Marketplace: Lawyer’s death raises tax fraud issues

November 30, 2009

The recent death of a Moscow lawyer has caused an outcry in Russia and the U.K. The lawyer was working for a British investment firm and claimed to have evidence that Russian officials perpetrated a massive tax fraud. Stephen Beard reports.

Kai Ryssdal: The story you’re about to hear sounds a little bit like something out of one of those Cold War spy thrillers. Complete with evil Russians and guys who somehow wind up mysteriously dead. Police in Moscow are looking into how a lawyer in their custody did, in fact, die.

Sergei Magnitsky was awaiting trial on what his supporters say were trumped-up charges. His death has caused an outcry in Russia and also in the U.K. Magnitsky was working on behalf of a British investment firm. And before he was arrested he said he had evidence Russian officials had perpetrated a massive tax fraud. From London, Marketplace’s Stephen Beard reports.

STEPHEN BEARD: Thirty-seven-year-old Sergei Magnitsky died in a Moscow jail two weeks ago. Russian authorities said it was natural causes. But his colleagues claimed that he died under very suspicious circumstances.

Jamison Firestone runs the London law firm that employed Magnitsky.

JAMISON FIRESTONE: People saw him. He was at a court hearing on Thursday. He’s dead on Monday, and he’s got bad bruising on his hands as if though he’s been in a fight or a scuffle or something.

Unusual for a lawyer, Firestone does not choose his words carefully.

FIRESTONE: A man is dead. It’s impossible not to try and find out exactly who killed that man and why.

Some of the answers may be found here in this London-based investment firm — Hermitage Capital. Magnitsky represented the firm in Moscow. Until four years ago it was the largest foreign investment fund in Russian securities.

The fund manager Bill Browder had pursued what for a while was a highly successful strategy.

BILL BROWDER: To invest in large Russian companies and then in order to get those companies to improve we would go in, analyze how the management of those companies were stealing money and then publicize it to get them to stop.

He admits that investment strategy doesn’t look too clever now. He made powerful enemies. In 2005 he was booted out of Russia. He managed to get all of his fund’s money out, but he claims his Moscow companies were then hijacked by corrupt officials. His lawyer, Magnitsky, had been looking into whether those officials had used Browder’s companies to improperly apply for a massive tax refund.

BROWDER: My offices were then raided. The police then stole our companies. The companies were then used for a fraudulent $230-million tax refund. My lawyer who was helping us uncover this was then arrested, and he died in prison.

Magnitsky had been in custody for about a year. After 11.5 months without charge, he was himself accused of tax fraud. The lawyer’s untimely death could represent the most serious indictment of modern Russia’s legal system.

Rupert D’Cruz speaks for the British lawyers’ organization: the Bar Council.

RUPERT D’CRUZ: The death of lawyer is a matter of particular concern if that death is unlawful and is connected with the professional activities of the lawyer because that amounts to a direct attack on the rule of law itself.

Russia is hardly known for upholding the rule of law. Troublesome lawyers and journalists have died suddenly — and violently — before. But the case of Sergei Magnitsky could just be a turning point, say his supporters. Russian President Dmitry Medvedev has ordered a full inquiry. Jamison Firestone believes it will be thorough because he says the case concerns the theft of Russian taxpayer money.

FIRESTONE: Somebody ripped the Russian people off. And if they do investigate it, a lot of corrupt people are going to come down. And it’s going to really improve people’s belief in President Medvedev’s pledge to fight corruption.

But Firestone concedes that everything depends on how far up the food chain the alleged corruption goes. He notes this: tax-refund claims in Russia typically take months to process and usually fail. The allegedly fraudulent claim that Magnitsky was investigating was paid out in three days flat. It seems someone in a very high place could be involved.

In London, this is Stephen Beard for Marketplace.


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