By Alexander Mercouris, Russia Insider, Jan 20, 2016
Sanctions on Russia are supposed to have started following the Ukrainian conflict with the first sanctions imposed following Crimea’s reunification with Russia in 2014. That is not strictly true. Sanctions on Russian individuals began with the U.S. Magnitsky Act of 2012.
The Magnitsky Act was the result of a campaign by the British (though U.S. born) businessman Bill Browder, who has for years pursued a relentless campaign against the Russian government.
Sergei Magnitsky was a Russian working for a U.S. firm in Moscow. He is routinely referred to as a lawyer, but it seems he was not. His work involved working as an auditor for a western investment fund known as Hermitage Capital that was investing in Russia. The CEO of Hermitage Capital is Bill Browder.
The Russian authorities launched an investigation of Hermitage Capital alleging it had evaded taxes. As one of Hermitage Capital’s auditors, Sergei Magnitsky was in the frame, and he was arrested and held in detention in a Moscow prison whilst the case was being investigated.
Browder, for his part, says Hermitage Capital was the victim of a gigantic conspiracy by the Russian mafia carried out by corrupt police officials in their pay. his involved gaining control of certain companies belonging to Hermitage Capital to use them to perpetrate a tax fraud. In other words – as I understand it – Browder admits a tax fraud was carried out by companies owned by Hermitage Capital, but claims Hermitage Capital was innocent of it.
Browder also claims it was Magnitsky who actually discovered the fraud and reported it to the authorities. According to his story, the investigation the Russian authorities launched into Hermitage Capital was intended to cover up the real fraud, which was carried out not by Hermitage Capital but by the mafia and the corrupt police in their pay. This claim – if true – would make the police not just accessories to the fraud but arguably its prime movers.
Magintsky was held in pre-trial detention for almost a year. Shortly before he was due to be released he died in bitterly contested circumstances. Browder says he was tortured and killed. The Russian authorities say he died as a result of a pre-existing medical condition which failed to receive proper treatment.
The U.S. Congress – though it is not a court and though its right to pronounce on such questions seems to me dubious – has accepted Browder’s account in its entirety.
The ‘Magnitsky Act’ it passed punishes Russians who it says were responsible for Magnitsky’s death. It is important to say, however, that none of these people have ever been convicted by any court on any charge relating to Magnitsky’s death, and the Russian police investigation that looked into the circumstances of his death concluded it was not a murder but was the result of negligence.
The Russian authorities, for their part, categorically deny Browder’s claims. They insist the only tax fraud was the one that was carried out by Hermitage Capital and that the conspiracy Browder is alleging is a fiction.
If that claim is true, then Browder’s story is an elaborate invention concocted to explain away the fraud and to discredit the police investigation, whilst Magnitsky’s “report” of the fraud to the authorities was presumably the sort of reckless double-bluff fraudsters sometimes engage in to give themselves an alibi and to throw dust in the investigators’ eyes.
I do not know who is telling the truth in this affair. The one thing I would say is that I am not sure why anybody else – the U.S. Congress included – thinks they know either, since none of the various claims and counter-claims have ever been proved. I would, however, make a number of observations.
The first is that the sort of claims Browder is making, if made about the police of any country other than Russia, would be treated with skepticism and thought farfetched.
The second is that if Browder’s allegations are true, then it is not immediately obvious what the Russian authorities gain by disputing them. None of the individuals Browder has named as parties to the conspiracy seem by any stretch of the imagination to be politically important people. They seem to be an assortment of shady businessmen, alleged mobsters and bent cops. Given that that is so, it is not obvious why the Russian authorities would want to protect them.
The third is that the evidence I have seen does, in fact, strongly suggest Magnitsky died because of negligence rather than murder. Given that he had been in prison for almost a year when he died – and had presumably in that time already made public whatever he knew – it is not obvious anyway why anybody would want to kill him.
The key point, however, is that neither of the two sets of allegations – those of Browder and those of the Russian authorities – has ever been proved in a fully contested hearing in a properly constituted court of law. Though both sides claim to have a mountain of evidence to back their case, since none of this evidence has been properly tested we cannot say how good – or bad – it is.
The Russian authorities did attempt to prove their case in a Russian court. However, because Magnitsky – one of the defendants – was dead, the proceedings were unjustly ridiculed, though there was in fact nothing bizarre or unique about them.
Browder – who now lives in Britain – boycotted the trial, refusing to give evidence in any form – whether through lawyers or by video link – as could presumably have been arranged. The result is that the judgment of this court – which found against Browder – is not treated as authoritative anywhere outside Russia.
It is perhaps understandable that Browder would not want to participate in legal proceedings in a country which – whilst it made him the very rich man he is now – he says is a dictatorship. Unfortunately, it seems that he is also extremely reluctant to tell his story on oath and to be cross-examined on it in the courts of countries – the UK and U.S. – whose legal system he presumably respects.
Browder had an opportunity to give his story to the High Court in London when Pavel Karpov – one of the police officers who Browder says was a leading figure in the conspiracy – tried to bring a libel claim against him. In a letter to Karpov’s lawyers, Browder’s lawyers – presumably acting on Browder’s instructions – appeared to welcome the case, giving the impression Browder relished the opportunity to tell his story and have it proved in a court.
The letter contains these very interesting words:
Our clients (Browder and Hermitage Capital – AM) ……..welcome the opportunity to engage with your client in relation to his role in these matters and the source of the funds which he uses to support his extravagant lifestyle (and expensive legal representation). They are pleased that he is prepared to submit to the jurisdiction of the English courts which will, for the first time, be able to provide an impartial and independent investigation of these matters.
In the event, the “impartial and independent investigation” never happened because Browder – as was his right – arranged to have the case struck out on procedural grounds.
The judge – Mr. Justice Simon – who would have tried the case if it had ever gone to trial, did, however, say certain very interesting things at the conclusion of the case. He made it clear that Browder’s claim that Karpov was involved in Magnitsky’s death just doesn’t stack up. The judge’s words – set out in his judgment – are worth being quoted in full:
127. Paragraphs 211-219 set out the Defendant’s case on the ill-treatment and/or torture of Sergei Magnitsky, and §220 sets out a summary and an important qualification of the justification defence.
For the avoidance of doubt, it is not alleged … that the Claimant personally took part in the ill-treatment and/or torture or killing of Mr Magnitsky. The case against the Claimant is that he was however one of those culpable and/or complicit in it because of his part in the fraud and cover up.
This gave him a motive (with others in the Klyuev Group …) to try to prevent Mr Magnitsky from continuing to speak out about the tax fraud against Hermitage and to that end to have him arrested and incarcerated.
It would have been reasonably foreseeable to any reasonable or blameless official in the Claimant’s position (not least based on the high mortality rates in Russian prisons), that a person in Mr Magnitsky’s position could well die in prison.
Notwithstanding this, the Claimant participated in his arrest and detention in the manner alleged above.
128. This is an unsatisfactory plea of justification for at least two reasons. First, it focuses on the Claimant’s motive; and motive alone is not sufficient to support a plea of torture and murder.
Secondly, the only overt act relied on is the Claimant’s involvement in the arrest and imprisonment of Sergei Magnitsky. The link which is made between the arrest and imprisonment on the one hand, and Sergei Magnitsky’s death on the other hand, is that the latter was the ‘reasonably foreseeable’ consequence of the former, ‘not least’ because of high mortality rates in Russian prisons. The causal link which one would expect from such a serious charge is wholly lacking; and nothing is said about torture or murder.
129. In my view these are inadequate particulars to justify the charge that the Claimant was a primary or secondary party to Sergei Magnitsky’s torture and murder, and that he would continue to commit or ’cause’ murder, as pleaded in §60 of the Defence.
The Defendants have not come close to pleading facts which, if proved, would justify the sting of the libel.
In other words – in plain English – Karpov was in no sense party to Magnitsky’s death, and Browder’s claim he was is nonsense.
The judge’s saying Karpov had no part in Magnitsky’s death gives a tantalising glimpse of the sort of things that might have happened if the case had gone to trial – as Browder’s lawyers initially implied it would.
A recent article in the U.S. media (attached below) suggests there is now a new opportunity to bring the case – or at least part of it – to trial. It seems that Denis Katsyv – a Russian businessman – is being prosecuted in the U.S. on charges his companies laundered money Browder says was stolen by the conspirators.
Katsyv is disputing the charges. His lawyers are trying to subpoena Browder to attend court as a witness so they can cross-examine him on his claims. They say Browder admitted under oath – presumably in a court hearing in Russia – that he personally signed false tax returns.
They also say Browder didn’t deny claims his representatives tried to bribe a Russian journalist who spoke to Magnitsky in prison and who was supposedly told by Magnitsky that his superiors at Hermitage Capital had “set him up” to take the fall for Browder’s tax fraud.
Lastly, they also say – in their words in a letter to a judge, that:
Browder asserted that he could not remember whether “he ever had somebody suggest to Mr. Magnitsky that he should take responsibility for the….. tax returns”. That is an astonishing failure of memory from someone who has made Magnitsky’s death the centre of his public relations campaign.
Browder vigorously denies all these claims and has said as much in articles and interviews he has given to the U.S. media. However, repeating the pattern in London, he seems altogether less keen to put these denials to the test by giving evidence on oath and submitting himself to cross-examination in court. The article says Browder avoided service of the subpoena on more than one occasion, and there is still no certainty he will give evidence at Katsyv’s trial.
There was even a farcical moment – caught on film – when to escape service of the subpoena, Browder slipped out of the side of his limousine and fled on foot.
I sincerely hope the U.S. court when it tries Katsyv does indeed look into all the facts of the case and all the various claims and counter-claims that have been made. I also hope Browder does give evidence to the court and is cross-examined in the proper way by Katsyv’s lawyers. That way there is at least a possibility we might finally get to the truth.
Until that happens the state of the case remains what it has always been the Magnitsky Act notwithstanding: not proven.
Alexander Mercouris is an international correspondent for Russia Insider.
Fighting Putin doesn’t make you a saint
This is the origin story at the core of a relentless campaign Bill Browder has spearheaded over the past six years to tighten Western sanctions against Russia. In public appearances, news articles (“The Kremlin threatened to kill me”, “Why I fear for my life”), a memoir, and on a dedicated website, the founder and CEO of Hermitage Capital Management has cultivated official support from London to Washington with astonishing results. In 2012, Congress passed the Magnitsky Act—named after Sergei Magnitsky, the deceased Browder employee—which bans those who benefited from the alleged tax fraud from entering the United States or using its banks. A year later, the U.S. Justice Department doubled-down by opening a civil forfeiture case against a holding company owned by a Russian businessman allegedly linked to the stolen money. Some $22 million of property assets in Manhattan were frozen on charges of money laundering.
Few would dispute that Browder’s staggering success as an outsider money manager could make him a target in the murky realm of post-Soviet Russian finance. Many prominent Russian tycoons have fared worse. Yet attorneys for Denis Katsyv, the Moscow-based businessman who has been snared in the Justice Department’s case, counter that overzealous prosecutors have gone too far, accepting Browder’s account wholesale without independently verifying key details. They assert that a closer examination has revealed holes in his story, ones the government would rather avoid confronting given how much their case depends on Browder’s word.
Katsyv, the 38-year-old son of a former Moscow region transport minister, was first linked to the money-laundering scheme back in September 2013, when the U.S. district attorney for the southern district of New York alleged companies he controls had bought real estate in New York City with some of the $230 million looted from the Russian government. Prosecutors say the cash was siphoned through a tangled web of shell companies with bank accounts in Russia and Eastern Europe, before a portion made its way to an investment company based in Cyprus, Prevezon Holdings, which Katsyv subsequently purchased.
Previous media investigations and insider leaks have suggested the involvement of Russian tax officials in the purported treasury heist. However, no proof has yet surfaced that Katsyv or his family ever profited from, or knew about, the wide-ranging scam, according to his lawyers. They note that Katsyv had no reason to suspect any of the cash was potentially tainted because the transfers were relatively small and pre-dated his ownership of the company.
Last year, U.S. District Judge Thomas P. Griesa loosened the freeze order on most of the real estate assets belonging to companies owned by Katsyv, who has since mounted his own offensive. In May, his lawyers filed a deposition transcript with the Manhattan federal court alleging that key parts of Browder’s story are false. Notably, that his expulsion from Russia was not politically motivated as he has long maintained. In a letter to Judge Griesa, the lawyers wrote that Browder acknowledged under oath he had he “personally signed income tax returns that Russian tax courts found to contain false representations.” They also said Browder did not deny claims his representatives had tried to bribe a Russian journalist who spoke with Magnitsky in prison and was told by him that bosses at Hermitage “set him up” to take the fall for Browder’s alleged tax fraud.
Browder declined to comment for this story. In a May 13 Wall Street Journal article on challenges to his credibility, he said Katsyv’s lawyers had misrepresented his testimony about his tax returns and dismissed the bribery claims. “The defendants,” he asserted by email, “are obviously very upset that we informed the government about their alleged money laundering activity and seem to be trying to attack the people who informed on them as opposed to trying to defend themselves against the very serious allegations brought by the U.S. government.”
Although Browder has been a willing interview in the press, getting him to make his case under oath has been a story in its own right. Browder gave up his U.S. citizenship in 1998 and has lived in the U.K. since leaving Russia. After a lengthy search, a process server finally managed to surprise him last summer in Aspen, Colorado,where he had given a speech. (A judge ruled the summons was not served properly due to lack of residence). Six months later, another server caught up with Browder in New York following an appearance on The Daily Show. When he charged forward to present subpoena papers, Browder slipped out of the side of his limousine and fled on foot. (The incident was captured on video). This time the judge ruled the subpoena was valid and the financier was deposed.
Browder’s lawyers have fought for nearly two years to keep their client from being cross-examined. For the defense, such elusive behavior raises a fair question: If Browder was indeed the victim of persecution in Russia and has enlisted the U.S. justice system to right the balance, why is he so reluctant to offer his sworn testimony in an American courtroom?
Katsyv’s lawyers say the government has acknowledged that Browder was the main source of its allegations and is now avoiding a hostile cross-examination that would test the veracity of his allegations. “In any media space where Browder has promulgated his story, there is no one who would ask the kind of concrete, pointed questions he would need to answer without contradicting his previous statements,” Natalia Veselnitskaya, a Russian lawyer representing Katsyv, told me. “How can a person who does not pay taxes [in the U.S.] have this kind of influence?”
This dizzying legal drama might be forgettable had Browder’s lobbying efforts not had major foreign policy implications. In the wake of the Magnitsky Act, the Russian government banned Americans from adopting Russian children and drew up a blacklist of its own against U.S. officials, deepening a diplomatic row that some have likened to a new Cold War. While the U.S. government has every reason to track dirty foreign money with a history of flowing into the New York real estate market, lawyers for Prevezon say the stakes are too high to be hinged on one man’s account.
The U.S. Attorney’s case was scheduled to go to trial in early January, but has been delayed by motions made by Browder’s lawyers. Whenever the case is finally heard in court, it’s still not clear whether he will take the stand to testify. With all the favorable results his stateside advocacy has mustered since his ouster from Russia, the looming question is: Why not?
Jason Motlagh is a multimedia journalist and filmmaker based in Oakland, California. He has won a National Magazine Award for News Reporting and been a finalist in the Reporting category.
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