Members of the Organized Criminal Group That Stole $230 Million in a Fraud Uncovered by Sergei Magnitsky Has Made a Sixth Attempt to Destroy Evidence of Their Crime

October 20, 2010

Yesterday members of the criminal group that stole three Hermitage Fund Russian investment companies and $230 million paid by these companies in taxes made the sixth attempt to destroy evidence of the thefts uncovered by Hermitage Fund lawyer Sergei Magnitsky, this time at the l0th Arbitration Appeals Court of the Moscow Region. The court approved an application from a 42 year-old Victor Markelov, who has been convicted for the theft of $230 million and is currently serving time in a correctional facility. This judgment reverses the previous court decision that reinstated HSBC, Hermitage Fund trustee, in the Russian corporate registrar.

“This application is the latest attempt from Markelov, who is somehow funding a team of high-priced lawyers from his jail cell to obstruct the implementation of court decision to return the stolen Russian companies to the Hermitage Fund,” said a Hermitage Capital representative. “It is amazing that Judge Mizyak of the 10th Arbitration Appeals Court would act so brazenly in conspiring to destroy evidence in one of the most high-profile fraud and murder cases in Russia. It brings true shame on Russia that the justice system could be so flawed.”

The Hermitage Fund companies were stolen after their original statutory and financial documents and seals were taken by Moscow Interior Ministry officers on 4 June 2007 from the Firestone Duncan law office in Moscow. The documents were used to fraudulently re-register the Hermitage Fund companies in September 2007 in the name of Pluton, a shell company owned by Markelov, and ultimately to obtain the largest tax refund in Russian history ($230 million) in December 2007.

This is the sixth attempt by the criminal group that stole the Hermitage Fund companies and subsequently $230 million of public funds to destroy evidence of their crimes.

1^st attempt to destroy evidence:

Following the tax rebate fraud, the perpetrators worked swiftly to destroy evidence of their involvement. The first attempt to destroy evidence took place on 18 January 2008, when Victor Markelov filed to re-register the stolen companies from Moscow to Novocherkassk, and then have the stolen companies liquidated. Lawyers working for HSBC, as the Hermitage Fund’s trustee, learned of the attempt from the Russian Unified Registry of Legal Entities and wrote to the tax authorities in Moscow and Novocherkassk warning them of the theft of the companies and asking them not to re-register the companies (http://lawandorderinrussia.org/doc/Letter_to_IFNS13_Novocherkassk.pdf). As a result, the liquidation of the companies was stopped.

2^nd attempt to destroy evidence:

After failing in Novocherkassk, the criminal group arranged for Victor Markelov to have the stolen Hermitage Fund companies sold to a BVI shell company, Boily Systems Limited, registered in the name of a worker from Novocherkassk, Mr Smetanin, who immediately filed for liquidation of stolen companies. The application to liquidate the companies was blocked by HSBC’s lawyers who applied to the court in the BVI to have Boily’s activities frozen because of the fraud (http://lawandorderinrussia.org/doc/BVI_Court_ban_to_liquidate_companies.pdf). A court-appointed receiver from the BVI then applied in Russian court to stop the liquidation.

3^rd attempt to destroy evidence:

When the second liquidation attempt failed, the criminal group then tried to eliminate the companies through a false bankruptcy. On 28 July 2008, they filed a bankruptcy claim with the Moscow Regional Arbitration court claiming that the stolen Hermitage Fund companies had not fulfilled their lease payments. HSBC’s lawyers then contacted the owner of the building where the companies allegedly had leases. The owner then confirmed on 21 August 2008 that the leases were forgeries (http://lawandorderinrussia.org/doc/Letter_disallowing_the_tenenacy_agreement_Machaon.pdf). This bankruptcy claim was then blocked.

4^th attempt to destroy evidence:

After failing with forged lease agreements, the criminal group arranged a claim that the stolen Hermitage Fund companies were never legally created in 1996 and therefore they couldn’t have been stolen. They provided a power of attorney from a man in the Seychelles Islands claiming that he was the true owner of the companies. HSBC’s layers contacted the notary in the Seychelles Islands who confirmed that the power of attorney was a forgery and no power of attorney had ever been issued (http://lawandorderinrussia.org/doc/chambers.pdf). This was presented to Moscow Regional Arbitration Court on 23^rd September 2009, and the claim was overturned.

5^th attempt to destroy evidence:

When all their previous attempts to destroy the Hermitage Fund companies failed, Markelov and his co-conspirators tried another attempt at bankrupting the companies. On 5 November 2008, they filed an amended tax return stating that the companies had underpaid dividend withholding tax in 2006. They then asked the tax authorities in Moscow to issue a new tax bill. As a result of this, on 30 December 2008 Tax Inspectorate No. 13 filed a bankruptcy claim against the three stolen Hermitage Fund companies. This case is on-going.

6^th attempt to destroy evidence:

On 28 September 2008, Judge Adarchenko ruled in favor of Hermitage Fund to reinstate the Hermitage Fund’s trustee, HSBC, as the true owner of the Russian companies in the Russian corporate registry. The court recognized as unlawful the transfer of Hermitage Fund companies to Markelov-owned Pluton. Tax Inspectorates No. 13 of the Moscow Region and No. 13 of Rostov Region were named in the proceedings for their role in illegally re‑registering the stolen Hermitage Fund companies, in violation of legal procedure, without any original documentation and in furtherance of the fraud against Hermitage Fund. The purpose of reinstating the companies was to retrieve bank statements and tax records that would provide full evidence of the role of the perpetrators in carrying out the thefts and would show where the $230 million stolen from the Russian treasury had been sent.

Over a month later, on 12 November 2008 Markelov’s lawyer Kirilenko filed an appeal claiming that the decision should be re-visited on the basis that Tax Inspectorate No. 13 of the Rostov Region (which asked the court to consider the case without them) was not properly informed of the proceedings. On 8^th June 2010 Pluton was liquidated by the authorities for not conducting any activity and not submitting any tax reporting.

On 14 October 2010, one year later, judge Mizyak of the Appeals Court ruled in favor of application from Markelov saying that the companies couldn’t be re-instated because Markelov’s company no longer exists.

HSBC and Hermitage lawyers have vowed to appeal this decision and take the case outside of Russia to the European Court of Human Rights in order to restore ownership to the companies and obtain the evidence of who benefitted from the killing of Sergei Magnitsky.

“This is a true case study in the legal nihilism that President Medvedev so often refers to. If his intention to fight legal nihilism in Russia is to be taken seriously, the entire court system needs to be reformed,” said a representative of Hermitage Capital.

The following judges have participated in adverse decisions supporting the destruction of evidence:

Judge Margarita Zinurova, Moscow Regional Arbitration Court: assisted in the fake bankruptcy procedure and after four attempts finally liquidated three stolen Hermitage Fund companies from the Russian Unified Registry of Legal Entities.

Judge Misyak of the 10^th Arbitration Appeals Court: overruled the decision to reinstate control over stolen Hermitage Fund companies.

In addition, the following parties have further the criminal group’s efforts to destroy evidence.

Oleg Kirilenko. He has continued to represent the felon Victor Markelov, who is currently serving a five-year term for stealing 5.4 billion rubles (US$230 million) from the Russian budget, in obstructing the recovery of evidence and the restoration of the Hermitage Fund companies to their owner.

Tax Inspectorate No. 13 of the Moscow Region. This inspectorate accepted a deliberately falsified tax return and immediately filed for the bankruptcy of the stolen Hermitage Fund companies.

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