Politically-motivated abuses of the criminal justice system

August 7, 2009

Excerpts from the report, published by the Committee on Legal Affairs and Human Rights on allegations of politically-motivated abuses of the criminal justice system in Council of Europe member states with recommendations on series of steps to strengthen the independence of judges and prosecutors across Europe to end politically-motivated interference in individual cases.

Inter alia the Committee calls for a series of reforms to reduce the political and hierarchical pressures on judges and put an end to the harassment of defence lawyers in order to combat “legal nihilism” in the Russian Federation, as a precondition also for successful co-operation between Russian and other European law enforcement authorities.

87. During my visit in London and again in Berlin, before my departure to Moscow, I was briefed in much detail by the United Kingdom-based lawyers of the Hermitage Fund/HSBC on the almost unbelievable (but well-documented) story of the attack, apparently implicating senior officials, on what was until 2006 the largest foreign investor in the Russian stock market. In particular, all lawyers acting for HSBC/Hermitage in the Russian Federation have been intimidated and targeted by police with searches and questioning as witnesses – in violation of the lawyer-client privilege. On 20 August 2008, police raided the Moscow offices of all law firms representing HSBC and Hermitage, in particular those of the Moscow-based United States firm, Firestone Duncan, and those of independent lawyers, Eduard Khairetdinov, Vladimir Pastukhov and Vadim Gorfel. During the searches, powers of attorney authorising the lawyers to represent HSBC in court hearings scheduled for that week were seized by police in what appeared to be an attempt to obstruct HSBC’s efforts to frustrate on-going frauds.

88. At the end of August 2008, all lawyers independently representing HSBC/Hermitage – Mr Khairetdinov, Mr Pastukhov and Mr Gorfel, who had succeeded in uncovering fraudulent claims against the HSBC companies and who were in the process of challenging false bankruptcy proceedings, received summonses from the Kazan police to appear for questioning as witnesses – in violation of Article 8 of the Russian Law on Lawyers which prohibits the questioning of lawyers regarding cases in which they provide legal assistance.

89. On 24 November 2008, independent lawyer Sergei Magnitskey, who had helped HSBC/Hermitage to expose frauds and abuses of office, was arrested and placed in pre-trial detention. On the same day, his law office was searched by police, and, in breach of Russian procedural law, the firm’s lawyer was allegedly not allowed to be present during the search. According to Mr Magnitskey’s lawyers, he has not been questioned even once during the four months since his detention was sanctioned by the court on 26 November 2008; the detention, in inhuman and degrading conditions, was extended for another three months on 13 March 2009 on the basis of the need to carry out the same pre-trial investigative actions that were given as a reason to detain him in the first place. Against another lawyer working for Hermitage/HSBC, Mr Eduard Khairetdinov, a criminal case was opened at the end of November 2008 for allegedly using an invalid power of attorney, disregarding earlier judgments and testimony from HSBC directors that recognised his power of attorney. On 2 April 2009, a criminal case on the same grounds was opened against Mr Pastukhov.

90. I had included questions on the alleged harassment of HSBC/Hermitage lawyers and the detention of Sergei Magnitskey in my letters to the head of the Investigative Committee and to the Prosecutor General. The reply from the Investigative Committee confirmed that Mr Magnitskey was heard as a witness in one particular criminal case115 but insisted that no coercive measures had been taken against him and in particular, that he was “not detained”. Having checked this reply with Mr Magnitskey’s lawyers, who had provided me with documentary evidence proving the fact of his detention, it turned out that Mr Magnitskey was detained under another case number116 also concerning the Hermitage complex. The Investigative Committee’s answer was, to say the least, easily misunderstandable. In view of this reply, and of the precise indications (dates, places and persons involved, including on the side of the law enforcement bodies) received from the lawyers acting on behalf of HSBC/Hermitage, I am not convinced that I can accept without further questions the additional statement in the reply that “lawyers working for the HSBC/Hermitage company have not been questioned”, which may once again have been limited to a particular case number. The answer received from the Prosecutor General’s office on this case is more precise in that it recognises the fact of Mr Magnitskey’s detention and indicates on what charges he is being held – a criminal case lodged on 4 October 2004 by investigators of the Ministry of Internal Affairs of the Kalmykh Republic for tax evasion. But it does not explain why he was arrested in November 2008 and was not interrogated once for several months. Contrary to the Investigative Committee’s reply, the PGO acknowledges that criminal cases were opened against lawyers working for HSBC/Hermitage, including Mr Magnitskey, Mr Khairetdinov and Mr Pastukhov (the latter also for “use of forged documents”).

108. The second emblematic case is that of Hermitage Capital, an investment company specialising in equity investments in Russian businesses. Before the events described below, Hermitage Capital was the biggest foreign investor in the Russian stock market, and one of the biggest taxpayers in the Russian Federation. Its strategy – adopted purely on business grounds, without any ideological or political agenda – included the introduction of Western-style accounting methods in the companies in which Hermitage invested and thus the fight against corruption. The Hermitage Fund has become the victim of the corruption and collusion of senior police officials and organised criminals, which resulted in the misappropriation (“company theft”) of its three investment companies owned by HSBC bank (Rilend, Mahaon and Parfenion), the fabrication of the equivalent of UD 1.26 billion in false liabilities against them and the fraudulently obtained reimbursement by the Russian fiscal services of UD 230 million in taxes that the three companies had paid. The “theft” of the companies took place with the help of original statutory corporate documents which were seized without legal justification by Moscow police officers during a search of the company premises. With their help, new directors were appointed, who quickly “recognised” the above-mentioned fabricated claims – but the legitimate directors had already succeeded in taking the stolen companies’ assets out of the Russian Federation. The false directors then made money from this corporate raid by demanding the reimbursement of taxes paid on profits which they told the tax office were retroactively wiped out by the newly surfaced claims against the companies. They obtained from the fiscal services decisions to reimburse the equivalent of UD 230 million within 24-72 hours. I dare not speculate how long a claim for the reimbursement of overpaid taxes, even for a much more modest amount, normally takes in the Russian Federation, but in Germany, this would be a matter of months, not hours.

109. So far, this just looks like just another example for a Russian-style “corporate raid” (or “hostile takeover”) that has been reported many times. But in addition to the sheer size of the corporate victim and attempted to defend itself against these massive frauds with the help of the competent authorities, became itself the victim of systematic retaliatory measures that must have the support of senior law enforcement officials; and these apparent retaliatory measures involve international mechanisms of legal co-operation, whose functioning in the face of alleged politically-motivated abuses I am mandated to look into.

110. Mr William Browder, a British citizen, Chief Executive Officer of Hermitage Capital, was suddenly refused the renewal of his entry visa to the Russian Federation, despite interventions in his favour at the highest political level. The frauds against Hermitage Capital were documented in complaints addressed to the Prosecutor General of the Russian Federation on 3 December 2007, 23 July 2008 and 27 October 2008. According to the lawyers acting on behalf of Hermitage, there has been no substantive response to these complaints. A key official who was subject of the complaints was assigned to the investigation against himself, and the Southern District of Moscow division of the Investigative Committee of the Prosecutor’s Office quickly dismissed the case that had been opened in response to the HSBC/Hermitage complaints. Instead of taking action against the corporate “raiders”, the authorities began intimidating all lawyers acting for HSBC/Hermitage in the Russian Federation and targeting them by police searches and questioning as witnesses. In particular, independent lawyer Sergei Magnitskey, who had helped to expose the frauds and the abuses of office, was arrested on 24 November 2008 and has since been detained; others have been forced to seek refuge in the United Kingdom. The same law enforcement officials accused in the HSBC/Hermitage complaints of being involved in these massive frauds are now involved in persecuting its executives and lawyers through charges that seem far-fetched and in contradiction with the authorities’ previous actions. Essentially, the authorities now appear to accuse the legitimate directors of the HSBC/Hermitage companies of having themselves masterminded the “theft” of their own companies and the recognition of the fabricated claims in order to defraud the Russian State. I have spent many hours being briefed by the lawyers acting on behalf of HSBC/Hermitage and questioning them. I have also written to the Russian prosecutor general and the head of the Investigative Committee in order to be informed of their points of view145. The answers that I have received from the Investigative Committee have not been satisfactory. In particular, the statement that a reply to the complaint introduced on behalf of Hermitage/HSBC could not be sent because the lawyer introducing the complaint had not given his address, does not seem to be credible in view of the high stakes and the professionalism of the lawyers involved, many of whom I have met personally. The denial of the involvement of a particular official in the investigation of complaints in which he is designated as one of the suspects is contradicted by a long list of correspondence concerning this case signed by the self-same official, copies of which were put at my disposal by the Hermitage/HSBC lawyers. The answer received from the Prosecutor General’s office that the official in question (a Lieutenant-Colonel) has “no supervisory functions whatsoever” is not helpful; and the PGO’s denial of having received the complaints from HSBC “dated 3 December 2007, 27 October 2008 or any other date” has me wonder whether there has been a breakdown in internal communication or mail delivery at some point – accidental or not.

111. Of course I am still not in any position to “judge” on who is right or wrong, and such is not the purpose of this report. But in the light of the numerous strange coincidences and contradictions, in particular regarding the chronology of the events in relation to the defensive actions taken by HSBC/Hermitage and to retaliatory measures taken against its executives and lawyers, and finally in the light of the complete failure, for many months, of the law enforcement authorities to react even to such massive frauds, whose victims include the Russian State itself, I cannot help suspecting that this coordinated attack must have the support of senior officials. These appear to make use, for their own purposes, of the persisting systemic weaknesses of the criminal justice system in the Russian Federation.

112. In my view, a proper investigation of this emblematic affair, holding to account the perpetrators of the frauds as well as the law enforcement officials who appear to have helped them, is indispensable. It may also be a good test for the new structures involving a separation and division of labour between the services of the prosecutor general’s office and those of the investigative committee, which should facilitate the investigation of suspected abuses committed by elements of one structure performed by members of the other.

Full report is available for dwonload on the Council of Europe website.
Allegations of politically-motivated abuses of the criminal justice system in Council of Europe member states

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