Sergei Magnitsky and the Rule of Law in Russia

The Wall Street Journal

Earlier this week, in a Wall Street Journal interview about investing in Russia, Russian Deputy Prime Minister Igor Sechin surprised me. He cited my experience in Russia as an example of the strength of the Russian investment climate. Mr. Sechin argued that, based on the “economic efficiency” of my investments in Russia, I should be “a happy man.” While Mr. Sechin is correct that my investors realized significant returns on their investments in Russian equities, I would hope that no one ever has to endure the nightmare that my colleagues and I suffered in Russia after achieving this success.

I founded Hermitage Capital in 1996 and built up the firm to become the single largest investor in the Russian stock market. We fought corruption and pushed for transparency at a number of the companies we invested in. Not everyone appreciated our efforts. In November 2005, the Russian government suddenly revoked my visa and declared me a threat to “national security.”

Until this point, Hermitage had been widely acknowledged as one of the biggest success stories of Russia’s post-Soviet capital markets. Unfortunately, this success proved ephemeral once my firm was targeted by corrupt government officials. In his interview, Mr. Sechin said that “nobody touched” my investors. This is true. We were able to move all of my clients’ money out of the country before senior Russian officials working in league with private criminals expropriated Hermitage’s investment holding companies. Amazingly, these officials then embezzled—from the Russian state itself—$230 million in taxes that Hermitage had paid the prior year.

My Russian business was destroyed through state action, but this story is not about business or money.

It is about the human cost of corruption, and specifically the tragedy of Sergei Magnitsky, an outside lawyer working for Hermitage in Moscow. Sergei discovered the $230 million tax-refund fraud perpetrated by senior officials from within the Russian government. Instead of looking the other way, Sergei testified against these officials to the Russian State Investigative Committee. Soon thereafter he was arrested by the officials he named and thrown into pre trial detention. Over the next year, these officials systematically tortured him in an attempt to get him to withdraw his testimony. He was denied sleep, food and clean water. He was placed in freezing cells with no window panes in the depths of the Moscow winter. He was kept in cells in which sewage regularly flooded the floor. Eventually he became critically ill and needed urgent medical care, which was then repeatedly denied. Ultimately, Sergei’s will was stronger than his body and he died in state custody, alone on the floor of an isolation cell, at the age of 37, leaving a wife and two children.

This is the reality behind the “attractive investment climate” that senior Russian officials like Mr. Sechin are attempting to portray: an innocent man, falsely arrested, isolated from his family for an entire year and tortured to death for exposing state corruption. One year later, on the first anniversary of Sergei Magnitsky’s death, the Interior Ministry bestowed state honors on the cadre of officers who had prosecuted him. The risk of losing one’s business in Russia today is real. But it is not the greatest risk investors face. Should they, like Sergei, find themselves in the crosshairs of corrupt bureaucrats working in league with criminals, investors in Russia risk losing their lives.

Given the scale of corruption in Russia and the growing list of investor horror stories, I understand why Mr. Sechin is eager to redeem Russia’s image in the eyes of the world. He joins the efforts of his colleague, First Deputy Prime Minister Igor Shuvalov, who arranged last month for a small panel of high-profile western CEOs at Davos to offer soothing words about the security of their investments in Russia.

The challenge these men face is that the world knows only too well that words alone mean nothing. The way to show that Russia is safe for investors is not to offer CEO testimonials. If Messrs. Sechin and Shuvalov really want to claim that Russia’s investment climate is improving, the first thing they should do is to prosecute the officials who arrested, tortured and killed Sergei Magnitsky and perpetrated the crime that Sergei exposed, the largest tax fraud in Russian history. The actions taken and roles played by Lt. Col. Artem Kuznetsov, Lt. Col. Oleg Silchenko, Major Pavel Karpov and Col. Natalia Vinogradova—whose signatures and orders surface throughout Magnitsky’s ordeal and who continue to enjoy the power and authority of the Interior Ministry—deserve especially close attention.

Bringing the responsible individuals to justice would be a first step to show that the current Russian government is genuinely working to be on the right side of history. The Magnitsky case has become a lightning rod for public opinion because it is such a clear example of right versus wrong, and because it paints in the starkest terms the very real human cost of investing in Russia today.

Messrs. Sechin and Shuvalov may regret the public attention the case continues to receive around the world, but its high profile also presents them with an opportunity. Prosecuting the people who killed Sergei Magnitsky would be hundreds of times more credible than any hollow words in demonstrating that Russia is finally taking real steps to protect investors and respect the rule of law.

Bill Browder is founder and CEO of Hermitage Capital Management. payday loan займы на карту срочно www.zp-pdl.com zp-pdl.com займ срочно без отказов и проверок