Businessweek: Deadly Business in Moscow

February 19, 2010

An Amer­i­can lawyer’s expe­ri­ence under­scores the law­less­ness out­siders oper­at­ing in Rus­sia can face.

Jami­son Fire­stone was at his desk when the com­mo­tion began. On the morn­ing of June 4, 2007, the Amer­i­can attor­ney heard loud voic­es com­ing from the recep­tion area of his law firm, Fire­stone Dun­can, on Krasno­pro­le­tarskaya Street in Moscow. He went out to inves­ti­gate and was greet­ed by two dozen offi­cers from the Russ­ian Inte­ri­or Ministry.

Over the next sev­en hours, he says, the secu­ri­ty forces cor­ralled Fire­stone and his staff in a con­fer­ence room, ran­sacked the offices, and con­fis­cat­ed com­put­ers and doc­u­ments. When one of Fire­stone’s employ­ees object­ed, he was beat­en so severe­ly he required hos­pi­tal­iza­tion for three weeks.

On the same day, Russ­ian police raid­ed the Moscow head­quar­ters of one of Fire­stone’s clients, the promi­nent for­eign invest­ment firm Her­mitage Cap­i­tal Man­age­ment. Its founder, the Amer­i­can-born financier William Brow­der, had become a strong crit­ic of the state-con­trolled ener­gy con­glom­er­ate Gazprom and has been barred from reen­ter­ing Rus­sia since 2005. The search­es of the offices marked a major esca­la­tion in Her­mitage’s con­flict with the Russ­ian gov­ern­ment. And Fire­stone, 44, who had spent 18 years help­ing West­ern com­pa­nies nav­i­gate the murky waters of Rus­si­a’s legal sys­tem, knew what it could mean. “Cor­rupt law enforce­ment is the sin­gle biggest risk to busi­ness in Rus­sia,” he says. He braced for the worst.

His fears came true with­in months, when records con­fis­cat­ed dur­ing the June 2007 raids alleged­ly were used in an elab­o­rate $230 mil­lion fraud that exploit­ed three Her­mitage funds to extract pho­ny tax refunds from the Russ­ian gov­ern­ment. In 2008 an attor­ney from Fire­stone’s firm who helped rep­re­sent Her­mitage was impris­oned on tax charges; he died behind bars last Novem­ber after being denied med­ical treat­ment, cre­at­ing a furor in Moscow. Final­ly, last year two unsuc­cess­ful attempts were made to steal $21 mil­lion in tax­es paid to the Russ­ian gov­ern­ment by a com­pa­ny for which Fire­stone served as gen­er­al direc­tor, he says. The peo­ple behind these attempts used his forged sig­na­ture to seek rebates, a method sim­i­lar to that used in the Her­mitage case, he adds.

STEALING THE COUNTRY
Now Fire­stone, a for­mer board mem­ber of the Amer­i­can Cham­ber of Com­merce in Rus­sia, has fled for Lon­don, fear­ing that he, too, could end up in jail. “Police [in Rus­sia] have to stop being the Mafia,” he says. “These peo­ple are steal­ing the country.”

The alleged vic­tim­iza­tion of Brow­der and Her­mitage is well known. In inter­views with Bloomberg News, how­ev­er, Fire­stone for the first time is alleg­ing gov­ern­ment-spon­sored fraud aimed at him per­son­al­ly. His account under­scores the arm-twist­ing and law­less­ness that can afflict out­siders doing busi­ness in Rus­sia. As wide­ly report­ed, oil giants British Petro­le­um (BP) and Roy­al Dutch Shell (RDS.A) have suf­fered polit­i­cal­ly backed attempts to wrest con­trol of aspects of their Russ­ian oper­a­tions. The French car­mak­er Renault like­wise has come under gov­ern­ment pres­sure to assist a Russ­ian man­u­fac­tur­er in which it had invested.

The risk of being tar­get­ed for abuse by gov­ern­ment offi­cials — some­times oper­at­ing in league with Russ­ian busi­ness­es — is a cen­tral rea­son the coun­try has attract­ed less than one-fifth the for­eign invest­ment in Chi­na and Brazil and half of what’s invest­ed in India, accord­ing to three years of data com­piled by fund track­er EPFR Global.

In the wake of the death of Fire­stone’s col­league, Sergei Mag­nit­sky, the heads of the Moscow police’s tax crimes depart­ment and the city’s prison divi­sion were both fired. That’s not enough, says Brow­der, 45, who has been based in Lon­don for the past five years. “We’ve writ­ten well-doc­u­ment­ed com­plaints to the top law enforce­ment offi­cers in the coun­try that a num­ber of police offi­cers, judges, orga­nized crim­i­nals, and busi­ness­men have been involved in the theft of almost $500 mil­lion from the state and were involved in impris­on­ing Sergei Mag­nit­sky,” he says.

In Octo­ber 2008, Mag­nit­sky com­plained about the Her­mitage case to Rus­si­a’s State Inves­tiga­tive Com­mit­tee, the equiv­a­lent of the U.S. Fed­er­al Bureau of Inves­ti­ga­tion. He said the offi­cers involved in the raid on the law firm may have been linked to the Her­mitage fraud, accord­ing to a tran­script of his testimony.

A lit­tle more than a month lat­er, on Nov. 24, 2008, five offi­cers arrived at Mag­nit­sky’s home at 7 a.m. and took him in for ques­tion­ing. He was accused of involve­ment in an alleged tax fraud per­pe­trat­ed by Her­mitage and was pres­sured to with­draw his com­plaint and impli­cate Brow­der, accord­ing to peti­tions Mag­nit­sky filed with the Inte­ri­or Min­istry’s Inves­tiga­tive Com­mit­tee. “When I repeat­ed­ly reject­ed these propo­si­tions by the inves­ti­ga­tors push­ing me to com­mit such a base act, the con­di­tions of my deten­tion become worse and worse,” Mag­nit­sky wrote in a Sept. 11, 2009, fil­ing. Two months lat­er, on Nov. 17, the 37-year-old father of two died from tox­ic shock and heart fail­ure after being held in pre­tri­al deten­tion for 358 days.

Some of the records tak­en from Fire­stone’s office in the 2007 raid involved an invest­ing com­pa­ny called OOO Anrid­er. The doc­u­ments showed that Anrid­er had paid $21.6 mil­lion in tax­es in 2006, accord­ing to Fire­stone. A fil­ing with Russ­ian tax author­i­ties dat­ed Apr. 24, 2009, claimed that Anrid­er over­paid tax­es by $21 mil­lion and deserved a refund. Fire­stone says he learned of the fil­ing after the claim was reject­ed and copies of the papers were sent to him. The doc­u­ments includ­ed what Fire­stone alleges were forg­eries of his sig­na­ture and Anrid­er’s cor­po­rate seal. Some­one, he says, was try­ing to use his iden­ti­ty to steal tax rev­enue and, in the process, pos­si­bly impli­cate him.

The lawyer, a native New York­er who began study­ing Russ­ian in high school and speaks it flu­ent­ly, alert­ed tax author­i­ties last August that the claim was bogus, doc­u­ments show. The tax office did­n’t respond, and the police declined to open an investigation.

The Russ­ian Inte­ri­or Min­istry’s Inves­tiga­tive Com­mit­tee declined to com­ment about Fire­stone or Mag­nit­sky; it would only con­firm that it is inves­ti­gat­ing Brow­der for alleged tax fraud. “He’s scream­ing that they stole his com­pa­nies, but he’s not talk­ing about the tax he did­n’t pay,” spokes­woman Iri­na Duduk­i­na says. “If he thinks he’s inno­cent, then he should give evidence.”

Brow­der, who has been placed on the Inte­ri­or Min­istry’s want­ed list, says his com­pa­nies were all audit­ed and that no tax claims have been filed against them. “They’re try­ing to cov­er an enor­mous crime against the bud­get with fab­ri­cat­ed alle­ga­tions,” he says.

Fire­stone agrees. “When you see cor­rup­tion on this scale at the same time as the Pres­i­dent is demand­ing inves­ti­ga­tions and crack­ing down, it’s brazen,” he says. He left his apart­ment in Moscow before Christ­mas, as if going away for the hol­i­day, and has­n’t been back.

The orig­i­nal was pub­lished in Busi­ness­Week.

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