Stop the Untouchables. Justice for Sergei Magnitsky.

Bill Browder wins fight to ban corrupt Russian business in the U.S. in memory of dead friend

National Post

Sergei Magnitsky was a lawyer in Russia exposing large-scale corruption by government officials when he was beaten to death by guards in a Moscow prison in 2009; Alexander Perepilichnyy, a Russian businessman, had fled to Britain and was a whistleblower over the same fraud when he mysteriously collapsed and died last month.

These two dramatic deaths bookend the remarkable crusade of Bill Browder, the American-born investor for whom Mr. Magnitsky worked and to whom Mr. Perepilichnyy was spilling his secrets.

On Thursday, Mr. Browder saw the U.S. Senate pass the Sergei Magnitsky Rule of Law Accountability Act by a wide margin, a law blacklisting Russian human rights abusers.

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It was a triumphant moment for Mr. Browder, who has relentlessly lobbied for such sanctions, but it hardly ends his quest for justice over Mr. Magnitsky’s gruesome demise.

His next stop is Canada.

On Monday, Mr. Browder arrives here with his remarkable story of international intrigue – state corruption, massive theft, organized crime – in a bid to see Canada pass a similar law against corrupt Russian officials.

Parliamentarians and government ministers will be hard pressed to hear a more compelling story, both his own and the one swirling around him.

Mr. Browder’s grandfather was the well-known leader of the U.S. Communist Party from the 1920s to 1940s, twice running under the red banner for president. Communism was a Browder family value.

“There is all this family history and connection to Communism, so when I was going through my teenage rebellion I became a capitalist. I figured there was nothing I could do to irritate my family more than that,” Mr. Browder, 48, told the National Post.

There is all this family history and connection to Communism, so when I was going through my teenage rebellion I became a capitalist. I figured there was nothing I could do to irritate my family more than that

He graduated from Stanford business school the year the Berlin Wall fell and the two events prompted an epiphany: “If my grandfather was the biggest Communist in America, it seems perfectly appropriate that I become the biggest capitalist in Eastern Europe,” he said.

After the dissolution of the Soviet Union, he moved to Moscow and started investing, first as an employee of Salomon Brothers, then with his own firm, Hermitage Capital Management, in 1996.

He was a success. From US$25-million in capital his fund grew to US$4.5-billion, becoming the largest foreign portfolio investor in Russia.

But the value of the huge Russian companies, some of the nation’s largest, was diminished by corruption.

“Billions and billions of dollars were being stolen through all sorts of different corrupt schemes,” said Mr. Browder. Hermitage took on an activist strategy, researching and exposing corporate corruption of firms it was investing in.

He saw Vladimir Putin, who was becoming the dominant politician in Russia, as an early ally in his fight against corruption, advocating for the former KGB officer to the suspicious West.

-Sergei Magnitsky

But Mr. Browder’s éxposés were not admired by all.

“It was a very effective way of stopping bad things from happening in Russia, but it was also a very effective way of creating a lot of high-placed and high-powered enemies who didn’t wish me well.”

After almost 10 years in Russia, he was stopped at the border in 2005 and deported as a threat to national security.

He feared he might lose everything.

“We quickly liquidated all our holdings in Russia in 2006 and evacuated my staff out of Russia so they couldn’t steal our money and arrest our people,” Mr. Browder said.

That was far from the end.

More than a year after his deportation, police raided his Moscow office and the offices of his lawyers, seizing corporate documents for his investment holding companies.

In response, he hired seven Russian lawyers to investigate. One was a talented young man named Sergei Magnitsky.

We quickly liquidated all our holdings in Russia in 2006 and evacuated my staff out of Russia so they couldn’t steal our money and arrest our people

Mr. Magnitsky investigated and reported someone had used Mr. Browder’s corporate documents to forge backdated contracts showing the firm owed US$1-billion.

The companies who were the supposed recipients of the debt sued Hermitage in Russia, seeking to claim the US$1-billion.

“We weren’t even aware of these court proceedings, but three lawyers, who we didn’t hire, then showed up to represent our companies and those three lawyers pled guilty to US$1-billion of fake liabilities,” Mr. Browder said.

“Then the police, the same police who raided our offices in the first place, raided all of our banks looking for assets to seize. Thankfully, there were no assets there because we had taken all of the money out.”

When he heard all of this from Mr. Magnitsky, Mr. Browder relaxed. He had moved faster than the schemers. It seemed almost comical.

“Sergei said, ‘I wouldn’t relax if I were you because Russian stories never end this way. There are never happy, clean ending to these stories.’ I asked how does this story end and he said it probably ends badly.”

Mr. Magnitsky probed further. He was right: The schemers were not prepared to quit without a profit.

.Sergei Magnitsky’s funeral

He found the people who sought the court award had gone to the tax authorities. The previous year, Mr. Browder’s company had paid US$230-million in taxes based on its reported gains of US$1-billion.

Using the US$1-billion court judgment as proof, the schemer claimed the firm’s actual profit should be zero since the judgment erased the gains. Therefore, the US$230-million was paid by mistake and should be refunded – to them.

“They applied for a tax refund of US$230-million, which was the largest tax refund in Russian history. They applied for it two days before Christmas – Dec. 23, 2007 – and was awarded and paid out the very next day.”

The schemers finally got their money.

Mr. Browder, meanwhile, assumed it was a rogue operation by a small, corrupt cabal.

“We filed 15 different criminal complaints with regulatory agencies, with law enforcement agencies and with connected politicians, and waited for the SWAT teams and helicopters to fan out and get all the bad guys.

“It quickly became apparent that there were no good guys in the Russian government. Instead of going out and trying to arrest the people who did this, they opened up criminal cases on all seven of our lawyers on various trumped-up charges.”

It quickly became apparent that there were no good guys in the Russian government. Instead of going out and trying to arrest the people who did this, they opened up criminal cases on all seven of our lawyers on various trumped-up charges

Fearing for their safety, he asked them to flee Russia at his expense. Six accepted, but Mr. Magnitsky declined.

A man of principle and idealism, he declared since he had done nothing wrong he had no need to flee. Instead, he started testifying against the officials involved in the tax theft.

In November 2008, subordinates of those officials arrested him. Torture to elicit the retraction of his testimony began immediately, according to Mr. Browder.

After months of abuse, Mr. Magnitsky became seriously ill.

On the night of Nov. 16, 2009, lapsing into critical condition, he was moved to a prison with a hospital, but instead of treating him, “They put him into an isolation cell and eight riot guards with rubber batons beat him for one hour and 18 minutes until he died.”

He was 37 years old.

“Sergei Magnitsky was tortured to death in order to get him to retract his testimony about the corruption that he uncovered,” said Mr. Browder.

And once again, the narrative of Mr. Browder’s life changed dramatically.

“I made a vow to myself and to his memory that I was going to make sure the people who had done this to him would face justice and his death wouldn’t be a meaningless death.”

Justice was not forthcoming in Russia.

“The Russian government completely circled the wagons to cover up the responsibility of everybody,” he said. “Like Watergate, the crime itself is one thing but what makes this case so politically important internationally, is the high-level cover-up that goes right up to the president of Russia.

ANDREY SMIRNOV/AFP/Getty ImagesA picture taken on December 7, 2012, shows snow clad grave of Russian lawyer Sergei Magnitsky with his portrait on the tomb (C) at the Preobrazhenskoye cemetery in Moscow. The US Congress drew today a furious response from the Kremlin by passing legislation that targeted human rights abusers in the prison death of Magnitsky. Moscow immediately called the action “a theater of the absurd” and vowed to retaliate, turning what would have been a boost in trade relations between the two powers into another source of friction. AFP PHOTO / ANDREY SMIRNOV

“We haven’t been able to get justice inside Russia in any way, shape or form. Everybody who was involved in this – and there’s a huge amount of evidence of them being involved in this – have been exonerated, some have been promoted and even received state honours.

“It became clear we would have to seek justice outside Russia.”

The corrupt Russian officials, gangsters and oligarchs profiting from this and other crimes typically hoarded their money abroad. They used foreign banks, bought foreign property, sent their children to foreign private schools and vacationed in foreign countries.

In that Mr. Browder saw a way to get at them.

“They like to behave like cannibals at home and then dine at the finest restaurants with white tablecloths in Europe and North America,” he said.

“It hits the Putin regime in the most profound way, because the entire objective of the current leadership of Russia at this stage is to steal money.”

Since 2010, he has worked with politicians in the U.S., Canada and Europe to enact visa sanctions and asset seizures, not against Russia as a country, but against corrupt individuals within its elites.

Canada’s place in such geopolitics came into focus when one of the emissaries from Moscow sent to Washington to lobby against the act was Vitaly Malkin, a Russian oligarch and member of the Russian senate.

Mr. Malkin, the National Post revealed in 2009, has been blocked from entering Canada by Canadian authorities who accused him of organized crime involvement. In his fight to overturn that decision, it was revealed he owns 111 condominium units in Toronto.

Canada should not be a safe haven for people who do this type of crime. Canada has a very attractive economic immigrant program and it is very popular for Russians so, absolutely, Canada has to be on the list of countries that are doing this

Through court filings, Mr. Malkin, whose name is sometimes spelled Vitali Malkine in English, denied any involvement in organized crime. He won a judicial review of the decision because he was not given an adequate opportunity to address the government’s concerns before it was made. Any new decision has not been made public.

Mr. Browder said the Malkin case suggests why Canada is important.

“Canada should not be a safe haven for people who do this type of crime. Canada has a very attractive economic immigrant program and it is very popular for Russians so, absolutely, Canada has to be on the list of countries that are doing this.”

Mr. Browder’s success last week in Washington brought a rebuke from Moscow, with threats of countermeasures against Americans. The diplomatic spat threatens to further damage strained U.S.-Russia relations.

For Mr. Browder, the triumph in Washington brightened the darkness of his story that had recently grown darker with a mysterious death in England.

Before Mr. Perepilichnyy fled Russia, he was wheeling and dealing with wealthy clients. Among them were people connected to the tax rebate theft.

In 2010, he contacted Mr. Browder with information on where the money went. A detailed dossier traced money to a Swiss bank and Mr. Perepilichnyy became a cooperating witness with Swiss officials.

Last month, the seemingly healthy 44-year-old collapsed and died outside his mansion in a gated community that has been home to Ringo Starr, Kate Winslet and Sir Elton John.

So far, the cause of death is unknown, pending toxicology tests.

In the meantime, the death is another reminder of the high stakes in Mr. Browder’s campaign as he arrives in Toronto before heading to Ottawa for high-level government meetings Tuesday.

National Post
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