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.

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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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