Politically-motivated abuses of the criminal justice system

August 7, 2009

Excerpts from the report, pub­lished by the Com­mit­tee on Legal Affairs and Human Rights on alle­ga­tions of polit­i­cal­ly-moti­vat­ed abus­es of the crim­i­nal jus­tice sys­tem in Coun­cil of Europe mem­ber states with rec­om­men­da­tions on series of steps to strength­en the inde­pen­dence of judges and pros­e­cu­tors across Europe to end polit­i­cal­ly-moti­vat­ed inter­fer­ence in indi­vid­ual cases.

Inter alia the Com­mit­tee calls for a series of reforms to reduce the polit­i­cal and hier­ar­chi­cal pres­sures on judges and put an end to the harass­ment of defence lawyers in order to com­bat “legal nihilism” in the Russ­ian Fed­er­a­tion, as a pre­con­di­tion also for suc­cess­ful co-oper­a­tion between Russ­ian and oth­er Euro­pean law enforce­ment authorities.

87. Dur­ing my vis­it in Lon­don and again in Berlin, before my depar­ture to Moscow, I was briefed in much detail by the Unit­ed King­dom-based lawyers of the Her­mitage Fund/HSBC on the almost unbe­liev­able (but well-doc­u­ment­ed) sto­ry of the attack, appar­ent­ly impli­cat­ing senior offi­cials, on what was until 2006 the largest for­eign investor in the Russ­ian stock mar­ket. In par­tic­u­lar, all lawyers act­ing for HSBC/Hermitage in the Russ­ian Fed­er­a­tion have been intim­i­dat­ed and tar­get­ed by police with search­es and ques­tion­ing as wit­ness­es – in vio­la­tion of the lawyer-client priv­i­lege. On 20 August 2008, police raid­ed the Moscow offices of all law firms rep­re­sent­ing HSBC and Her­mitage, in par­tic­u­lar those of the Moscow-based Unit­ed States firm, Fire­stone Dun­can, and those of inde­pen­dent lawyers, Eduard Khairet­di­nov, Vladimir Pas­tukhov and Vadim Gor­fel. Dur­ing the search­es, pow­ers of attor­ney autho­ris­ing the lawyers to rep­re­sent HSBC in court hear­ings sched­uled for that week were seized by police in what appeared to be an attempt to obstruct HSBC’s efforts to frus­trate on-going frauds.

88. At the end of August 2008, all lawyers inde­pen­dent­ly rep­re­sent­ing HSBC/Hermitage – Mr Khairet­di­nov, Mr Pas­tukhov and Mr Gor­fel, who had suc­ceed­ed in uncov­er­ing fraud­u­lent claims against the HSBC com­pa­nies and who were in the process of chal­leng­ing false bank­rupt­cy pro­ceed­ings, received sum­mons­es from the Kazan police to appear for ques­tion­ing as wit­ness­es – in vio­la­tion of Arti­cle 8 of the Russ­ian Law on Lawyers which pro­hibits the ques­tion­ing of lawyers regard­ing cas­es in which they pro­vide legal assistance.

89. On 24 Novem­ber 2008, inde­pen­dent lawyer Sergei Mag­nitskey, who had helped HSBC/Hermitage to expose frauds and abus­es of office, was arrest­ed and placed in pre-tri­al deten­tion. On the same day, his law office was searched by police, and, in breach of Russ­ian pro­ce­dur­al law, the firm’s lawyer was alleged­ly not allowed to be present dur­ing the search. Accord­ing to Mr Magnitskey’s lawyers, he has not been ques­tioned even once dur­ing the four months since his deten­tion was sanc­tioned by the court on 26 Novem­ber 2008; the deten­tion, in inhu­man and degrad­ing con­di­tions, was extend­ed for anoth­er three months on 13 March 2009 on the basis of the need to car­ry out the same pre-tri­al inves­tiga­tive actions that were giv­en as a rea­son to detain him in the first place. Against anoth­er lawyer work­ing for Hermitage/HSBC, Mr Eduard Khairet­di­nov, a crim­i­nal case was opened at the end of Novem­ber 2008 for alleged­ly using an invalid pow­er of attor­ney, dis­re­gard­ing ear­li­er judg­ments and tes­ti­mo­ny from HSBC direc­tors that recog­nised his pow­er of attor­ney. On 2 April 2009, a crim­i­nal case on the same grounds was opened against Mr Pastukhov.

90. I had includ­ed ques­tions on the alleged harass­ment of HSBC/Hermitage lawyers and the deten­tion of Sergei Mag­nitskey in my let­ters to the head of the Inves­tiga­tive Com­mit­tee and to the Pros­e­cu­tor Gen­er­al. The reply from the Inves­tiga­tive Com­mit­tee con­firmed that Mr Mag­nitskey was heard as a wit­ness in one par­tic­u­lar crim­i­nal case115 but insist­ed that no coer­cive mea­sures had been tak­en against him and in par­tic­u­lar, that he was “not detained”. Hav­ing checked this reply with Mr Magnitskey’s lawyers, who had pro­vid­ed me with doc­u­men­tary evi­dence prov­ing the fact of his deten­tion, it turned out that Mr Mag­nitskey was detained under anoth­er case number116 also con­cern­ing the Her­mitage com­plex. The Inves­tiga­tive Committee’s answer was, to say the least, eas­i­ly mis­un­der­stand­able. In view of this reply, and of the pre­cise indi­ca­tions (dates, places and per­sons involved, includ­ing on the side of the law enforce­ment bod­ies) received from the lawyers act­ing on behalf of HSBC/Hermitage, I am not con­vinced that I can accept with­out fur­ther ques­tions the addi­tion­al state­ment in the reply that “lawyers work­ing for the HSBC/Hermitage com­pa­ny have not been ques­tioned”, which may once again have been lim­it­ed to a par­tic­u­lar case num­ber. The answer received from the Pros­e­cu­tor General’s office on this case is more pre­cise in that it recog­nis­es the fact of Mr Magnitskey’s deten­tion and indi­cates on what charges he is being held – a crim­i­nal case lodged on 4 Octo­ber 2004 by inves­ti­ga­tors of the Min­istry of Inter­nal Affairs of the Kalmykh Repub­lic for tax eva­sion. But it does not explain why he was arrest­ed in Novem­ber 2008 and was not inter­ro­gat­ed once for sev­er­al months. Con­trary to the Inves­tiga­tive Committee’s reply, the PGO acknowl­edges that crim­i­nal cas­es were opened against lawyers work­ing for HSBC/Hermitage, includ­ing Mr Mag­nitskey, Mr Khairet­di­nov and Mr Pas­tukhov (the lat­ter also for “use of forged documents”).

108. The sec­ond emblem­at­ic case is that of Her­mitage Cap­i­tal, an invest­ment com­pa­ny spe­cial­is­ing in equi­ty invest­ments in Russ­ian busi­ness­es. Before the events described below, Her­mitage Cap­i­tal was the biggest for­eign investor in the Russ­ian stock mar­ket, and one of the biggest tax­pay­ers in the Russ­ian Fed­er­a­tion. Its strat­e­gy – adopt­ed pure­ly on busi­ness grounds, with­out any ide­o­log­i­cal or polit­i­cal agen­da – includ­ed the intro­duc­tion of West­ern-style account­ing meth­ods in the com­pa­nies in which Her­mitage invest­ed and thus the fight against cor­rup­tion. The Her­mitage Fund has become the vic­tim of the cor­rup­tion and col­lu­sion of senior police offi­cials and organ­ised crim­i­nals, which result­ed in the mis­ap­pro­pri­a­tion (“com­pa­ny theft”) of its three invest­ment com­pa­nies owned by HSBC bank (Rilend, Mahaon and Par­fe­nion), the fab­ri­ca­tion of the equiv­a­lent of UD 1.26 bil­lion in false lia­bil­i­ties against them and the fraud­u­lent­ly obtained reim­burse­ment by the Russ­ian fis­cal ser­vices of UD 230 mil­lion in tax­es that the three com­pa­nies had paid. The “theft” of the com­pa­nies took place with the help of orig­i­nal statu­to­ry cor­po­rate doc­u­ments which were seized with­out legal jus­ti­fi­ca­tion by Moscow police offi­cers dur­ing a search of the com­pa­ny premis­es. With their help, new direc­tors were appoint­ed, who quick­ly “recog­nised” the above-men­tioned fab­ri­cat­ed claims – but the legit­i­mate direc­tors had already suc­ceed­ed in tak­ing the stolen com­pa­nies’ assets out of the Russ­ian Fed­er­a­tion. The false direc­tors then made mon­ey from this cor­po­rate raid by demand­ing the reim­burse­ment of tax­es paid on prof­its which they told the tax office were retroac­tive­ly wiped out by the new­ly sur­faced claims against the com­pa­nies. They obtained from the fis­cal ser­vices deci­sions to reim­burse the equiv­a­lent of UD 230 mil­lion with­in 24 – 72 hours. I dare not spec­u­late how long a claim for the reim­burse­ment of over­paid tax­es, even for a much more mod­est amount, nor­mal­ly takes in the Russ­ian Fed­er­a­tion, but in Ger­many, this would be a mat­ter of months, not hours.

109. So far, this just looks like just anoth­er exam­ple for a Russ­ian-style “cor­po­rate raid” (or “hos­tile takeover”) that has been report­ed many times. But in addi­tion to the sheer size of the cor­po­rate vic­tim and attempt­ed to defend itself against these mas­sive frauds with the help of the com­pe­tent author­i­ties, became itself the vic­tim of sys­tem­at­ic retal­ia­to­ry mea­sures that must have the sup­port of senior law enforce­ment offi­cials; and these appar­ent retal­ia­to­ry mea­sures involve inter­na­tion­al mech­a­nisms of legal co-oper­a­tion, whose func­tion­ing in the face of alleged polit­i­cal­ly-moti­vat­ed abus­es I am man­dat­ed to look into.

110. Mr William Brow­der, a British cit­i­zen, Chief Exec­u­tive Offi­cer of Her­mitage Cap­i­tal, was sud­den­ly refused the renew­al of his entry visa to the Russ­ian Fed­er­a­tion, despite inter­ven­tions in his favour at the high­est polit­i­cal lev­el. The frauds against Her­mitage Cap­i­tal were doc­u­ment­ed in com­plaints addressed to the Pros­e­cu­tor Gen­er­al of the Russ­ian Fed­er­a­tion on 3 Decem­ber 2007, 23 July 2008 and 27 Octo­ber 2008. Accord­ing to the lawyers act­ing on behalf of Her­mitage, there has been no sub­stan­tive response to these com­plaints. A key offi­cial who was sub­ject of the com­plaints was assigned to the inves­ti­ga­tion against him­self, and the South­ern Dis­trict of Moscow divi­sion of the Inves­tiga­tive Com­mit­tee of the Prosecutor’s Office quick­ly dis­missed the case that had been opened in response to the HSBC/Hermitage com­plaints. Instead of tak­ing action against the cor­po­rate “raiders”, the author­i­ties began intim­i­dat­ing all lawyers act­ing for HSBC/Hermitage in the Russ­ian Fed­er­a­tion and tar­get­ing them by police search­es and ques­tion­ing as wit­ness­es. In par­tic­u­lar, inde­pen­dent lawyer Sergei Mag­nitskey, who had helped to expose the frauds and the abus­es of office, was arrest­ed on 24 Novem­ber 2008 and has since been detained; oth­ers have been forced to seek refuge in the Unit­ed King­dom. The same law enforce­ment offi­cials accused in the HSBC/Hermitage com­plaints of being involved in these mas­sive frauds are now involved in per­se­cut­ing its exec­u­tives and lawyers through charges that seem far-fetched and in con­tra­dic­tion with the author­i­ties’ pre­vi­ous actions. Essen­tial­ly, the author­i­ties now appear to accuse the legit­i­mate direc­tors of the HSBC/Hermitage com­pa­nies of hav­ing them­selves mas­ter­mind­ed the “theft” of their own com­pa­nies and the recog­ni­tion of the fab­ri­cat­ed claims in order to defraud the Russ­ian State. I have spent many hours being briefed by the lawyers act­ing on behalf of HSBC/Hermitage and ques­tion­ing them. I have also writ­ten to the Russ­ian pros­e­cu­tor gen­er­al and the head of the Inves­tiga­tive Com­mit­tee in order to be informed of their points of view145. The answers that I have received from the Inves­tiga­tive Com­mit­tee have not been sat­is­fac­to­ry. In par­tic­u­lar, the state­ment that a reply to the com­plaint intro­duced on behalf of Hermitage/HSBC could not be sent because the lawyer intro­duc­ing the com­plaint had not giv­en his address, does not seem to be cred­i­ble in view of the high stakes and the pro­fes­sion­al­ism of the lawyers involved, many of whom I have met per­son­al­ly. The denial of the involve­ment of a par­tic­u­lar offi­cial in the inves­ti­ga­tion of com­plaints in which he is des­ig­nat­ed as one of the sus­pects is con­tra­dict­ed by a long list of cor­re­spon­dence con­cern­ing this case signed by the self-same offi­cial, copies of which were put at my dis­pos­al by the Hermitage/HSBC lawyers. The answer received from the Pros­e­cu­tor General’s office that the offi­cial in ques­tion (a Lieu­tenant-Colonel) has “no super­vi­so­ry func­tions what­so­ev­er” is not help­ful; and the PGO’s denial of hav­ing received the com­plaints from HSBC “dat­ed 3 Decem­ber 2007, 27 Octo­ber 2008 or any oth­er date” has me won­der whether there has been a break­down in inter­nal com­mu­ni­ca­tion or mail deliv­ery at some point – acci­den­tal or not.

111. Of course I am still not in any posi­tion to “judge” on who is right or wrong, and such is not the pur­pose of this report. But in the light of the numer­ous strange coin­ci­dences and con­tra­dic­tions, in par­tic­u­lar regard­ing the chronol­o­gy of the events in rela­tion to the defen­sive actions tak­en by HSBC/Hermitage and to retal­ia­to­ry mea­sures tak­en against its exec­u­tives and lawyers, and final­ly in the light of the com­plete fail­ure, for many months, of the law enforce­ment author­i­ties to react even to such mas­sive frauds, whose vic­tims include the Russ­ian State itself, I can­not help sus­pect­ing that this coor­di­nat­ed attack must have the sup­port of senior offi­cials. These appear to make use, for their own pur­pos­es, of the per­sist­ing sys­temic weak­ness­es of the crim­i­nal jus­tice sys­tem in the Russ­ian Federation.

112. In my view, a prop­er inves­ti­ga­tion of this emblem­at­ic affair, hold­ing to account the per­pe­tra­tors of the frauds as well as the law enforce­ment offi­cials who appear to have helped them, is indis­pens­able. It may also be a good test for the new struc­tures involv­ing a sep­a­ra­tion and divi­sion of labour between the ser­vices of the pros­e­cu­tor general’s office and those of the inves­tiga­tive com­mit­tee, which should facil­i­tate the inves­ti­ga­tion of sus­pect­ed abus­es com­mit­ted by ele­ments of one struc­ture per­formed by mem­bers of the other.

Full report is avail­able for dwon­load on the Coun­cil of Europe web­site.
Alle­ga­tions of polit­i­cal­ly-moti­vat­ed abus­es of the crim­i­nal jus­tice sys­tem in Coun­cil of Europe mem­ber states

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