Posts Tagged ‘financial times’
Ukraine crisis: Russia is in no position to fight a new cold war
Putin and his allies have talked tough while enjoying the comforts of globalisation.
When the Soviet Union invaded Czechoslovakia in 1968, the Moscow stock market did not crash. That is because there was no Moscow stock market. By contrast, the news that Russian troops have taken effective control of Crimea was greeted, on Monday, by a 10 per cent collapse in shares on the Russian market.
This contrast between 1968 and now underlines why talk of a new cold war is misleading. The economic and political context of Crimea in 2014 is entirely different from Czechoslovakia in 1968. Russia no longer has an empire extending all the way to Berlin. The pain of that territorial loss is part of the reason why President Vladimir Putin is fighting so hard to keep Ukraine in Moscow’s much-diminished sphere of influence.
Just as important, the world is no longer divided into two mutually exclusive, and hostile, political and economic systems – a capitalist west and a communist east. After the collapse of the Soviet system, Russia joined the global, capitalist order. The financial, business and social systems of Russia and the west are now deeply intertwined. A new east-west struggle is certainly under way today but it is being fought on entirely different terrain from the cold war – and under different rules.
The Kremlin may assume that the west’s business dealings with Russia work in its favour. President Putin, the former KGB agent, probably still believes the old Soviet maxim that western foreign policy is dictated by capitalists – who will not allow their financial interests in Russia to be endangered. The west’s supine reaction to the Russian military intervention in Georgia in 2008 may have strengthened this impression. Ben Judah, author of a recent book on Russia, argues that the eagerness of western business people and former politicians to do business with Russia has made Mr Putin “very confident that European elites are more concerned about making money than standing up to him”.
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US considers sanctions on Russian banks
The Obama administration is considering placing Iran-style banking sanctions on selected Russian financial institutions if Moscow were to send troops into eastern Ukraine.
The banking sanctions are one of a series of measures that the administration has been discussing with Congress in recent days as it seeks to find ways to isolate Moscow diplomatically and economically, according to congressional aides and officials.
Banking sanctions are a powerful tool which take advantage of the US’s central role in the international financial system and which have helped place considerable pressure on the Iranian economy over the past two years. If a Russian bank were targeted, then any bank in the world that continues to do business with it can be cut off from the US financial system.
The banking sanctions are being examined as secondary series of measures, which are aimed more at deterring Russia from taking military action in eastern Ukraine. In response to the immediate crisis in Crimea, the administration is considering placing senior Russian officials on a visa ban and asset freeze list. The idea of broader trade and investment sanctions, which secretary of state John Kerry alluded to at the weekend, is only being analysed as a much more distant prospect.
The debate in Washington over what sort of economic tools to use against Russia comes amid some signs of friction between the US and Europe over how quickly – and how aggressively – to apply economic pressure.
European diplomats have expressed frustration that they are portrayed as dithering while the US is seen as decisive, when the stakes are far higher on their side.
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Magnitsky, the libel courts, and sanctions
On 16 November 2009 Sergei Magnitsky died in prison in Russia. Shortly before his arrest and imprisonment he had been investigating a substantial tax fraud committed against the Russian Federation by a criminal gang. I shall refer to this tax fraud as the Hermitage Fund fraud.
Beyond this short summary, many of the facts in issue between the parties are unknown or controversial, and are subject to stark divisions of opinion…
So began Mr Justice Simon’s judgment in Pavel Karpov v William Felix Browder & Hermitage Capital Management Limited & others on Monday. And the rest is very much worth reading.
The High Court judge ultimately threw out the libel claim made by Karpov (a Russian ex-cop and Magnitsky List member) against Browder — largely because of “exiguous” grounds to link the case to the UK. Simultaneously, Mr Justice Simon said that there were “inadequate particulars to justify the charge that the claimant was a primary or secondary party to Sergei Magnitsky’s torture and murder”.
The “exiguous” point alone will probably see the case feted as a turning point for ‘libel tourism’, even beyond the Defamation Act which is just coming into force in the UK. Perhaps even for overseas litigants making use of English courts in general. So, here are key bits of the judgment on this stuff:
For these reasons, I am satisfied that the Claimant had no connection with, and had no reputation to protect within, the jurisdiction; and therefore cannot establish a real and substantial tort within the jurisdiction. His reputation exists in Russia and the damage to his reputation (which is presumed as a matter of English law) is in Russia. The contrast with the facts of Berezovsky v. Michaels (see above) is stark…
His connection with this country is exiguous and, although he can point to the continuing publication in this country, there is ‘a degree of artificiality’ about his seeking to protect his reputation in this country. This is an important, but not determinative, consideration on the Defendants’ application to strike out the claim…
But there’s more to it. For one thing, an end to libel tourism or not, the case’s legal bill sounds pretty big: Monday’s ruling refers to the “substantial costs” if Karpov’s claim had reached a full trial.
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UK judge throws out libel case against Bill Browder
A High Court judge has thrown out a libel lawsuit brought by a Russian former policeman against Bill Browder, the UK-based fund manager behind the US Magnitsky Act.
Mr Browder had become a hate figure for the Russian leadership after lobbying Congress to adopt the Magnitsky law last year. The law imposed sanctions on Russians allegedly involved in a $230m fraud and the death in custody of Sergei Magnitsky, a lawyer Mr Browder had employed to investigate it.
The defamation case had been brought in London by ex-policeman Pavel Karpov, who was attempting to sue over allegations on a campaigning website run by Mr Browder.
Magnitsky died in a Russian jail four years ago but he was convicted of tax evasion this year in a posthumous trial in Russia that drew widespread criticism in the west.
Mr Browder’s lawyers had applied to the High Court to have Mr Karpov’s lawsuit struck out before trial.
On Monday Mr Justice Simon did just that, ruling Mr Karpov “cannot establish a reputation within this jurisdiction” to bring the lawsuit.
The judge said Mr Karpov’s connection with Britain is “exiguous” and Russia rather was “the natural forum” to bring the lawsuit as the “connection with [the UK] is limited”.
Mr Browder’s campaign had accused Mr Karpov of being involved both in the fraud and of being among police who arranged for Magnitsky’s arrest and alleged torture in jail. Mr Karpov’s libel writ said those claims were false.
The judge’s decision is significant because it underscores the growing challenge to people with only a weak link to London bringing libel claims there.
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Crusade against the Kremlin
Bill Browder has a stark warning for western investors eyeing opportunities in Russia. “They are not only taking a financial risk – they are taking a very serious personal risk of being arrested or dying,” he says. The same applies to educated Russians: “Even Russians who have the ability and language skills should get out of Russia, because it is only going one way and that is in a very horrible direction.”
Browder should know: his experience over the past two decades provides a spectacular example. During that time, the head of Hermitage Capital Management – at one point one of the largest foreign investors into the country – has gone from staunchly rejecting what he once called western myths about Russia to being a crusader against President Vladimir Putin’s regime.
In return, the Russian authorities have branded him a criminal. In July, a Moscow court found Browder guilty of tax evasion in his absence, a charge he denies. Russia has also twice requested that Interpol provide it with information on his whereabouts. The second time around, it was with a view to extradition in relation to a charge of “qualified swindling”. Both times, the international police organisation rejected the requests on the grounds that they were predominantly politically motivated.
Browder’s story is as convoluted as a classic Russian novel. However, there are broadly two ways to read it. His critics point out he avidly supported Putin until the regime turned against him. Browder accepts he once backed the Russian leader, who he saw as bringing necessary order, but argues it was Putin who did the U-turn. In Browder’s view, Putin moved from campaigning against the oligarchs to becoming the biggest oligarch of all.
Whichever interpretation is preferred, Browder has taken on a dual life as a hedge fund manager and campaigner against Russian corruption. He has taken British citizenship and runs Hermitage from London. The firm long ago became a general emerging markets specialist rather than having a particular focus on Russia.
The story begins with Browder’s grandfather. Earl Browder, born in Kansas, was the head of the Communist Party USA in the 1930s and early 1940s, and twice ran for president. Earl Browder spent several years in the Soviet Union, where he met and married Raisa Berkman, a Russian Jewish intellectual. Together they had three sons, including Bill Browder’s father Felix, all of whom became top-flight mathematicians.
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US seeks to seize Russian criminal group’s real estate
US prosecutors are looking to seize New York property used by a Russian criminal organisation to launder funds derived from an elaborate $230m tax fraud, according to a complaint filed in a Manhattan court.
The civil action also seeks to impose money-laundering penalties on the companies set up by the organisation, whose members allegedly included corrupt Russian government officials, US Attorney Preet Bharara said.
“Today’s forfeiture action is a significant step towards uncovering and unwinding a complex money laundering scheme arising from a notorious foreign fraud,” Mr Bharara said on Tuesday in a statement.
“As alleged, a Russian criminal enterprise sought to launder some of its billions in ill-gotten roubles through the purchase of pricey Manhattan real estate. While New York is a world financial capital, it is not a safe haven for criminals seeking to hide their loot, no matter how and where their fraud took place.”
The $230m fraud was first uncovered by the late Sergei Magnitsky, a respected Russian lawyer who died in pre-trial detention in Moscow in 2009 shortly after making his whistleblowing allegations.
Prosecutors claim that members of the organisation stole the corporate identities of portfolio companies of the Hermitage Fund, a foreign investment fund operating in Russia, which were then used to make fraudulent claims for tax refunds through sham lawsuits. Officials at two Russian tax offices who were members of the organisation approved the disbursements.
Through a complex series of transfers through shell companies, $230m was laundered into numerous bank accounts in Russia and elsewhere, according to the civil complaint. A portion of the funds stolen from the Russian Treasury passed through a Cyprus-based property company Prevezon Holdings, which laundered the proceeds into Manhattan property including four luxury apartments and two high end commercial spaces, it is alleged.
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Browder asks court to throw out Magnitsky libel lawsuit
Bill Browder, the UK-based fund manager behind the US Magnitsky Act, is asking the High Court to throw out an extraordinary libel lawsuit brought against him by a Russian he accused of being involved in Russia’s biggest tax fraud.
Mr Browder has become a hate figure for the Russian leadership after lobbying Congress to adopt the Magnitsky law last year. The law imposed sanctions on Russians allegedly involved in the $230m fraud and the death in custody of Sergei Magnitsky, a lawyer Mr Browder employed to investigate it.
The defamation case has been brought by Russian-based Pavel Karpov, a former policeman who is suing over allegations on a campaigning website run by Mr Browder.
Magnitsky died in a Russian jail four years ago but he was convicted of tax evasion this month in a posthumous Russian trial that drew widespread criticism in the west.
Mr Browder’s campaign has accused Mr Karpov of being involved both in the fraud and of being among police who arranged for Magnitsky’s arrest and torture in jail. Mr Karpov’s libel writ says those claims are false.
The case is bound to reignite concerns around libel tourism and that London’s courts are being used by the rich and powerful who have tenuous links with the UK but want to exploit its claimant-friendly rules.
Mr Browder alleges the Russian government is ultimately behind the case and is using it to attempt to force him to take down videos on his website.
Antony White QC, Mr Browder’s barrister, claims in court papers that Mr Karpov “does not have the means to pay for this litigation himself” and is relying on an unidentified friend.
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Britain should rise above Russian money and power
By blocking a public inquiry into Litvinenko, the UK plays to the most cynical Putinesque instincts.
Edward Snowden seems like a bright chap. So he will probably have noticed the irony of voicing his complaints about persecution by the US legal system from the confines of Moscow airport. There are few governments in the world that abuse the law, for political purposes, with the ruthlessness and cynicism of Vladimir Putin’s Russia.
The ironies do not stop there. Mr Snowden’s original motivation, as a whistleblower, was to expose over-mighty American spies. Yet Russia is a state that is effectively run by its intelligence services. Mr Putin is a former KGB operative. Spies and their cronies dominate his inner circle. Indeed Russia – which has become Mr Snowden’s temporary protector – is the perfect illustration of his argument that a state in thrall to its intelligence services would be a frightening place.
Over the past fortnight, three different cases have highlighted the country’s dangerous contempt for justice. In each insta
nce, the victims were Russians or former citizens – but the implications are global.
Last week, a Russian court found Sergei Magnitsky guilty of fraud in absentia. In fact, Magnitsky was not merely absent, he was dead – beaten to death in 2009, while in the custody of the Russian police. His real “crime” was to have pursued corruption with too much vigour and then, after his death, to have become an international cause célèbre. America’s “Magnitsky” law bans officials implicated in his killing, from travelling to the US. This act has so angered and alarmed the Russians that they felt it necessary to “prove” that Magnitsky was a criminal by staging a show trial of a dead man.
Alexei Navalny is likely to be the next victim of the Russian system of injustice. Since the Moscow protests of 2011 and 2012, he has emerged as the most charismatic leader of the opposition to Putinism. Witty, brave, internet-savvy, and with a populist and nationalistic streak, Mr Navalny presents a clear political danger to Putinism. The Russian authorities have openly acknowledged that there are political motives behind his trial on ludicrous-sounding charges of embezzlement. This Thursday, he is all-out certain to be convicted – and probably imprisoned, joining other prisoners whose political activities have displeased Mr Putin.
A third miscarriage of justice took place last week, when it was announced in London that the British government is refusing to hold a public inquiry into the death of Alexander Litvinenko, who was poisoned in London in 2006. The UK tried for many years to secure the extradition of Andrei Lugovoi, Litvinenko’s suspected killer, who is now a member of parliament in Moscow. There were tit-for-tat expulsions of Russian and British diplomats.
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Russia convicts Magnitsky of tax evasion in posthumous trial
A Russian court has found deceased lawyer Sergei Magnitsky guilty of tax evasion, in a posthumous trial that has elicited widespread criticism in the west.
Magnitsky was convicted of tax evasion alongside his former client William Browder, the US-born chief executive of Hermitage Capital, who Russian authorities allege evaded about $17m in taxes.
Mr Browder, who lives in the UK and was tried in absentia, received a nine-year sentence. He has denied all charges against him. The judge closed the criminal case against Magnitsky but refused to rehabilitate him.
Sabine Leutheusser-Schnarrenberger, the German justice minister, condemned the verdict, saying on Twitter: “The conviction of the dead Magnitsky is further evidence of the Sovietisation of Russia.”
A spokesperson for Lady Ashton, the EU’s foreign policy chief, said the verdict “does not provide any answer to the real questions regarding the death of Mr Magnitsky”, adding that the EU would continue to raise the “disturbing” matter with the Russian government.
Magnitsky’s conviction comes almost four years after he died amid murky circumstances in a pre-trial detention centre after he had accused Russian police of complicity in a $230m tax fraud.
Mr Browder has used the subsequent years to launch an anti-corruption campaign in Magnitsky’s memory, and has been successful in his efforts to ban the officials he says were involved in Magnitsky’s death from travelling to the US or holding bank accounts there.
On Thursday Mr Browder condemned the verdict against his former lawyer. He told the Financial Times that with “the malicious pain” the trial had inflicted on Magnitsky’s family, President Vladimir Putin had “brought shame on Russia and firmly found himself a place in history for being the first western leader in a thousand years to prosecute a dead man”.
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