The Global Graft Report: What Happened To Sergey Magnitsky?

March 18, 2010

Hermitage Capital Management was the biggest foreign investor in Russia. Then in 2005, it all went wrong. CEO William Browder was banned from the country on what he says was a pretext. Two years later, 50 police officers from the Moscow Interior Ministry raided Hermitage’s offices and those of its lawyers. The police took corporate documents and seals. Those same instruments were allegedly used in 2008 to fraudulently obtain $230 million that the Hermitage Fund companies had paid in taxes two years earlier.

Also in 2008, one of Hermitage’s lawyers who didn’t leave Russia or go into hiding, Sergei Magnitsky, above, was thrown into jail. He died in custody in November 2009 at age 37. His jailers first said he ruptured his abdominal membrane; then they said it was a heart attack. Officials have refused his family’s requests for an independent autopsy.

When the Global Graft Report contacted Hermitage this week, here’s what a spokesperson there had to say:

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After our lawyers helped us discover that law enforcement officials were involved in the theft of $230 million of taxes that we paid to the Russian government two years earlier, they filed complaints about the officials’ involvement in the fraud. The same officials got so angry that they organized a major retribution campaign against all of our lawyers. In each case, they came up with different spurious criminal charges.

As is widely reported, a month after Sergei Magnitsky testified against two specific Interior Ministry officers, those same officers fabricated a criminal case against him. They arrested him for tax evasion for a 2001 tax filing in a company that had a clean audit and where he was not a director or officer, so he couldn’t have been guilty of anything. As we all know, Sergei was kept for 12 months without trial in detention on those false charges and died in custody.

The case against three other lawyers was just as absurd and false. After our offices were raided and our companies were fraudulently stolen, we hired lawyers from three different law firms to go to court and challenge the theft and various fake court judgments. Those lawyers were given power of attorney from HSBC, the Hermitage Fund trustee, to go to court. The police then opened criminal cases against the lawyers, saying they were operating with “false powers of attorney.” According to the police, the only person who could have given the lawyers a “proper” power of attorney was the person who stole our companies. It is like having your car stolen and getting arrested for going to the police station to report it.

“So it remains to be seen if those responsible for the death of Sergei Magnitsky and the fraud against Hermitage that Sergei had exposed will ever be brought to justice.”

There were many complaints that went to the Russian government in relation to the persecution of Sergei Magnistky and other lawyers, and the fraud against Hermitage and the Russian state. In total, more than 50 letters and complaints were filed by Hermitage, Firestone Duncan (Sergei’s law firm), the UK Foreign Office, the US State Department, the Council of Europe, the International Bar Association, and the UK Law Society, among others. The complaints went to President Medvedev, his entire anti-corruption commission, the Russian General Prosecutor, the Russian Foreign Ministry, the Russian Human Rights Ombudsman, and a number of other law enforcement agencies.

Before Sergei’s death, we received no substantive reply from any of them. Almost all complaints were passed to one specific person in the Russian General Prosecutor’s office, a man named Andrei Pechegin, whose job it seems to us was to collect any complaints related to Hermitage from any government department and deflect them with meaningless two line responses. His responses generally read “everything is done according to the law” without ever addressing any of the issues brought up in the complaints.

Since Sergei’s death, we have gotten mixed signals. As is well known, President Medvedev has ordered a major investigation, and fired a number of officials. At the same time, up until today, we keep getting the two line letters from Mr. Pechegin saying “everything was done according to the law.” So it remains to be seen if those responsible for the death of Sergei Magnitsky and the fraud against Hermitage that Sergei had exposed will ever be brought to justice.

“One could lose hope completely, but we haven’t.”

In the 1990s in Russia there was a flirtation with free markets and democracy, but they never had a rule of law. In the last nine years, that democracy and free market philosophy has also disappeared. One could lose hope completely, but we haven’t.

Russia is a country with many intelligent and decent-hearted people who long for a better life. We hope that sentiment will drive the leadership to do something positive before it is too late. If you listen to the speeches of President Medvedev, he talks a lot of the rule of law, legal nihilism, and inefficient government and how he wants to make changes. It remains to be seen whether he has enough will and power to achieve the things he says in his speeches, but at least the President is saying them. Ultimately, the Russian people will determine if these changes happen sooner or later.

From the moment we arrived in Russia in 1996 to start investing until now, we never kept quiet about corruption. We were the largest anti-corruption activists in the country for ten years, exposing corruption and mismanagement at large Russian companies such as Gazprom, Unified Energy Systems, Sberbank and Surgutneftegas. Our whole approach was that “evil tends to wither under the bright light of publicity.” So we would research how the corruption was done and then expose it through the press.

The approach worked very well until Hermitage’s CEO was expelled from the country in 2005 as a “threat to national security.” Since then things deteriorated much further but we have continued to be outspoken until today. In our opinion, transparency is the only true weapon against these abuses.

http://www.globalgraft.com/home/2010/1/5/what-happened-to-sergei.html

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