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 10^th 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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