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Sun May 20, 2012
In This Russian Trial, The Defendant Is A Dead Man
Originally published on Sun May 20, 2012 5:45 pm
The Russian government is about to put a dead man on trial.
Sergei Magnitsky was a tax lawyer for the investment fund Hermitage Capital, at one time the largest foreign investment firm in Russia.
In 2007, Hermitage Capital was seized by the Russian tax police, and through a number of shady maneuvers, they extracted more than $230 million in illegal tax refunds for themselves.
Magnitsky decided to investigate, angering those who had stolen the company. They had him arrested, and he died in prison in 2009.
But the case didn't die with him — far from it. Now, it seems those who perpetrated the fraud have found it beneficial to reopen his case and bring him to trial, says Elena Panfilova, the director of the human rights organization Transparency International in Russia.
"They need to protect themselves or somebody they know," she says. "Not maybe necessarily themselves, like physically, but maybe they need to protect their own institution from being blamed for doing something wrong."
A Search For Answers
There is plenty of blame to go around.
It has been Bill Browder's mission in life to make the case against Magnitsky's tormentors. Browder owned Hermitage Capital and was deported from Russia before the tax police seized the company.
Browder says there is a mountain of evidence to prove the fraud against his company and the mistreatment of Magnitsky.
"We have the most well-documented human rights abuse case that's come out of Russia in the last 25 years," Browder says.
Magnitsky's death was not something the Russian government could ignore. In fact, then-President Dmitry Medvedev pledged to investigate it thoroughly a year ago.
"This case involves a very tragic event," Medvedev said during a press conference. "We must find out why it took place." The investigation, he said, would be completed in the near future.
That was in May of last year, Browder says.
"That investigation has now been extended 12 times. There are no suspects. Nearly every person we have evidence of their involvement in his murder [has] been exonerated," he says.
Browder's own investigation has named more than 60 people he believes were culpable. He has also uncovered where much of the $230 million tax fraud went: "$11 million of that amount of money went to the husband of the tax official who did the refund," he says.
"And we found that money at Credit Suisse private bank in Zurich. We found houses in Montenegro, villas in Dubai, enormous estates outside of Moscow, all belonging to people who were involved in this crime, all on official salaries of between $500 and $1,000 a month."
A Sobering Lesson
The Magnitsky case has cast a pall over the foreign investment community in Russia. It's a frightening reminder of how quickly money can disappear, and it comes after a series of similar cases involving very rich Russians who tried to challenge the Kremlin.
But still, there are many foreigners who continue to invest here, despite the risks. One is Roland Nash, the chief investment strategist for Verno Capital in Moscow.
"There are clearly big risks to doing investments in Russia," Nash says. "There are also, I think, very big rewards. What I think tends to happen is that the risks relative to other places tend to get exaggerated, and the rewards relative to other places tend to get downplayed. And that's the opportunity, I think, for investing in this country."
The case has brought international opprobrium to Russia. A bill now in the U.S. Congress would prevent the 60 or so individuals on Browder's list from traveling to the U.S., and would also freeze their foreign bank accounts.
Similar action has been taken in Europe.
Elena Panfilova says the case has had a sobering impact on others in Russia — others just like Sergei Magnitsky, who thought something like this could never happen to them.
These were "professionals who felt very safe," she says, "who said corruption and all these crimes and people dying in prisons is somewhere else, and doesn't connect in any way to people working in nice offices, living in nice apartments, driving nice cars. So it's something for others, and I think that is the most important lesson or result or heritage of Sergei [that] he left for Russia."
The criminal trial of Magnitsky — the case with the empty chair — is expected to begin soon. The prosecutor in the case has called it legal and reasonable.
The Russian government has threatened retaliation if the Magnitsky bill in the U.S. becomes law.