A new twist in William Browder and Sergey Magnitsky case: it is being transferred to a new investigator
A high-profile tax-evasion case against Hermitage Capital CEO William Browder and the company's late lawyer Sergei Magnitsky is being reassigned to a senior investigator of the Central Federal District GU MVD of Russia Mikhail Shupolovsky. Earlier the investigation was conducted by Boris Kibis, a deputy chief of the investigation department. “The move was made to redistribute the workload between investigators. So, it became necessary to transfer a number of criminal cases, including specified above, to another inspector for further investigation”, the department comments upon the castling.
In Russia, the Hermitage Capital Fund operated through a number of companies including, according to the Ministry of Internal Affairs, Kameya JSC, Pifagor investments JSC, Parfeninon JSC, Makhaon JSC, Rilend JSC, Baykal-M JSC and others. Parfeninon, Rilend and Makhaon were controlled by proxy through the Cyprian offshore by HSBC Corporation, one of the largest financial and banking groups in the world. The oil companies became the main objects of the fund investments. The most part of profit of Hermitage Capital in 1997 was received from the shares of Yukos, Slavneft, Sibneft and KomiTEK.
Let's remind that the popularity of the company was acquired primarily for scandalous defense of its interests. In 1997, the Fund made the Federal Commission on Securities Market (FCSM) cancel an additional share issue of Sidanko controlled by Vladimir Potanin and Mikhail Prokhorov. As a result, the value of the Hermitage Capital asset in Sidanko, which had been 2-4% before, increased in price. In 2000, Browder participated in Rem Vyahirev's removal from the post of Gazprom head. He organized a media campaign exposing the gray scheme of gas supplies to Europe and withdrawal of assets from the company. As a result, the 2001, the concern was headed by Alexey Miller. Browder also welcomed the arrest of Mikhail Khodorkovsky whom he accused of a bad attitude towards the minority shareholders of Yukos.
In November 2005, Browder was denied entry into Russia. At the World Economic Forum in Davos in January 2007, Browder succeeded to meet Dmitry Medvedev, then First Deputy Prime Minister, and requested his assistance in renewing his visa. According to Browder, a short time later, Hermitage Capital’s office received a phone call from a senior Moscow police official, Lieutenant Colonel Artem Kuznetsov, who said he had learned of Mr. Browder’s new visa application and might be able to help. He offered to meet with the fund management hinting that the problem with the visa could be solved if the fund provided “what is necessary”, the documents of interest. The representatives of the Hermitage refused from the meeting.
In June 2007, Hermitage’s Russian offices were raided by the Interior Ministry police. The police suspected the Fund of creation of a massive tax fraud scheme involving extensive network of affiliated organizations. In 2008, Browder was charged in absentia with non-payment of taxes and was added to the federal and then, in 2009, to international wanted list.
Just after the searches in 2007, the employee of Firestone Duncan (auditing company serving the Fund) Sergei Magnitsky began an independent investigation to protect the interests of the Hermitage Capital. He found out that about $ 230 million of taxes paid by subsidiaries of the Fund in 2006 had been withdrawn from the Russian purse by the new owners as "overpaid".
In November 2008, Magnitsky was arrested on Hermitage Capital tax evasion charges. On October 16, 2009, he died of “toxic shock and pancreatic necrosis” at Matrosskaya Tishina prison. According to the expert evidence, the death was due to the poor prison conditions and lack of adequate medical care. His death caused an international scandal, after which several officials were dismissed by the Russian Federal Penitentiary Service.
In the summer of 2010, Browder and the head of Firestone Duncan Jamison Firestone began to publish material on the Internet, exposing police officers, including Artem Kuznetsov and Pavel Karpov, who had allegedly created a criminal scheme on theft of the assets of the Fund and money from the state budget of Russia. Browder also accused them of complicity in the murder of Magnitsky.
In May 2012, Karpov filed a lawsuit against Firestone and some weeks later - against Browder. The purpose of these claims was to disprove allegations that he had been involved in the theft of money and murder of Sergei Magnitsky.
As it became known, Karpov does not intend to continue serving in the Interior Ministry. He has already filed a report. It is unknown what the reason of his resignation is. It is also unclear on what money he intends to sue in London. Obviously, it can cost quite a large sum.
Let's remind that the court doesn’t address why Magnitsky died and where Karpov takes money. It only checks whether the charges brought against Lieutenant Colonel of MVD by Hermitage Capital Fund are libel.
The Browder's Fund “Hermitage” is known for a number of conflicts with management of the major Russian companies. In 1997, he managed to cancel the issue of “Sidanco” loan securities.In 2000, he was able to adjust the plan of the reform at RAO UES in favor of minority shareholders.
Source: "Kommersant" from 14.06.2007
In 2002, the Fund “Hermitage” initiated several claims for the recognition of unreliable conclusions of the auditor from “PricewaterhouseCoopers” (PwC), the company which audited “Gazprom”, and also demanded from the Ministry of Finance to suspend his license for audit activities. Browder considered the conclusions of the auditor to be false, regarding the relationship between “Gazprom” and the company “Itera”. Browder’s arguments laid in the fact that PwC concluded that “Itera” didn’t strive for competition with “Gazprom” and had always fulfilled its obligations to “Gazprom”, that “Gazprom” acquired gas from “Itera” at a market price, etc., however Browder came to the opposite conclusions by studying the figures in the materials of the audit. In his conclusions, deals with “Itera” caused damage to “Gazprom” and PwC had to reflect this in the report.
Source: "The Hermitage" from 15.04.2002
In 2004, the minority shareholders of "Surgutneftegaz" initiated a lawsuit in the arbitral court, trying to achieve the payment of 62% of the shares of oil companies which were under the control of its management. They wanted to make their own decisions about the allocation of profits and to appoint managers themselves. There was also a claim from "Hermitage" among other claims. The reason for the lawsuits was the poor performance of "Surgutneftegaz": low dividends, waste of considerable resources, and the sale of oil to the intermediaries at a price below market-prices. Browder believed that company managers are not permitted to vote by shares and appoint management, since they do not belong to them, but they are only made over to subsidiaries.
Source: "Vremya novostei" from 05.03.2004
In 2004, foreign media reported that the interests of the company “Itera” in the U.S. were lobbied by the Congressman Curt Weldon. He worked over the issue on providing subsidies for the development of gas field in Siberia. For his services, Weldon arranged a contract with “Itera” at 500 000 dollars for his daughter, who was engaged in public relations in the company "Solutions North America". U.S. did not want to give subsidies to “Itera”, as they suspected the company of violating business ethics and believed that it was not pellucid.When in 2002 a grant for “Itera” was pre-approved, Browder convinced the Bush administration to reverse this decision. He motivated this by saying that the company could not explain how it had obtained the assets and who their owners were.Despite Weldon’s further efforts, “Itera” did not receive the support of the American government.
Source: "Philadelphia Inquirer", the United States from 07.05.2004
Since November 2005, Browder was not allowed to enter Russia. He learned about it when he arrived at Sheremetyevo-2 and did not receive permission to cross the border without any explanation. According to unofficial version, Browder’s problems started because of the fact that he took active discussion in consolidation of shares of Rosneft subsidiaries, which decided to abandon the transition to a single share and to enter IPO system as a property holding company. According to this version, the ban on Browder’s entry into Russia was lobbied by the chairman of Rosneft, Igor Sechin, who was then the deputy head of the presidential administration.The ban was valid even though that in December 2005, Browder made a statement on the channel CNBS, where he positively assessed the actions of Putin, including the Yukos case, thus demonstrating the senior management his loyalty to Russia.
Source: "Kommersant" from 20.03.2006
In 2007 it was reported that Browder’s company is suspected of tax evasion. Office of Tax Crimes of the Moscow Central Internal Affairs Directorate started an investigation against several Russian companies linked to the fund. These companies directed profits in favor of its founders – offshore companies, registered in Cyprus. At the same time they paid the tax - 5%, using the agreement between Russia and Cyprus for the avoidance of double taxation. The police explained that they had to pay at a rate of 15% as foreign companies with offices and representatives in Russia. According to investigators, "Hermitage" created Russian companies to buy shares of energy companies, including “Gazprom”. There were restrictions on buying shares by foreign investors - they could be bought only through the London Stock Exchange, and it was very expensive. Therefore, investment companies used crossed schemes of these shares owning – the shares were bought only by the Russian companies, but the final owners turned out to be nonresidents.Based on these materials, a criminal case on tax evasion was initiated against the director connected with the fund LLC "Cameo".These charges were called baseless at “Hermitage” and it was reported that the tax authorities have never questioned the activities of "Cameo".
Source: "Kommersant" from 14.06.2007
After the ban of Browder to enter Russia, all the leaders of “Hermitage” moved to London, without waiting for an interrogation in a criminal case, initiated in connection with tax evasion by LLC "Cameo". The reason for this move was such that including the fact that the fund office in Moscow was seriously damaged after the June raid by the Central Internal Affairs Directorate, during which some documents, computers and servers were confiscated.
Source: “Vedomosti” from 12.07.2007
After this raid, claims on tax evasion were also filed to three other companies, related to "Hermitage" - LLC "Parfenion", LLC "Machaon" and LLC "Ridlend" (hereinafter - the three firms fund). In February 2008, these companies were suddenly acquired by a certain company Boily Systems Ltd. Representatives of the company said that by buying these three companies, they did not know anything about their claims, and therefore they sued the seller – LLC "Pluton" – to the arbitral court of Tatarstan. However, company representatives refused to tell what the company Boily does itself and where it is registered. The representatives of the fund "Hermitage" said that these three companies were simply stolen by the Directorate - they were reregistered. It looked like as if they didn’t have real arguments in their favor.
Source: "Izvestiya" from 10.04.2008
In October 2007, there was an attempt to charge376 million dollars in favor of a company "Logos Plus” from these three fund companies through the Arbitration Court of St. Petersburg and Leningrad region. The claim was sustained in July 2007. It was caused by the alleged existing agreement of the sale of Gazprom's shares by three companies of "Logos Plus", which was not executed. According to the "Hermitage" version, this agreement has never existed and the company has never worked with "Logos-Plus”.Moreover, according to the version of the fund, the interests of the three companies were represented by lawyers in court, who were authorized by the pseudo-leaders of the three companies Valery Kurochkin, Vyacheslav Khlebnikov and Victor Markelov. The lawyers agreed to the requirements of the plaintiff. According to the fund version, as a result of the fraudulent acts with the register of holders, the owners of the three companies subsequently became a certain company LLC "Pluton" from Kazan, and soon these companies changed their residence first from Moscow to Novocherkassk, and then to the Moscow Khimki.Then, a certain firm Boily, registered in the Virgin Islands, initiated the lawsuit against three companies in the arbitration of Tatarstan.In early 2008, in St. Petersburg “Hermitage” managed to appeal against the decision to collect 376 million dollars. But the new claims appeared and the lawsuits proliferated very quickly. “Logos Plus” filed six claims in the Arbitration Court of St. Petersburg, 5 - in the Moscow Arbitration Court and 3 - in the Court of Arbitration of Tatarstan – for the total of more than $ 2 billion.According to “Hermitage”, law enforcement helped the fraudsters. According to the version of Browder, the original seals, certificates of registration of "Rilenda", "Machaon" and "Parfeniona", which were used for further changes to the owners of firms, were withdrawn during a search at the Moscow office of the company.At the time of removal, the three firms had no assets any longer; they sold them after Browder was denied a Russian visa. But these companies could be useful too – having the proven debt, you can initiate insolvency and reverse the previous business deals, including the sale of assets.Paul Wrench, the CEO of HSBC Management, which was close to “Hermitage”, sent a statement about the capture of these three firms in the Investigation Committee, afterwards a criminal case was initiated.
Source: “Vedomosti”, from 04.04.2008
According to investigators, the new directors of the allegedly stolen companies from Browder, were not actually admitted to their financial activities, which became known after the seizure of the legal documentation of these LLCs. The former owners had the signatory right according to the bank cards. According to investigators, they continued to dispose the assets of the "stolen" companies.
Source: "Delovoy Vtornik" from 23.09.2008
In June 2007, it became known that the former Browder’s companies, which had no assets, opened two accounts in Universal savings bank and in Interkommerts bank, later large sums of money were transferred there; the sums were equal to the sums paid earlier by the three firms as taxes to the government in 2006. In fact, an unprecedented event happened - the state “returned" the taxes as the damage to the new owner of three companies. Thus, the significant damage was done to the State - 5.4 billion rubles.
Source: “Vedomosti”, from 30.10.2008
On April 3, 2008 Browder was put on a wanted list, he was presented an accusation of tax evasion in his absence, media reported that Ivan Cherkasov, the CEO "Cameo” was also declared wanted. The next day, the Ministry of Interior Affairs denied this information.
Source: Lenta.Ru from 03.04.2008
However, later investigation proved that Browder was charged with an accusation of tax evasion in especially large amount in his absence by the investigator from the republic of Kalmykia, Dmitry Nuskhinov.
Source: "Kommersant" from 04.04.2008
According to the investigators, Browder’s fraud began in 2007, when his partner Cherkasov, who was the head of the Moscow office of "The Hermitage", established LLC "Cameo". According to the documents this company was established by LLC “Baikal-M” and by the Cyprus offshore company "Zhoda Limited". This company had been buying Russian strategic issuers, since their shares were not allowed to buy directly by companies with a predominant foreign capital. But after the liberalization of business in 2006, the sole founder of "Cameo" remained the Cyprian offshore. According to investigators, under its direction the company resold the Russian assets to another Cyprian company "Giggs Enterprises Limited”, and the received money were paid to the founder of "Zhoda Limited”, and from this operation, the Russian budget received only 5% tax, instead of 15 % up to 24%.According to investigators, about 20 LLCs in Moscow, Kalmykia, Chita region, Buryatia and other regions of Russia were operated by the same scheme - Browder himself created and bought them. Among these companies are - LLC “Pythagor Investments, LLC “Parfenion”, LLC “Machaon" and LLC "Reedlend ". Because of tax fraud of these companies Russia suffered for more than 4 bln rubles.
Source: "Kommersant" from 03.04.2008
Following Browder’s statements that his companies had been stolen, the employees of the Interior Ministry announced that he was conducting a campaign to discredit them, accusing of raiding. In the Interior Ministry their version was motivated by the fact that, according to the "Hermitage" itself, there were no valuable assets in the companies any longer; and nobody could explain what the reason was for which they were stolen (according to the opinion of the fund). Therefore, the police concluded that Browder himself re-registered companies to remove all the traces of his fraud, and then present it all in the form of “close to politics” scandal.
Source: "News" from 10.04.2008
After the fund filed a case for the capture of the three firms, law enforcement agencies raided the offices of Fund lawyers Edward Khairetdinov and Vladimir Pastukhov, afterwards they were accused that their power of attorney and warrants were false.
Source: "Kommersant" from 30.10.2008
In 2008, within the frames of the "Hermitage" case on the charges of involvement of tax evasion, Sergei Magnitsky, the managing partner of the auditing company Firestone Dunken, whose client "Hermitage" was, was arrested in Moscow. This was preceded by raids, during which, according to investigators, documents which established the participation of Magnitsky to the development of the "left schemes" for “Hermitage” were discovered. Soon, the court also gave its consent to a criminal prosecution of Khairetdinov for allegedly usage of false documents.
Source: "Kommersant" from 27.11.2008
Investigators blamed Magnitsky that together with Browder he registered in Kalmykia - a free economic zone - the company "Dalnya Steppe" and "Saturn Investments, which acquired the shares of “Gazprom" and evaded taxes. According to investigators, these companies formally recruited disabled employees to minimize income taxes.
Source: "Kommersant" from 08.10.2009
After the return of the taxes, paid to the budget by the three Browder companies, something what is called "inoculation” was made - it is when you steal something, you sue yourself and then lose your case yourself. The new owner of three firms, a certain Rimma Starova, born in 1938, applied to the Ministry of Internal Affairs of the Republic of Tatarstan with a statement that the companies which were bought seemed to have stolen 5.4 billion rubles from the state.
As part of the investigation, a search in the office of Khairetdinov was appointed. The investigator Urzhumtsev allegedly believes that there are the original documents according to which the state had been stolen money.In 2008, as voiced in the media version, Browder himself stole his three firms to accuse Russian law enforcement bodies and to divert attention from his own criminal prosecution. One of the new directors of three companies, Markelov, told investigators that he had received his position from a certain new owner Oktay Gasanov, who allegedly was instructed to do so by Khairetdinov. The investigation concluded that Khairetdinov stood behind the change of ownership. Soon the documents about reregistering of the three companies, allegedly sent to him from London by one of the partners, were miraculously found.
Source: "Delovoy Vtornik" from 23.09.2008
As this all went, in fact is known from the videotapes, fixed by the members of Scotland Yard in London. The two men of Eastern European appearance entered Dunken office, one of them introduced as Alexander Strazhev and asked to send a parcel to Moscow to Khairetdinov office. An hour later it was taken to Moscow, the Khairetdinov office was searched.We should tell about Oktay Gasanov separately.It was he who hired Markelov so that he would find the new directors for the three companies of "Hermitage". He also asked Markelov to register JSC "Logos-Plus" on the name of a certain Strazhev, who, as was revealed later, lost his passport in 2005. Then Gasanov creates other three companies - LLC "Instar" and LLC "Grand Activ", which later will sue.It is noteworthy that in 2006 Markelov was arrested, but in 2007 he was suddenly released, and almost for free he began activities under the leadership of Gasanov. It seems that he did this in exchange for his freedom.It also turned out that the seals of the three firms do not comply with the seals that were seized during a search of lawyers. In fact, investigators suggested that the power of attorney of "Hermitage" lawyers were false on the grounds that they were not certified by the seals, which were used by the people, who re-registered the firms of "Hermitage".
Source: “Novaya Gazeta” from 27.11.2008
In November 2009 in a hospital prison, "Matrosskaya Tishina" Sergei Magnitsky died.
Source: “Moskovsky Komsomolets” from 12/07/2010
According to the preliminary version, Magnitsky died either from pancreatic necrosis, either from acute heart failure. Press Service of the Ministry of Internal Affairs stated that Magnitsky did not complain on his health, but the defender of Magnitsky told me that he wrote numerous complaints about his detention conditions, asked to send him on treatment.
Source: "Kommersant" from 18.11.2009
In “Hermitage” it was thought that Magnitsky in prison was put under pressure to make him testify against Browder, but he did not give up, and he paid for this. Colleagues of Magnitsky required attracting to criminal liability for defamation the Deputy of Interior Minister Alexey Anichin. After the death of Magnitsky, Anichin stated that all charges against the lat are almost proven, but there was no court, and therefore he had no right to say this publicly.
Source: "Kommersant" from 05/07/2010
The real interest of Browder was, of course, not the protection of the three companies which had no existing assets any longer. And not the protection of the robbed Russian state - well, he was not so much noble. And yet, Browder continued to spend huge money on lawyers. This gave him the opportunity to discredit Russia. As he once terrorized "Gazprom", giving the information to shareholders about the machinations, initiating claims - and then probably making a good compensation. And the more Russian machinations attracted the attention of the international communities, the greater the influence of Browder was, even in spite of the search - no one will extradite him from London.
Source: "Novaya Gazeta" from 27.11.2008