The AmLaw Daily: From Russia With Fear

March 25, 2010

When he opened his law and audit firm Fire­stone Dun­can in Moscow in 1993, Jami­son Fire­stone saw Rus­sia as a land of oppor­tu­ni­ty. Today, he is essen­tial­ly exiled abroad, man­ag­ing his busi­ness from thou­sands of miles away, and afraid of what could hap­pen to him should he return to the city he called home for 17 years.

Fire­stone decamped to Lon­don in Decem­ber after a lawyer from his firm died amid mys­te­ri­ous cir­cum­stances in a Moscow pre­tri­al deten­tion facil­i­ty and in the midst of a long-run­ning inves­ti­ga­tion by Russ­ian author­i­ties into one of his fir­m’s clients, Her­mitage Cap­i­tal Management.

Her­mitage, once the largest invest­ment fund in Rus­sia, is owned by William Brow­der, whose grand­fa­ther at one time head­ed the Amer­i­can Com­mu­nist Par­ty. Brow­der ran afoul of Russ­ian author­i­ties by rail­ing pub­licly against what he called the country’s cul­ture of cor­rup­tion, as report­ed by The New York Times. He was ulti­mate­ly pun­ished for his out­spo­ken­ness when Her­mitage and two sub­sidiaries were put under the con­trol of Vic­tor Markelov, whom Brow­der accus­es of being a for­mer sawmill employ­ee and con­vict­ed mur­der­er.

Markelov entered the pic­ture after Her­mitage’s lawyers, includ­ing Fire­stone Dun­can, were caught up in the dra­ma. The deci­sive event: a 2007 raid on Fire­stone’s Moscow office staged by police from Rus­si­a’s Inte­ri­or Min­istry. Sergei Mag­nit­sky, the head of the fir­m’s tax prac­tice, lat­er accused two offi­cers who led the raid of steal­ing Her­mitage doc­u­ments in the process. Russ­ian author­i­ties, Jami­son Fire­stone claims, sub­se­quent­ly used those doc­u­ments as the basis for seiz­ing the three Her­mitage funds, hand­ing them over to Markelov, and, lat­er, col­lect­ing a ques­tion­able $230 mil­lion tax refund.

As for Mag­nit­sky, he was arrest­ed in Novem­ber 2008 and died a year lat­er in cus­tody after com­plain­ing about inad­e­quate med­ical treat­ment, as we pre­vi­ous­ly report­ed.

The Am Law Dai­ly spoke with Fire­stone after Mag­nit­sky’s death spurred him to flee Moscow. Ini­tial­ly opti­mistic that an inves­ti­ga­tion promised by Russ­ian Pres­i­dent Dmit­ry Medvedev would deter­mine how Mag­nit­sky died, Fire­stone says he quick­ly grew skep­ti­cal. One rea­son: In Decem­ber he received from Russ­ian tax author­i­ties a batch of doc­u­ments bear­ing what he says was his forged signature.

The doc­u­ments were con­nect­ed to a com­pa­ny called OOO Anrid­er, a Russ­ian invest­ment unit of a U.S. hedge fund and a Fire­stone Dun­can client that was due a $21 mil­lion tax refund from Russ­ian gov­ern­ment. Fire­stone says that, like the stolen Her­mitage doc­u­ments, the bogus Anrid­er papers were snatched from his offices dur­ing the 2007 raid. Once he saw them, he says, Fire­stone feared he was being set up the same way Mag­nit­sky had been.

The fol­low­ing inter­view with Fire­stone has been con­densed and edit­ed for style, gram­mar, and clarity.

Why did you leave Russia?

I got tired of wait­ing with­in the grasp of peo­ple that could grab me, arrest me, and kill me. I’m the one who is try­ing to stop a crime. [Her­mitage] has already lost $230 mil­lion – you’d think they’d like to pre­vent the theft of anoth­er $21 mil­lion. The sys­tem is broken.

[With Anrid­er], the crime is the same. It’s a gov­ern­ment refund crime – it’s not that common.

What was it about the Andrid­er doc­u­ments that made you suspicious?

I get a let­ter from the tax inspec­tor that says, ‘We received these amend­ed dec­la­ra­tions and we’re not accept­ing them because the sig­na­ture does­n’t match yours.’ Clear­ly some­one had filed false dec­la­ra­tions from my com­pa­ny, as there’s 40 or so pages of my sig­na­ture forged.

How did you respond?

I’m not some lit­tle guy. I run a law firm and at the time I sat on the board of the Amer­i­can Cham­ber of Com­merce in Rus­sia. So I thought I’d file a few com­plaints with the pros­e­cu­tor’s office and get the U.S. gov­ern­ment involved.

Did that work?

Nope. It does­n’t mat­ter who you are any­more. Some­times you think to your­self, ‘God, if I could only get this heard at a high lev­el, some­thing would hap­pen.’ That hap­pened here, with my employ­ee in prison in a bad way, and noth­ing happened.

What would you like to see the Russ­ian author­i­ties do?

I’d like to see some of the offices involved lose their abil­i­ty to bring these false law­suits and false imprisonments.

Why did you choose to relo­cate to London?

My legal col­leagues who have fled [Rus­sia] are here as well as a major con­cen­tra­tion of investors inter­est­ed in Rus­sia. There are a lot of clients and poten­tial clients here and the time dif­fer­ence between Moscow and Lon­don is only three hours.

Tell us how you believe these alleged schemes involv­ing Anrid­er and Her­mitage worked.

Think of it this way: there’s a guy in a crim­i­nal group who under­stands how to steal tax­es back from the gov­ern­ment. He’s the mas­ter­mind. And he says if you have a com­pa­ny that paid a lot of tax­es and you cre­ate a lot of fake lia­bil­i­ties, you can sub­mit an appli­ca­tion for a refund that his bud­dies in the tax inspec­tor’s office can push through light­en­ing fast.

How, in your opin­ion, is that accomplished?

You need some mus­cle to steal the com­pa­nies with the tax­es – that’s the police. They come in and steal the com­pa­ny. Now you need to put them under crim­i­nal con­trol. So you take some stu­pid, fall-guy crim­i­nal that does­n’t have an edu­ca­tion– a sawmill fore­man like Markelov, say – and you make him the man­ag­ing direc­tor of a com­pa­ny with $4.3 bil­lion in assets.

What comes next in this scenario?

You cre­ate the lia­bil­i­ty through a bunch of bogus court cas­es that claim the com­pa­ny owes the plain­tiffs the exact amount of prof­its it declared. So if the com­pa­ny made $1 bil­lion in prof­its, you sue the com­pa­ny for $1 bil­lion to cre­ate a $1 bil­lion lia­bil­i­ty. Then you get crooked lawyers and crooked judges involved. And the crooked lawyers bring suits against these com­pa­nies that they know are com­plete­ly bogus for the amount of mon­ey that the com­pa­nies had pre­vi­ous­ly earned. And then you get oth­er crooked lawyers to rep­re­sent the com­pa­nies in court. And in court they say, ‘Oh, you’ve got a $1 bil­lion claim against our client, no con­test!’ And the crooked judge enters a judg­ment imme­di­ate­ly in favor of the plaintiffs.

What makes you think all these indi­vid­u­als are corrupt?

Because this did­n’t hap­pen once – it hap­pened ten times with dif­fer­ent com­pa­nies, three of which belonged to Her­mitage. And the same lawyers are involved in all of these cas­es, except some­times they rep­re­sent the plain­tiffs and some­times they rep­re­sent the defen­dants. And the same judges are involved too. It’s a clas­sic cook­ie-cut­ter scheme with the same con­tracts and no contests.

Who are these lawyers?

They’re Russ­ian pri­vate prac­ti­tion­ers and they raid com­pa­nies and do ille­gal acts for a living.

Do your col­leagues in Rus­sia – not just at your firm, but oth­er firms – sup­port you in speak­ing out about what’s going on?

They’re sup­port­ive but they don’t want to scare their clients away. My firm was raid­ed in June 2007 and lots of law and account­ing firms [in Moscow] have been raid­ed. Nobody wants to be a cru­sad­er. [My] feel­ing is we need to make this pub­lic not only to defend our client, but also because if you aren’t noisy, then you have no chance. I think more lawyers here are real­iz­ing that sit­u­a­tions like this are occur­ring more often and it’s threat­en­ing their abil­i­ty to pro­tect their clients.

What have West­ern lawyers done to insu­late them­selves and advise their clients in this climate?

West­ern law firms occa­sion­al­ly have to rotate peo­ple out of the coun­try because it is unsafe for them to remain. Usu­al­ly it’s because they have a man­age­r­i­al posi­tion in a firm where the author­i­ties want to put pres­sure on that firm to do some­thing that a firm would­n’t nor­mal­ly do – such as reveal infor­ma­tion or fal­si­fy infor­ma­tion about their clients.

You’ve been in Rus­sia for almost two decades, prob­a­bly some of the most tur­bu­lent times in the nation’s his­to­ry. I under­stand that your time there began with the death of your fir­m’s cofounder, Ter­ry Dun­can, dur­ing clash­es between reform­ers and Com­mu­nist hard­lin­ers in 1993.

Ter­ry was putting wound­ed peo­ple into ambu­lances in an active war zone. He was­n’t ask­ing whether they were pro- or anti-Yeltsin, they were just peo­ple to him. And he lost his life when the last guy he was pulling to safe­ty was a 24-year old Amer­i­can kid and New York Times pho­to­jour­nal­ist. It was­n’t a polit­i­cal thing dur­ing a mini-revolution.

Is there still a strug­gle between the old and the new?

No, I think the strug­gle deals more with the com­plete break­down of author­i­ty in Rus­sia. [Out­siders] think the Krem­lin is in com­plete con­trol of stuff, but it isn’t real­ly. Every­one basi­cal­ly has their own game and is steal­ing from every­one else. There is no author­i­ty. The peo­ple that you’re sup­posed to get help from if you’re attacked are almost always the same peo­ple that are involved in the theft. Things aren’t just bad for for­eign investors – they’re also bad for Russians.

Medvedev has said he plans to take on Rus­si­a’s ‘legal nihilism.’ What’s your view of that?

Medvedev says the right things, but if you look at the Her­mitage case, some of the cor­rupt police offi­cers that stole the mon­ey are in plain sight and you can’t get them inves­ti­gat­ed. Maybe Medvedev can’t do it by myself.

What would you tell peo­ple about liv­ing and work­ing in Moscow today?

I recent­ly had a very promis­ing Uni­ver­si­ty of Michi­gan law grad­u­ate write to me. And he said, ‘I’ve seen your case all over the place and I want to know whether I should still prac­tice law in Rus­sia.’ And my answer was, ‘I love Rus­sia, but prac­tic­ing law there is a dif­fer­ent ques­tion.’ If you love and have a deep respect for the law, and it’s going to moral­ly both­er you to see judges, lawyers, and pros­e­cu­tors shame­less­ly run roughshod over the sys­tem, then no, you should­n’t prac­tice law in Russia.

Pub­lished in The AmLaw Dai­ly.

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