Blood and Money A Hedge Fund Manager's Crusade against Putin


Part 2: A Rubber Baton and a Scapegoat

Despite the danger, yellowed newspaper clippings from those days nearly always show the hedge fund manager in the same pose, arms crossed and gaze confident. Browder imagined he had the country's most powerful figures on his side. After all, in those days he was "one of Putin's biggest cheerleaders," those within financial circles say.

Even in 2003, a time when Russia was relentlessly and violently putting down a revolution in Chechnya and imprisoning oil baron Khodorkovsky on dubious grounds, Browder called Putin "a stroke of luck for Russia." He believed Putin fought against only those oligarchs who were corrupt, and he found international reaction to the Khodorkovsky affair to be overly "hysterical."

Not long later, though, in November 2005, Browder returned to Russia from a trip to London and found himself detained by border guards at Moscow's airport for 15 hours. Then they sent him back to London.

Had Browder misjudged his standing with the Russian government? At that point, he had his sights on corrupt goings on at energy giant Surgutneftegas, a company Putin is rumored to profit from personally, through front men.

One thing is certain: The border guards' refusal to allow Browder into the country marked the beginning of a bizarre financial thriller. In June 2007, agents from the Interior Ministry raided Hermitage's Moscow office, confiscating boxes of documents -- which they then apparently used to gain control of three of Hermitage's companies.

According to research carried out by Browder's lawyer, Magnitsky, the officials used the ownership deeds they found in that raid to set up their own front men as the new company owners, using those acquisitions to garner tax refunds equivalent to $230 million.

An Enormous Scam

That case forever linked Browder's fate with that of Magnitsky, a man he had known personally only from a few Christmas parties. Shortly after Magnitsky accused officials of perpetrating an enormous scam against Russia's taxpayers, the lawyer himself was arrested in connection with supposed tax evasion perpetrated by the Hermitage fund.

Magnitsky spent 358 days in prison. Russian authorities say he died as a result of a pancreatic condition, and a government commission issued a report confirming that "appropriate medical assistance was not provided." A high-ranking prison official is under investigation in connection with the case.

The official, Browder says, is nothing but "a scapegoat." The hedge fund manager believes there is a conspiracy at work that reaches all the way to the highest levels of the Russian administration. "This was a crime organized by the state," he says. "Sergei discovered a typical corruption scheme for well-connected civil servants."

Browder can cite hundreds of documents that make his claims sound at least plausible. "A rubber baton was used against the suspect," reads one standard prison form produced shortly before Magnitsky's death.

A secret informant also brought bank documents to London, providing Browder proof of shady cash flows sent abroad from Russia. According to these documents, the head of the tax authority involved in the Hermitage case bought properties in Dubai and Montenegro worth several million.

Browder uses every channel available to him to publicize the results of his research. He spends over €20,000 a year just to participate in the illustrious World Economic Forum in Davos, Switzerland, where he asks embarrassing questions to Russian government representatives at podium discussions and expensive dinners.

His own investment business seems to have become little more than a side project. Hermitage Capital Management has shrunk to less than a quarter of its previous size and is currently struggling its way through the financial crisis with the help of investments in China and India.

A Delicate Matter

Browder's new office in London contains rows of desks with computers. Between them are stacks of presentation folders, all with a picture of Magnitsky's coffin on the cover. Of Browder's 20 employees, five are dedicated solely to investigating Magnitsky's death.

In his new role, Browder is at least as inconvenient for Putin as he was in his previous role as a rebellious investor. Republican Senator John McCain is insistently calling on US President Barack Obama to take action against Magnitsky's alleged murderers, the so-called "Klyuyev syndicate." This alleged crime syndicate is said to include high-ranking tax officials, police and intelligence operatives, and is thought to have connections within the Russian administration.

Browder has found supporters across Europe. Marina Schuster, representative on human rights issues for Germany's Free Democratic Party (FDP), for example, believes "targeted travel sanctions against officials who are proven to have played a role" could be helpful if the crime remains unresolved. It's a delicate matter, though, and Russia's reaction to Browder's campaign has been considerable. The US government even issued internal warnings that the matter will have consequences in terms of cooperation on foreign affairs.

Germany's Foreign Ministry has the same concern, but it is exercising restraint. Foreign Minister Guido Westerwelle of the FDP did bring the case up with his Russian counterpart Sergey Lavrov during his last visit to Russia, with the ministry saying afterward only: "The German government will continue to observe the course of Russia's investigations." Behind the scenes, German officials in favor of taking a tougher stance argue with those who have their eye on Germany's economic interests and would prefer a more restrained form of diplomacy.

Browder, though, won't allow himself to be shaken off. He can even be quite disagreeable with those who don't share his viewpoint. "He thinks he's Mahatma Gandhi," complains one member of German parliament.

"People have to decide if they want to stand on the right side of history or the wrong side," is Browder's response. He's sure that, this time, he has picked the right side.

Translated from the German by Ella Ornstein


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