William Browder on Human Rights in Russia

William Browder: “It’ll have an enormous impact on the human rights situation in Russia, if there are real consequences to the people who violate human rights.”

William Browder is the co-founder and CEO of the investment fund Hermitage Capital Management currently based in London, a former client of the late lawyer Sergei Magnitsky and an initiator of the Sergei Magnitsky Rule of Law Accountability Act. Interview with Iivi Anna Masso, published in Diplomaatia 96 / August 2011 (also in Estonian).
IAM: You did a great career in Russia as an investor and ended up as a public enemy of the Kremlin. How did your story in Russia begin?
WB: I have a connection with Russia that comes from my family. My grandfather was the General Secretary of the Communist Party of the US and he lived in Russia in 1927–1932. My grandmother was Russian and my father was born in Russia.

My teenage rebellion against my Communist family was to become a businessman. I graduated from Stanford Business School in 1989, when the Berlin Wall came down. When trying to figure out what to do with my life, I decided to go to Russia. I thought that with my background, it would be a good idea to do something in the post-Communist world.

Did you see Russia first of all as a business opportunity?

At that time, there was no business to be made in Russia. I went to Russia for purely sentimental reasons because of my family background.

And you ended up an “activist investor”, making money for your clients by fighting corruption in the companies you invested in?

In 1996, I set up an investment fund – the Hermitage Fund. It started out with 25 million USD of capital from Republic National Bank of New York and [my partner] Edmond Safra. It eventually grew to be quite large – we ended up becoming the largest foreign fund manager in Russia, worth about 4.5 billion USD. What I discovered as we were growing and as I was becoming more and more involved in Russia was that all the companies that we invested in were being run dishonestly by their managements. We discovered that either the oligarchs who were the majority shareholders or the bureaucrats who were the managers were stealing millions or in some cases billions of dollars from these companies. It became clear that you couldn’t just be a passive investor in Russian stock market listed companies. If you wanted to make a normal return, you had to be active in some way. We were quite shocked and angry about the amount of stealing and corruption that was going on in these companies, so we chose to do something about it – we decided to do our own private investigations into how the money was being stolen. And we would share that information with the media.

We became very good at what has become known as forensic investigating and at working with international news organizations like the Financial Times, The New York Times or The Wall Street Journal, sharing with them the findings on how the money was being stolen. Because we were doing this in some of the most important companies in Russia, like Gazprom, the national electricity company UES and the national savings bank Sberbank, our work was quite newsworthy in the international press. The domestic press was interested in our findings too and as a result we ended up doing what’s now being known as “naming and shaming campaigns” that were quite effective at the time.

Then you were suddenly banned from re-entering Russia in 2005. Why?

For about 4 years, our campaigns were very successful because we had an interesting alignment of interests between ourselves and the President of Russia at the time, Vladimir Putin. I had never met Putin or had a discussion with him, but it seemed that he was fighting with the same people we were fighting with – the Russian oligarchs, who were stealing money from the companies we were investing in, were stealing power from him when he first came to power. So whenever we publicized a scandal, Putin would be the first person to step in with his government and support us in stopping the scandal.

We didn’t realize then that he was not doing this because he wanted to clean up corruption – he was doing it to weaken his own enemies who just happened to be also our enemies at the time. This process worked very nicely until the end of 2003 when Putin arrested Mikhail Khodorkovsky and put him on trial and convicted him of crimes that didn’t really exist in reality. By taking the richest oligarch in Russia and putting him in jail, Putin sent a very powerful message to all the other rich guys in Russia, which is that if they don’t cooperate with him, they’ll go to jail. So, one by one, all of the oligarchs of Russia started to cooperate with him quite openly. They became his business partners.

At that point, my work exposing their corruption became highly inconvenient for him since I was exposing the corruption of his business partners. As a result, in November 2005, after living in Russia for 10 years and becoming the largest foreign fund manager in the country, I was stopped in Sheremetyevo 2 Airport in the VIP lounge. I was taken into detention for 15 hours and deported back to London the very next day, never to be allowed to return to Russia.

You were called a “threat to national security”. Was there an official explanation why?

As my entire business was dependent on me being in Russia, I was very upset and very keen to try to solve this visa problem. British foreign secretary asked Sergei Lavrov, the Russian Foreign Minister, why my visa had been withdrawn and a letter arrived in my office from the Russian Foreign Ministry justifying their decision. Since it was a completely arbitrary decision and there was no law to justify it, they described me as a threat to national security and therefore wouldn’t let me back into the country.

After that, what happened to your companies in Russia?

After this, it became clear to me that when the Russians decide they’re going to go after you, they’re not going to go after you in a small way. They go after their enemies and completely and utterly destroy them. It became clear very quickly after this visa ban that I better get myself prepared for some really bad stuff that was going to happen next. The preparation we did was, first, to evacuate our team from Russia to London, so that nobody could be arrested and, second, to liquidate all of our holdings in Russia, so they couldn’t steal any of our assets. We did that quietly over the course of the next six months. We got every last penny we had in Russia and every one of my employees out of the country.

We thought that was the end of the story, but unfortunately it wasn’t. On June 4, 2007, 25 officers from the Moscow Interior Ministry raided my office in Moscow which I still kept going, even though it was empty. Then 25 more officers raided the office of my American law firm, Firestone Duncan, in Moscow. These 50 or so police officers were specifically looking for the official documents of the investment companies through which we had invested our money in Russia. At the law firm, they found those documents, stamps, seals and certificates. They seized all of them and took them away, even though their search warrants did not allow them to have anything to do with those companies.

Three months later we discovered that we no longer owned these companies. These companies were empty; they didn’t have any assets in them because I had liquidated everything in Russia. But the police seized the documents that were then used to fraudulently re-register our companies out of our name, into the name of a man who had been convicted of murder and released from prison early by the Interior Ministry presumably to put his name on these documents to became the owner of the stolen companies. So, at this point, the police had essentially stolen our companies and we hired a number of lawyers to help us stop whatever mess was being created by this group of corrupt officials. One of the lawyers we hired was Sergei Magnitsky, a 36-years old lawyer working at Firestone Duncan. We had Sergei put together an analysis and an investigation as for what was going on and how we could stop it.

Sergei conducted a month-long investigation and told us that indeed our companies had been stolen essentially by the police. The same people who had stolen our companies had created 1 billion dollars worth of fake contracts that our companies supposedly owed three empty shell companies. The contracts had been taken to court where the shell companies had sued us for 1 billion USD of fake contracts. The people who stole our companies then sent three lawyers (whom we’d never heard of) to court to defend our stolen companies, but instead of defending the companies these three fake lawyers pled guilty to the 1 billion dollars of fake liabilities. As a result, the judges awarded a billion dollars of damages against our companies to those three empty shell companies.

The police took these judgements with them and raided our banks, looking for a billion dollars worth of assets to seize. Thankfully, there was no more money in our banks in Russia, so they walked away empty-handed. At that point, we thought the story was ended, but Sergei was convinced there was more to it. He wanted to do some further investigations and we said OK. After a few more months of investigating, he came back to us with the most shocking news.

He said: “In addition to trying to steal your assets, the people who stole your companies then went to the tax authorities in December 2007 and filed an amended tax return. It said the companies which had paid 230 million dollars in taxes in 2006 shouldn’t have paid those taxes and using fake court judgments they asked for a 230 million USD tax refund. They applied for it on December 23, 2007, and the tax refund was granted one day later, on December 24.” So, instead of stealing our money, they ended up stealing from themselves – a bunch of corrupt officials stole 230 million dollars from the Russian state in the largest tax refund in Russian history and nobody asked any questions.

We were sure it couldn’t have been authorised at the top – it was just too ugly and rogue an operation. We figured it must be some group of officials at the mid-level and if we were to expose this scheme to the whole world and to the higher-up people in the government, the bad guys would be arrested and that would be the end of the story. With Sergei’s help, we prepared a number of complaints for every single law enforcement agency in Russia to describe what had happened. We filed these complaints, expecting the next day there would be SWAT teams of helicopters going after the bad guys, but that never happened. What happened was that the next day there were SWAT teams of helicopters going after our lawyers, all seven of them, who had put together all the criminal complaints that we had filed.

I was shocked. I couldn’t believe that there could be such cynicism anywhere, but I was also scared for my lawyers and so I invited each of them to leave Russia and come to London to get out of harm’s way. Six of the seven lawyers accepted my invitation grudgingly. But the one who refused to leave was Sergei Magnitsky. He said: “I haven’t done anything wrong. I know the law perfectly and I’m going to stay.” So, he stayed and went on to testify against the police officers who were involved in the raid in which they seized the documents which were then used in this massive fraud. He testified on October 14, 2008. One month later, on November 24, 2008, the same officers, whom he testified against, came and arrested him in his house in front of his wife and two children.

So, he was arrested by the same officers whose corruption he was exposing?

Yes. They put him in a pre-trial detention centre and started to torture him in order to get him to withdraw his testimony. They first put him in a cell with eight inmates in four beds and left the lights on for 24 hours a day in order to sleep deprive him. It’s a very effective torture strategy that doesn’t leave marks on the body, but after a few weeks of no sleep almost anyone is ready to sign anything put in front of them. They put in front of him a document withdrawing all his testimony against these corrupt police officers and instead they wanted him to falsely confess that he had committed the crime that he had uncovered about them.

He didn’t do that?

One never knows how one is going to behave in a situation like this. Nobody really knows how tough and how principled they are. I don’t think Sergei knew that about himself until he was put in this situation. What we learned about him was that he was a man of unbelievable integrity and principle. Even though he was completely disoriented and sleep-deprived, for him the important point was to maintain his integrity and his sense of self, even if his physical discomforts were great. He refused to sign. They then moved him into a cell with no heating in December in Moscow where he nearly froze to death. Then they moved him into a cell with no toilet and just a hole in the floor where the sewage would bubble up. They would routinely deny him clean water or not feed him for periods up to 36 hours. After six months of this, he became ill. He lost 20 kilos. He was diagnosed with pancreatitis and gallstones. The prison authorities had scheduled an operation which would take place on August 1, 2009.

They kept asking him to sign this false confession. No matter how much physical pressure he was being put under, he refused. A week before his scheduled operation, they decided to retaliate against him and instead of granting him the promised operation, they moved him from the prison, which had a medical facility, to a place called Butyrka, one of the most horrible places inside the Russian criminal justice system. At Butyrka, there were no medical facilities for him to have an operation.

So, in the end, he died?

His situation got worse and worse. Every day he would write an appeal to different people inside the justice system to allow him to get medical attention. He wrote 20 different appeals with his lawyer to the investigator, the judge, the prison officials and the general prosecutor, all begging for medical attention. Every single one of his requests were either ignored or rejected. His health got worse and worse. On the night of November 16, he went into a critical condition. Only then did they move him from Butyrka to the pre-trial detention centre that had a hospital. But instead of treating him at the hospital, they put him in a straightjacket, chained him to a bed, brought eight guards into the cell and beat him with rubber truncheons while the ambulance crew was waiting right outside the door for one hour and 18 minutes until he was dead. He was 37 years old.

You have implied in your comments that this is just one case of many, that the whole system is basically criminal.

This type of thing goes on every day in Russia. But there is something very unique about this case: Sergei was so brave that he wrote it all down in the form of criminal complaints about the authorities. He wrote 450 complaints in the 358 days of detention and even though the authorities ignored every single one of them, his lawyer gave us copies of his complaints. As a result, we have an incredible documentary trail of everything that happened to him. Because of this we can take his story and share it with the world in minute detail, so everybody knows what really happened and how it happened. It was like a perfect snapshot of this world, so that what happened to Sergei becomes a symbol of what is happening to everybody else in Russia.

On the day of his death, we took just one of these 450 complaints – a very well written 40-page letter – to the General Prosecutor of Russia, Yuri Chaika, that explained what had happened to Sergei. When we released this, Novaya Gazeta read this document and they could not believe what they were reading – it looked like it had been written in 1937 during the purges of Stalin. But this was a document written by Sergei Magnitsky in 2009.

They decided to publish it on their front page and they called it “Sergei’s prison diaries”. This publication truly touched and upset the Russian population because Sergei’s story got through to the people the way that other people’s stories didn’t. There is a social contract in Russia which says that if you keep out of politics, if you keep out of strategic industries and don’t get involved in Chechnya, you can enjoy the fruits of the authoritarian regime. Sergei was a perfect example of that: he was a tax lawyer who bought his Starbucks coffee in the morning and went and sat in his cubicle and did his tax work. By all definitions, he should have just lived this simple, comfortable life as a young Russian professional.

But because Sergei happened to work for the wrong client and he happened to be an honest patriot, he got plucked out of his normal upper middle class life and slowly tortured to death over a 358-day period. Russian people who heard this story couldn’t believe it. They were shocked and upset. Everybody thought they could be Sergei Magnitsky themselves. As a result, many people said many uncomfortable things publicly about the regime because this was one step too far. Because of that, President Medvedev was put into an impossible situation. He was the president who had said he would fight legal nihilism and all of a sudden you have the most legally nihilistic situation imaginable.

How did the authorities react to the situation?

When Sergei died, the president had no choice – he had to call for an investigation into his death. 21 months later, the only thing that has happened is that they have accused two doctors of not treating him properly. So, they’ve tried to ring-fence the whole issue around two doctors at the medical centre. They haven’t gone after any of the investigators who were authorizing this torture or the prosecutors who covered up the complaints. They haven’t gone after the judges who knowingly kept him detained and denied him medical attention, even though they knew he was sick and there was no reason to detain him. They haven’t gone after any of the people who committed these enormous tax crimes. So, there hasn’t been any justice at all. It is pretty clear that the reason there hasn’t been any justice is that this thing goes up to the very highest levels of the Russian Government. If they would actually do what was necessary to do here, then the government would fall.

And you have come up with the Sergei Magnitsky Rule of Law Accountability Act to put pressure on the Russian Government from outside?

It became clear to us that the entire regime has been criminalized to the point where even with the most obvious information they can’t prosecute any of these crimes. The only way we were going to get some semblance of justice was to get justice outside of Russia. We asked ourselves what kind of justice we could get. Part of the problem is that most of the crimes are crimes within the jurisdiction defined in Russia. However, we thought the people who were ruining lives and stealing people’s money in Russia had as little confidence about the safety of their money in Russia as anybody else does, so that once they’d stolen that money, they would take it out of Russia, they’d want to travel outside of Russia and keep that money outside of Russia. So, we decided if that’s what the bad guys want to do, then let us make it much harder for them to do that.

We embarked our campaign, which has lasted more than a year, where we are trying to do two things – to take away the ability of these people to travel to civilized countries by taking their visas away and to prevent them from spending any of that money by having their money frozen in the West. Those were our two objectives and we’ve initiated a piece of legislation in US Congress called the ‘Sergei Magnitsky Rule of Law Accountability Act’, which has been co-sponsored by 20 senators, both Democrats and Republicans, which will impose visa sanctions and asset freezes on the people who killed Magnitsky and who were involved in the crimes he discovered and in covering up for those people.

This is a legislation that also goes after other gross human rights abusers. Interestingly, this legislation is going through Congress right now, but the US Administration just yesterday [on July 26] has jumped into the fray and announced that the 60 people whose names are on the documents already – the 60 Russian officials who were involved in Sergei’s torture and death – have now been banned from entering America.

Does this mean that the Act has already been de facto implemented?

What it means is that the administration has taken what we’ve asked for in the Senate and done it unilaterally without any legislation itself. They haven’t frozen their assets yet, but they have frozen their ability to travel. That’s official, that’s real and it’s already in place. It does not mean we’re not pushing through the law because the law has a number of features which haven’t been done yet – it will freeze their assets in America and it also punishes other human rights abusers. Our objective is not just justice in the narrowest sense for Sergei, but also creating a legacy for Sergei by putting in place an unprecedented law in his name, which punishes Russian human rights abusers. We feel that’s at least a tiny step in the right direction, so his death wasn’t a meaningless death.

Do you think the law will be passed at some point?

I am very sure that it will be.

There have already been protests from Russia. Why would they oppose fighting corruption and punishing criminals, as they have an anti-corruption program?

It’s clear from the Russian response of threatening co-operation on Iran, North Korea, military supplies transit to Afghanistan – if the Russians are so concerned about protecting their criminals, they have showed that their regime is a criminal regime. If Russia is ready to ruin its relations with the United States and Europe in order to protect 60 corrupt officials, what it says is that the entire system is criminal over there. It is a very important observation that everybody should pay attention to. They are not hiding their true colours here.

What about the EU? The USA has now de facto implemented the visa ban, but the EU seems to be more reluctant to do so, although the European Parliament supports it.

Everybody was reluctant to do this, including the US. I approached the State Department in April 2010 and asked them to ban the 60 officials who were involved in the Magnitsky case. They rejected my request. Senator Benjamin Cardin then wrote to them officially and publicly and the State Department rejected his request. Now, a year later, the State Department publicly acknowledged that they’ve banned these people. So, it doesn’t matter what words come out of any particular bureaucrat’s mouth right this minute. I am sure the EU will ban the same people because this case is so black-and-white and so emblematic that the Europeans have no choice, if they want to maintain any credibility at all.

So, it is only a question of time before the EU will also pass a similar law?

In the Netherlands, I was invited to testify in front of the Foreign Affairs Committee of the Dutch Parliament. They put together a resolution that was read before the Dutch Parliament, calling on the Dutch Government to impose visa bans and asset freezes. They put it to vote. The entire democratically elected parliament voted unanimously, 150:0, calling on the Dutch Government to do this. The Dutch Foreign Minister is trying to be nice with the Russians right now. He is stuck in a very uncomfortable position. I don’t know how long any foreign minister can go against the will of his people before he either loses his job or does the right thing. I think the same thing will happen all over Europe.

The European Parliament passed a resolution in December last year, calling on the European Council to do the same. So far, they haven’t. We will make sure they do because it’s the right thing to do. People who are standing in the way of doing what is morally correct will have to justify themselves to those who are democratically elected by the people.

If the Sergei Magnitsky Rule of Law Accountability Act will be implemented in most Western countries, what will it mean for Russia? Will it change Russia itself?

Yes, it will because in Russia there are a number of law enforcement officials who are being told to commit crimes on behalf of their bosses. In return, they get small amounts of money, their bosses get large amounts of money and they’re guaranteed protection. If all of a sudden their bosses cannot guarantee them protection outside of Russia, they’ll have to think twice what the risks are of doing this type of stuff. If there is no impunity, these people can’t be guaranteed security and some of them will think twice about it. I think it will have an enormous impact on the human rights situation in Russia, if there are real consequences to the people who violate human rights.

If your actions can have so serious consequences for the whole system of Russia, aren’t you frightened for your own security?

Anybody who does anything important and revolutionary risks their personal security. I am doing something that is meaningful and that I am compelled to do in my loyalty to the memory of Sergei Magnitsky. I am not going to stop. I am not looking over my shoulder – I am looking straight ahead.

What would you tell the people who want to do business in Russia today?

I would tell them not to – it’s risky beyond their wildest nightmares.

It hasn’t changed for the better during the last couple of years?

It has changed dramatically for the worse.

Do you see any change coming along with next year’s election?

I don’t see the election process as a democratic process, so I can’t really imagine there to be any changes. I don’t think there is going to be any improvement because the whole purpose of the non-democratic election process is to keep a status quo. A change will not come through a fake election. It will come from the rulers who are not acting in the national interest losing control of their own people. But it’s not going to happen on a schedule that they make.

Do you hope to get back to Russia some day?

I lived in Russia for ten years and I’ve met a lot of truly wonderful, warm, hardworking, honest, decent people. I’d guess that in a country of 141 million people 140 million fall into the category of really good people. But there are some bad ones, some criminals who are occupying the country right now and so I hope that the criminal regime will end one day and I’ll be able to engage with the good Russian people again.

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