William Browder of Hermitage Capital was once one of Russia's most enthusiastic supporters for foreign investment. He was also an advocate for stronger corporate governance, shareholder and property rights, and transparency. Unfortunately, under the current government, these two interests collided tragically. Browder, whose case of persecution is documented in the recent Council of Europe report on Russia's politicized justice system, has authored a devastating opinion article in the Financial Times today.Foreign investors get ripped off all the time in many countries. What makes this story unique is the state officials working together to steal $230m from the Russian state itself. The sharks have started to feed on their own blood.
What makes it even more worrying is that the Russian government took no action to recover the money when we reported the crime. Rather than going after the rogue officials and criminals, the government turned the full weight of the law enforcement apparatus against us for reporting it. They arrested our lawyer, Sergey Magnitsky, who uncovered the tax rebate fraud. He has since been kept in pre-trial detention on cases I believe were fabricated. Six other lawyers who filed criminal complaints or helped discover the fraud were harassed and fled Russia for safety.
What are we to conclude from this episode? Some may argue the rule of law in Russia should not concern outsiders, but if corrupt officials can steal such a large amount of money from the state with no questions asked, it is not a very big leap for a similar group of corrupt officials to sell some loose Russian military hardware to terrorists, or even help rogue states to acquire nuclear technology. Moreover, when government officials act not in the interest of the state but for themselves, the normal tools of diplomacy simply do not work. It becomes impossible to trust international commitments, be it in the area of arms control or nuclear security. Perhaps there was a line in the past that Russians would not cross, but with the spectacular recent decline in the rule of law, anything is possible in Russia now.
Live by the sword, die by the sword.
While Browder may have some valid points, his whining is a bit disingenuous. For another side to the story, see the profile of him in the Stanford Business Magazine here:
http://www.gsb.stanford.edu/news/bmag/sbsm0611/feature_browder.html
Additionally, Browder made a lot of money through his connections (i.e. "krisha") and when he unilaterally decided not to pay the pre-agreed upon 10% "commission" the result was that he was kicked-out.
Bob, I have heard a similar version, but involving a tax refund which was to be paid to Hermitage, and which the Russian investors thought was rightly theirs. As a result, he was chucked out. If you have any hard information here, I am trying to put a coherent story together and there are a lot of missing pieces. If any insight, please let me know. Eric Kraus