The Times: Hermitage alleges fraud in high places in Moscow

October 19, 2009

In a letter Hermitage Capital accuses senior government officials of conspiring with a criminal gang to steal £235 million.

Fraudsters operating within the Russian Interior Ministry and the Moscow Tax Authority have stolen 11.2 billion roubles (£235 million) from the state budget, according to a complaint filed today with the Accounts Chamber of the Russian Federation.

In a letter to Sergei Stepashin, the chairman of the chamber and head of Russia’s anti-corruption committee, Hermitage Capital, a British-based hedge fund manager that formerly was the biggest foreign portfolio investor in Russia, accuses senior government officials of conspiring with a private criminal gang to steal the money.

Leading officials in the Moscow Tax Authority covered up crimes involving billions of roubles embezzled from the state budget, Hermitage alleges in its letter, which names individuals, accuses them of covering up the fraudulent activity and urges the Accounts Chamber to investigate.

Evidence uncovered by Hermitage, the company stated in its letter to Mr Stepashin, pointed to “an organised criminal group comprised of private individuals and government officials”. The frauds “would not have been possible without the direct involvement of officials” from the Moscow Tax Authority, Hermitage wrote.

The alleged cover-up emerges from a lengthy investigation by Hermitage of a series of complex events that began when the hedge fund’s offices in Moscow were raided in May 2007 by officials of the Interior Ministry, under the pretext of a tax investigation. Documents and company seals were seized in the raids and official papers were used to steal three Hermitage subsidiaries, the hedge fund claims.

An elaborate scam ensued in which Victor Markelov, a sawmill employee and convicted murderer, became the registered owner of the companies, which were then found liable for almost $1 billion in a bogus lawsuit and court case. The feigned ownership of the “bankrupted” Hermitage companies was then used to claim the refund of $230 million in taxes paid by Hermitage. Within two days of the claim the money was paid into accounts of Universal Savings Bank, an obscure Moscow institution, owned, according to court documents, by Dmitry Klyuyev but liquidated in June 2008.

Since then, Hermitage says it has found evidence that the Treasury has lost a further $240 million in phoney tax rebates. However, complaints to a host of institutions, including the office of the Prosecutor-General, the Interior Ministry, the Finance Minister, the Central Bank and the Federal Tax Service failed elicit a response, and Hermitage and Bill Browder, its chief executive, were accused of tax evasion. Hermitage claims that the firm’s Moscow lawyers were harassed, arrested and beaten up.

In April, the General Prosecutor Office convicted Markelov as the mastermind behind the frauds and theft of $235 million from the Russian state budget. No co-conspirators were found. However, Hermitage says that it has found documentary evidence that two senior tax officials lied in sworn statements to a court concerning their approval of the request for tax rebates by the stolen Hermitage companies.

The frauds against the Russian state were extensive and went beyond Hermitage, the fund manager alleges. In July, Hermitage began legal action in New York to secure the release of bank documents that it believes will show that companies and individuals linked to Renaissance Capital, the investment bank led by Stephen Jennings, a New Zealander known as the “Kiwi oligarch”, may have had connections to fraudsters.

Documents filed in the New York court suggest that Hermitage has found evidence that investment vehicles controlled by Renaissance Capital were used in a near-identical scam to the Hermitage fraud, using the same courts and the same bogus litigation, and that the same lawyers and individuals appeared in the court cases.

Renaissance said that it had no knowledge of any tax fraud until informed of it by news organisations last autumn. “Any suggestion that Renaissance was involved in a 2006 tax fraud is wholly false,” the bank said.

Article by Carl Mortished World Business Editor was published in The Times.


No Comments Yet.

Got something to say?

  • Link

Hermitage TV

Visit “Stop the Untouchables” site

For more information please visit site..