Tax Stories

Bill Browder (Hermitage Capital) on the Magnitskiy case

Episode Summary

<p><strong>Bill Browder</strong></p><p>Bill Browder after the murder of his tax lawyer Sergey Magnitskiy gave up his life as a businessman and became a human rights activist. He was a founder and CEO of <i>Hermitage Capital Management</i>, which was the investment adviser to the largest foreign investment fund in Russia until 2005. </p><p>He is also an author of the book "Red Notice: A True Story of High Finance, Murder, and One Man's Fight for Justice" – on Magnitskiy case, one of the biggest tax fraud in the world ever. USD 230 m capital gains tax (paid upon the exit from Russia) refund was made by the Russian tax authorities within one day as of filing the request, no questions asked. </p><ul><li><i>Toronto Star</i> wrote: "A tale that makes the dirty dealings of House of Cards look like Snow White.”</li><li><i>The Guardian</i> journalist: “It reads like a non-fiction version of a Mario Puzo thriller.”  </li></ul><p><strong>The Baltics</strong></p><p>Bill started the interview with why he accepted the invitation to this podcast – he likes the Baltic States, but also this is an important region to the Magnitskiy case, because the stolen money was flowing through the Baltics. </p><p><strong>Reading table</strong></p><p>Bill suggested a new book to your reading table – “Red Roulette: An Insider's Story of Wealth, Power, Corruption, and Vengeance in Today's China” by Desmond Shum. Released just in September 2021. CNN has described the book – the book China doesn’t want you to read. It’s about a businessman in China cutting in (sharing proceeds with) members of the China Communist party into the deals of the businessman. His wife was kidnapped for years ago, and a day before publishing the book she was released and asked not to publish it<a href="#_ftn1">[1]</a>.</p><p><strong>The tax fraud – how exactly was it possible?</strong></p><p>Then we dive into the details of how the fraud actually happened. About a year after Bill was expelled from Russia and the companies were empty (all the assets were sold upon the exit and 230m in taxes - paid), police raided their offices and took all the documents of the companies, and registered the companies on a third person’s name. Then a bunch of fake contracts was created as a result of which the Bill’s former companies owed USD 1 bn to other companies. The ‘bad guys’ took the deals to the courts (the counterparties sued the former Bill’s companies to force them to pay the debt), and the courts confirmed the debt. Based on the debt USD 1 bn in profits turned into no profits on the balance sheets. That was the basis for the tax authorities to make the USD 230 m tax refund. </p><p><strong>How the fraud was discovered and the money & assets bought - traced?</strong></p><p>Bill also told the story of how Magnitskiy discovered the fraud, and how he traced the money afterwards (there are videos on <i>Youtube</i> on the assets potentially purchased for the money). He also explained how the law needs to be changed (and has been changed recently, e.g. in the UK) in order to allow the authorities to fight against grey money flows around the global finance system. The <i>unexplained wealth order</i> in the UK now says – if the money seems suspicious the person who has the money has to prove it did not come from crime, instead of proving that the money has criminal origin (which sometimes is not possible). </p><p><strong>Investigations</strong></p><p>In 16 countries there have been criminal investigations on the case, including the US - the Russian <i>bad guys</i> paid USD 6m settlement to the US government in order to avoid the trial there. Latvia and Belgium both convicted and seized the property. France also seized, and Switzerland seized USD 20 m, but paid 16m back. Cyprus opened the investigation, but never lifted a finger. In the UK Bill & his team found more money than in any other place, but the UK never opened a criminal investigation, Bill suspects - because they do not want to stop Russian money to flow into London. Also the European Court of Human Rights decided in favour of Sergey Magnitskiy’s relatives (that Russia has violated the rights to life) – the litigation took 9-10 years, but the decision was without substantial consequences. The judgement can be found here<a href="#_ftn2">[2]</a>. </p><p><strong>Magnitskiy Act sanctions</strong></p><p>About 35 people who have been involved in the crime are now on the sanctions list of the Magnitskiy act that has been adopted now in many countries, the US being the first, but also in the UK, Canada, the Baltics, etc. They will have trouble travelling, opening bank accounts, etc. </p><p><a href="#_ftnref1">[1]</a> <a href="https://www.amazon.com/Red-Roulette-Insiders-Corruption-Vengeance/dp/1982156155">https://www.amazon.com/Red-Roulette-Insiders-Corruption-Vengeance/dp/1982156155</a></p><p><a href="#_ftnref2">[2]</a> <a href="https://hudoc.echr.coe.int/eng#{%22itemid%22:[%22001-195527%22]}">https://hudoc.echr.coe.int/eng#{%22itemid%22:[%22001-195527%22]}</a></p> <br /><br />This is a public episode. If you would like to discuss this with other subscribers or get access to bonus episodes, visit <a href="https://janistax.substack.com?utm_medium=podcast&utm_campaign=CTA_1">janistax.substack.com</a>

Episode Notes

Bill Browder

Bill Browder after the murder of his tax lawyer Sergey Magnitskiy gave up his life as a businessman and became a human rights activist. He was a founder and CEO of Hermitage Capital Management, which was the investment adviser to the largest foreign investment fund in Russia until 2005. 

He is also an author of the book "Red Notice: A True Story of High Finance, Murder, and One Man's Fight for Justice" – on Magnitskiy case, one of the biggest tax fraud in the world ever. USD 230 m capital gains tax (paid upon the exit from Russia) refund was made by the Russian tax authorities within one day as of filing the request, no questions asked. 

The Baltics

Bill started the interview with why he accepted the invitation to this podcast – he likes the Baltic States, but also this is an important region to the Magnitskiy case, because the stolen money was flowing through the Baltics. 

Reading table

Bill suggested a new book to your reading table – “Red Roulette: An Insider's Story of Wealth, Power, Corruption, and Vengeance in Today's China” by Desmond Shum. Released just in September 2021. CNN has described the book – the book China doesn’t want you to read. It’s about a businessman in China cutting in (sharing proceeds with) members of the China Communist party into the deals of the businessman. His wife was kidnapped for years ago, and a day before publishing the book she was released and asked not to publish it[1].

The tax fraud – how exactly was it possible?

Then we dive into the details of how the fraud actually happened. About a year after Bill was expelled from Russia and the companies were empty (all the assets were sold upon the exit and 230m in taxes - paid), police raided their offices and took all the documents of the companies, and registered the companies on a third person’s name. Then a bunch of fake contracts was created as a result of which the Bill’s former companies owed USD 1 bn to other companies. The ‘bad guys’ took the deals to the courts (the counterparties sued the former Bill’s companies to force them to pay the debt), and the courts confirmed the debt. Based on the debt USD 1 bn in profits turned into no profits on the balance sheets. That was the basis for the tax authorities to make the USD 230 m tax refund. 

How the fraud was discovered and the money & assets bought - traced?

Bill also told the story of how Magnitskiy discovered the fraud, and how he traced the money afterwards (there are videos on Youtube on the assets potentially purchased for the money). He also explained how the law needs to be changed (and has been changed recently, e.g. in the UK) in order to allow the authorities to fight against grey money flows around the global finance system. The unexplained wealth order in the UK now says – if the money seems suspicious the person who has the money has to prove it did not come from crime, instead of proving that the money has criminal origin (which sometimes is not possible). 

Investigations

In 16 countries there have been criminal investigations on the case, including the US - the Russian bad guys paid USD 6m settlement to the US government in order to avoid the trial there. Latvia and Belgium both convicted and seized the property. France also seized, and Switzerland seized USD 20 m, but paid 16m back. Cyprus opened the investigation, but never lifted a finger. In the UK Bill & his team found more money than in any other place, but the UK never opened a criminal investigation, Bill suspects - because they do not want to stop Russian money to flow into London. Also the European Court of Human Rights decided in favour of Sergey Magnitskiy’s relatives (that Russia has violated the rights to life) – the litigation took 9-10 years, but the decision was without substantial consequences. The judgement can be found here[2]

Magnitskiy Act sanctions

About 35 people who have been involved in the crime are now on the sanctions list of the Magnitskiy act that has been adopted now in many countries, the US being the first, but also in the UK, Canada, the Baltics, etc. They will have trouble travelling, opening bank accounts, etc. 

[1] https://www.amazon.com/Red-Roulette-Insiders-Corruption-Vengeance/dp/1982156155

[2] https://hudoc.echr.coe.int/eng#{%22itemid%22:[%22001-195527%22]}



This is a public episode. If you would like to discuss this with other subscribers or get access to bonus episodes, visit janistax.substack.com