Legality of William Browder’s financial activities in Russia is doubtful
27 March 2013. PenzaNews. Investigation Department of Russian Interior Ministry brought new criminal charges against William Browder, the Chief Executive Officer and co-founder of the investment fund Hermitage Capital Management, alleging his involvement in illegal purchase of Gazprom shares. According to law enforcement agencies, the financier ran companies involved in the purchase of Gazprom shares in 1999–2004 at domestic-market prices, obviating a ban on their sale to foreign firms and individuals.
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“He used a specially devised scheme to enable foreign companies to buy the most liquid assets allegedly on behalf of Russian legal entities registered in areas with preferential tax regimes,” the press service of the Russian Interior Ministry said.
According to the investigation, William Browder tried to get access to Gazprom’s financial reporting documents of strategic importance and enter the board of directors, not only for personal advantage but to influence the company’s decision-making.
Russian law enforcement agencies have estimated that the financial damage caused by illegal activities of just one of the companies controlled by William Browder amounts to 3 billion rubles.
However, according to the Interior Ministry, either the Hermitage Capital CEO or his official representative failed to show up for proceedings in spite of the official notice of appearance sent to the Embassy of Great Britain and Northern Ireland. Russian law enforcement agencies initiate measures to put the financier on international wanted list.
According to the media reports, William Browder considers the allegations baseless and is cofindent that this situation will hurt Russian stock market and have an adverse effect on attracting foreign capital into the country.
In the meantime, the Ministry of Internal Affairs of Russia has already charged the financier and former Hermitage Capital auditor Sergei Magnitsky with tax evasion on an especially large scale by falsifying tax declarations and illegally using tax benefits intended for organizations that employ disabled persons.
According to law enforcement agencies, 5.4 billion rubles was stolen from Russian budget through a variety of scams. Proceedings against William Browder are conducted in absentia as the UK authorities refused legal cooperation with Russia concerning this case. The trial of Sergei Magnitsky, who died in Russian police custody in 2009, is posthumous.
Meanwhile, some observers call attention to the fact that the Hermitage Capital auditor was not the only person who dealt with William Browder and then tragically died under disputed circumstances.
According to foreign media, Hermitage Capital, founded by the British financier in partnership with the banker Edmond Safra, began its active work in Russia just after the 1998 default, which was preceded by the disappearance of 4.8 billion dollars that the IMF allocated to Russia as a stabilization loan. It is known that the money was transferred to Republic National Bank owned by Edmond Safra but could not be traced later. William Browder’s business partner died in his own house in Monaco in a fire that was determined to be arson, when he, according to unconfirmed information, began to give evidence to the FBI.
Moreover, General Prosecutor’s Office of Russia has repeatedly studied circumstances around the death of Semen Korobeinikov, Universal Savings Bank owner, who was presumably involved in the tax scam. According to the preliminary version, the banker was viewing a penthouse, which he was going to purchase in a newly built luxury building, when he suffered a heart attack and fell down getting injuries incompatible with life.
The investigation also considers suspicious the death of Valery Kurochkin, one of the front companies’ nominee, who died of alcoholic intoxication; and the death from a heart attack of Oktay Hasanov, who was one of Semen Korobeinikov’s business partners and, according to law enforcement agencies, acted as an interface between Sergei Magnitsky and the owner of Universal Savings Bank.
However, Hermitage Capital suggests its own version of the tax fraud, according to which representatives of law enforcement bodies of the Russian Federation are involved in it and Sergei Magnitsky “died at the hands of the authorities” allegedly having exposed the corruption of Russian officials.
According to some experts, this version became widespread in the foreign press, particularly, thanks to William Browder’s skillful use of modern information technologies and media.
“You have to understand that the press doesn’t know about the stories, have the ability to understand some of these complicated activities, or can’t afford to do research. Our goal is to frame the issue so that it is clear to everyone what has happened,” the financier described the media strategy of his fund.
According to some observers, through information war he was able to lobby Magnitsky Act in the US, and now is launching a campaign for the adoption of its “European version.” In one of his interviews, William Browder expressed confidence that the European Union would pass the bill in the course of year.
However, Edward Lozansky, President and Founder of the American University in Moscow, expressed doubts about the legitimacy of the financial activities of Hermitage Capital CEO.
“According to the fund’s statement, its profit was 2697%. It is clear that it is hardly possible to earn so much money in a relatively short period,” he said in an interview with news agency “PenzaNews.”
In his view, William Browder uses the tragic death of Sergei Magnitsky to his advantage and his actions, aimed at attracting international attention to the death of the fund’s employee in pretrial custody in Russia, are more an attempt to divert interest from his own illegal activities than a “human rights campaign.”
“Given the fact that the head of Hermitage Capital does not cooperate with the Russian investigation, and the United Kingdom refuses to even give him summons, they should try to bring a case against William Browder in England. I am confident that there are a lot of law firms that would get down to it. The main thing is to choose the most competent, which is not so difficult,” the expert said.
Dean of the Faculty of Sociology and Political Science at the Financial University of the Russian government Alexander Shatilov shared the opinion of Edward Lozansky that the British financier could use the death of auditor Sergei Magnitsky as a weapon in the information war.
“In the West, Sergei Magnitsky is perceived as a martyr killed by the authoritarian regime. A person, who demands to punish those guilty in his death, automatically gets moral and maybe even legal protection from the law. If his face is in the trough, it is a nice way to avoid responsibility, because trying to bring him to book now — means to make the West believe that the Putin regime finishes off the remnants of Magnitsky team,” he explained.
At the same time, from his point of view, international community can ambiguously interpret the new charges against the financier, alleging his involvement in illegal purchase of Russian energy giant’s shares.
“It should be noted that this issue takes place in the confrontation over the so-called Magnitsky list and the case can be considered as Russian response to the US. On the other hand, business in Russia sometimes involves illegal or “almost legal” schemes. I do not rule out that while certain businessmen are loyal to the government, they are not persecuted but as soon as they change their position, they can be brought to justice on entirely legal grounds,” he said.
According to him, there could be “certain abuses” in the financier’s activities, however there is also a political component in this criminal case.
“The founder of Hermitage Capital is out of reach – it is easy to charge him in absentia, but it is almost impossible to do it in presence. Russian law enforcement agencies are well aware of this. I think this episode will be viewed as a response to Magnitsky Act and then it will go by the wayside and won’t draw media attention,” Alexander Shatilov said.
In turn, Russian political scientist Pavel Danilin reminded that actively engaged in greenmail William Browder gave Russian tax authorities and corporations a long run around using his connections in the West.
“Through various machinations, he got quite a lot of Gazprom shares and tried to seriously influence the company’s policy. William Browder received warnings and then was declared persona non grata in Russia,” he said, adding that the financier could not but lose the war with Russian corporations.
Meanwhile, calling attention to the death of Sergei Magnitsky and fueling the debate about human rights violations in Russia, the head of Hermitage Capital, in his opinion, not only tried to divert attention from his activities but also wanted to damage the reputation of the Russian Federation.
“Now Browder is like an icebreaker that hits the country and the vision of its laws. Initially, his accusations against Russia were intended to “rehabilitate” himself. However, in the next stage, somewhere in 2009, when he spoke to US Helsinki Commission and started to promote the idea of Magnitsky Act, Browder outgrew the role of a big investor who had good connections with the political leadership of Russia. Now he serves as an information and political killer proving to those concerned that there is allegedly no fair trial in Russia and that police officers are corrupt,” Pavel Danilin explained.
At the same time, according to the expert, he will not perform in this role for too long because Pavel Karpov, former investigator accused by William Browder of being involved in the death of Sergei Magnitsky, filed a lawsuit to the High Court in London.
“As we know, Pavel Karpov only interrogated Magnitsky twice and has no relation to his detention. Now William Browder is doing everything possible to make this claim rejected but I think he will not succeed. The way Browder is flapping about shows that he understands: it’s getting really tough,” Pavel Danilin added.
However, the analyst was not sure about how the situation around the illegal purchase of Gazprom shares would develop.
“It is difficult to say what will happen because period of limitation is coming to an end. But the case has prospects,” he said, suggesting however that charges on tax fraud are more promising.
“We can not let William Browder act against the interests of the Russian state. He will certainly be subject to criminal prosecution in Russia and subject to prosecution for libel outside the Russian Federation,” Pavel Danilin concluded.