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BusinessWeek: Hermitage Claims Russian Bankers May Have Helped With Fraud

July 31, 2009

In a New York court fil­ing, Her­mitage alleges that exec­u­tives of Moscow invest­ment bank Renais­sance Cap­i­tal Hold­ings had pri­or knowl­edge of theft and tax fraud

By Paul Bar­rett and Bri­an Grow
The saga of Her­mitage Cap­i­tal Man­age­ment, once a major force in Moscow finan­cial cir­cles, has tak­en a new twist in the form of a poten­tial­ly explo­sive court fil­ing in New York.

Her­mitage, now locat­ed in Lon­don, has alleged that it was the vic­tim of Russ­ian cor­po­rate raiders and cor­rupt gov­ern­ment offi­cials who coop­er­at­ed to steal its assets, file bogus law suits, and reclaim $230 mil­lion in tax­es pre­vi­ous­ly paid by Her­mitage to the Russ­ian gov­ern­ment. In its fil­ing on July 28 in U.S. Dis­trict Court in Man­hat­tan, Her­mitage alleges pub­licly for the first time that exec­u­tives of anoth­er promi­nent Moscow finan­cial insti­tu­tion, invest­ment bank Renais­sance Cap­i­tal Hold­ings, may have helped defraud Hermitage.

The July 28 fil­ing is an appli­ca­tion for a court order per­mit­ting Her­mitage’s lawyers to seek doc­u­ments from Renais­sance’s New York unit. In par­tic­u­lar, Her­mitage alleges that “cer­tain cur­rent and for­mer exec­u­tives of Renais­sance and its affil­i­ates” had rela­tion­ships with a Russ­ian bank involved in the fraud. Her­mitage also sug­gests in its fil­ing that cer­tain top Renais­sance exec­u­tives had “knowl­edge of the fraud before it became pub­lic knowl­edge.” Renais­sance, the largest Russ­ian invest­ment bank, is one of the most active sell­ers of Russ­ian secu­ri­ties to West­ern investors.

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The Daily Telegraph: Hermitage points to RenCap in fraud case

July 31, 2009

By Philip Aldrick

Her­mitage Cap­i­tal Man­age­ment, the hedge fund bat­tling state cor­rup­tion in Rus­sia, has accused Renais­sance Cap­i­tal, one of Rus­si­a’s lead­ing invest­ment banks, of pos­si­ble involve­ment in two alleged frauds cost­ing the Russ­ian tax­pay­er $337m (£204m).

In a tes­ti­mo­ny filed by Her­mitage’s lawyer in a New York court, the hedge fund claims there is suf­fi­cient cir­cum­stan­tial evi­dence to sug­gest that Ren­Cap and its for­mer direc­tors, includ­ing Stephen Jen­nings, the “Kiwi oli­garch” who found­ed and is chief exec­u­tive of par­ent com­pa­ny Renais­sance Group, may be “impli­cat­ed in the tax rebate fraud”.

Her­mitage has been fight­ing the Russ­ian author­i­ties for two years to get them to acknowl­edge “a sophis­ti­cat­ed con­spir­a­cy” involv­ing “senior offi­cers in the Russ­ian Inte­ri­or Min­istry, the Russ­ian Fed­er­al Secu­ri­ty Ser­vice, senior offi­cers of the Russ­ian tax bureaux and cer­tain senior Russ­ian court judges”.

The hedge fund, once Rus­si­a’s largest for­eign investor, led by US nation­al Bill Brow­der, first uncov­ered the alleged fraud in 2007 after three of its sub­sidiaries were stolen in a com­pli­cat­ed scam fol­low­ing a police raid on its Moscow offices, when legal doc­u­ments and seals were confiscated.

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The New York Times: Major Investor in Russia Sees Wide Fraud Scheme.

July 30, 2009

By ANDREW E. KRAMER MOSCOW

William F. Brow­der, once the largest for­eign investor in the Russ­ian stock mar­ket, filed court doc­u­ments in New York this week con­tend­ing that oth­er West­ern investors in Rus­sia had col­lud­ed with the author­i­ties to steal hun­dreds of mil­lions of dol­lars through tax refunds and then laun­dered the mon­ey through New York banks. Mr. Brow­der has hired the law firm of John D. Ashcroft, the for­mer Unit­ed States attor­ney gen­er­al, to rep­re­sent him in New York in a request for a sub­poe­na for bank wire trans­fer and oth­er records that Mr. Ashcroft con­tends will prove Mr. Browder’s allegations.

The fil­ing is a new twist on Mr. Browder’s case, which began almost four years ago. His lawyers say the wire trans­fers will show a fraud larg­er than pre­vi­ous­ly dis­closed — remark­able even by the stan­dards of Russia.

In its sweep and scale, the case has echoes of the Bank of New York mon­ey-laun­der­ing scan­dal in the late 1990s, though this time there are no alle­ga­tions that Amer­i­can banks oth­er than the sub­sidiary of a Russ­ian invest­ment com­pa­ny were involved. Mr. Brow­der was expelled from Rus­sia in a polit­i­cal­ly tinged visa refusal in 2005, and relo­cat­ed his busi­ness, Her­mitage Cap­i­tal Man­age­ment, to Lon­don. Lat­er, he said sub­sidiary com­pa­nies he had formed in Rus­sia to invest in Gazprom, the Russ­ian gas monop­oly, were used by oth­ers to acquire a fraud­u­lent tax refund of $230 million.

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The Financial Times: Russian sharks are feeding on their own blood

July 6, 2009

By William Browder

When pres­i­dents Barack Oba­ma and Dmit­ry Medvedev met on Mon­day for their first major sum­mit, the main agen­da items were arms con­trol and Iran, and progress was made on the for­mer, at least. This may encour­age those who believe these issues can be dealt with in iso­la­tion from oth­er chal­lenges to US-Rus­sia relations.

As some­one who has been famil­iar with the coun­try for the past 15 years, I believe that approach ignores fun­da­men­tal dif­fer­ences between Rus­sia today and most oth­er nations. Sim­ply put, Rus­sia is not a “state” as we under­stand it. Gov­ern­ment insti­tu­tions have been tak­en over as con­duits for pri­vate inter­ests, some of them crim­i­nal. Prop­er­ty rights no longer exist, peo­ple who are sup­posed to enforce the law are break­ing it, inno­cent peo­ple are vic­timised and courts have turned into polit­i­cal tools.

Rather than a nor­mal­ly func­tion­ing bureau­cra­cy, Russia’s clans fight over con­trol of gov­ern­ment posi­tions and the pow­er to use state resources to expro­pri­ate assets. While cor­rup­tion and legal abuse go on every­where, the scale of them in Rus­sia should affect the way all coun­tries, par­tic­u­lar­ly the US, deal with it.

My own case is illus­tra­tive of the break­down of the state in Rus­sia. From 1996 until 2005, I was the largest port­fo­lio investor in the coun­try, with $4bn (£2.5bn, €3bn) invest­ed. In Novem­ber 2005, the gov­ern­ment sud­den­ly took my visa away and declared me a “threat to nation­al secu­ri­ty”, I believe because I was out­spo­ken about cor­rup­tion at state-owned com­pa­nies. This was fol­lowed by a cas­cade of malfea­sance so extreme it would make a hard­ened crim­i­nal blush – which I believe was orches­trat­ed by the authorities.

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The Washington Post: Corruption Taints Courts In Russia

June 24, 2009

By Philip P. Pan

A spe­cial Euro­pean inves­ti­ga­tor issued a sting­ing report Tues­day that alleges wide­spread polit­i­cal abuse of the Russ­ian courts and urges coun­tries not to extra­dite peo­ple to Rus­sia if they might be denied a fair trial.

The con­clu­sions by Sabine Leutheuss­er-Schnar­ren­berg­er, a for­mer Ger­man jus­tice min­is­ter, are like­ly to fur­ther strain Rus­si­a’s rela­tions with the Coun­cil of Europe, which com­mis­sioned the probe and is locked in a stand­off with Moscow over the future of the Euro­pean Court of Human Rights.

Rus­sia joined the coun­cil in the 1990s, but it has recent­ly attacked the court’s impar­tial­i­ty and is the lone coun­cil mem­ber block­ing a plan to stream­line its oper­a­tions. The court, based in Stras­bourg, France, acts as an appeals pan­el of last resort for res­i­dents of 47 mem­ber countries.

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