Moscow with Igor Sagiryan on the same flight. They crossed passport control one after another.

Trip to Dubai Stepanovs Sagiryan Jabarov 2008

The very next day, Officer Kuznetsov sent his subordinates to arrest Sergei Magnitsky and confiscate the Magnitsky Files.

Once Sergei Magnitsky was in custody, he was tortured and pressured to change or withdraw his testimony against members of the Klyuev Organized Crime Group, which he refused to do.