The Putin Mystique: Inside Russia’s Power Cult (23 page)

This macabre retribution appeared to be a response to Browder’s own revenge. In 2011, he had started lobbying US Congress for a bill that would bar sixty Russian officials from entering America and freeze their assets there. It would become known as the Magnitsky Act, which was passed in late 2012. Considering how members of Russia’s elite had a penchant for vacationing in America and sending their children to study there, the bill was a slap in the face for the Kremlin. Putin, who had been banking on improved trade relations resulting from the repeal of the Cold War-era Jackson-Vanik Amendment, would retaliate with an Anti-Magnitsky Law. It was a tit-for-tat bill, except that it included a clause widely seen as hurting Russians more than Americans: a ban on the adoption of Russian orphans by Americans, in a country whose citizens were not particularly eager to adopt.

Why did Browder’s initial “alignment” of interests with the Kremlin turn into a collision? If Browder had inadvertently stumbled into a world where dead men were tried for tax fraud, where orphans paid the price for international business feuds, what kind of world was it, and why was it so resilient?

In 2007 Browder, having been barred from Russia, was living in London, watching as his once $4.5 billion investment fund struggled to survive. But he seemed to know enough about how Russian power worked to understand that only personal connections and clout could help bring him back into the country.

On January 27, Deputy Prime Minister Dmitry Medvedev, by then evidently one of two heirs apparent to Putin, made his debut at the World Economic Forum in Davos, where Browder was a perennial presence. As the future president sat quietly eating his dessert, Browder approached him to broach the subject of his visa – and ask Medvedev if he could put in a word for him.

Just at that moment, though, other journalists approached the two, and it became clear that whatever Medvedev said would be a public statement.

“Since this was his international debut it wouldn’t have done it any good to say no, so he said, yes, please give me your application and I will submit it with a recommendation that your visa be approved,” Browder said of the meeting.

The exchange apparently had an effect – though not exactly what Browder had been expecting.

A few weeks after the request, Browder’s deputy in Moscow got a phone call from Artyom Kuznetsov, a lieutenant colonel with the Interior Ministry, saying he’d like to meet for a “face to face chat.” It was unclear how – or whether – the exchange with Medvedev led to Kuznetsov contacting Hermitage Capital, but apparently the police colonel had been given Browder’s visa application for consideration.

“He would have to write a report and depending on what [we] provide in the meeting and how [we] behave will determine what [he will] write in [the] report,” Browder said.

Hermitage Capital refused the offer of an informal meeting, demanding questions and answers in writing.

What happened next was a bureaucratic retribution of Kafkaesque proportions, involving a whole army of prosecutors, investigators, tax officials and judges.

In June 2007, Kuznetsov led a raid of twenty-five masked police officers on Hermitage Capital, extracting hundreds of
accounting documents. A similar raid followed on the legal firm Firestone Duncan, which advised Browder, and where Sergei Magnitsky worked. The documents and seals of three Hermitage Capital shell companies obtained in the raid ended up being used in a scheme to get an unprecedented tax refund of $230 million – processed and paid out within the course of a day at a central Moscow tax inspectorate. It was believed that after pocketing a share of the refund, Kuznetsov and his colleagues then used the embezzlement to put together a criminal case against Hermitage Capital.

When Browder objected, Kuznetsov swooped down on Firestone’s tireless lawyer, Sergei Magnitsky, who had exposed the fraud, and arrested him in November 2008 on charges of tax evasion. After eleven months of refusing to cave in to pressure to recant his testimony against Kuznetsov and testify against Hermitage, Magnitsky died.

If we separate the Russian spheres of
zakon
(the law as it is on paper) and the murkier
ponyatiya
(or understandings – the so-called unspoken rules which actually govern the country), it is easy to see how someone like Browder could have violated both. With regards to the law on paper, we have already seen how practically every businessman in Russia is guilty in some way. The journalist David Hoffman recounts how small businessmen would complain that according to official calculations, their total tax bill would amount to unrealistic sums – as much as 110 percent of their profits. “The laws made almost every businessman and taxpayer a lawbreaker – and thus a potential criminal and thus a willing supplicant to power and, finally, a briber,” he wrote.
¹⁴⁰

As a minority shareholder, Browder appeared to have used these same laws against powerful company owners and profited from them – forgetting that in the process, he was also violating them himself, as all businessmen in Russia were.

The tax evasion charges levelled against Hermitage Capital stand out in particular. Russian authorities, who issued an international arrest warrant for Browder in 2013, alleged that as it bought up shares of Gazprom at the turn of the millennium, Hermitage avoided the limitation that barred foreign companies from owning shares in state-controlled energy companies like Gazprom. It did this by allegedly
registering several Russian companies in the internal Republic of Kalmykia, and buying the shares in their names. To avoid the 35 percent corporate tax, these firms, according to several employee testimonials, hired disabled employees and paid the reduced tax rate of 5 percent.
¹⁴¹

Browder has not denied certain financial and tax arrangements, but he insisted they were entirely legal. “If one took these accusations seriously, then every foreign investor in Russia should be under arrest,” Browder told the
Financial Times
in spring 2013.
¹⁴²

Depending on the quality and expertise of one’s lawyers, this scheme could either be legal or illegal. But by the time Browder fell out of favour and refused to strike a deal with Police Lieutenant Colonel Artyom Kuznetsov, the accusations were dug out and used against him and Sergei Magnitsky in particular.

But something had to happen for Browder, a loyal investor and a cheerleader for Putin, to fall out of favour so suddenly. If he had crossed the paths of companies like Gazprom and got away with it for years, whose path did he cross then, and why did his fortunes change?

It was only by the summer of 2006 – after some eight months of unsuccessfully trying to get his visa reinstated – that Browder began to understand what had happened.

“What really drove the point home was Putin being asked [about me] at the press conference at the G8,” Browder said.

When a journalist asked Putin specifically about Browder at the G8 Summit he was hosting in St. Petersburg in July 2006, Putin characteristically avoided mentioning him by name – as he would with Khodorkovsky and many others who had lost his favour.

“I will say honestly that I simply do not know the reason why a specific person was denied entry into the Russian Federation,” Putin said. “I can imagine that this person broke the laws of our country, and if others break the laws, then we will deny [entry] to them.”
¹⁴³

For Browder, the refusal to mention him by name seemed to sting, particularly as he had evidence that Putin had discussed his case at an earlier Security Council meeting. Those discussions seem to hold the key to what finally tipped the favour against Browder.

While it is impossible to verify this kind of information, Browder says that according to two different sources who attended the National Security Council meetings, certain people were arguing
against letting Browder back into the country, and their arguments, apparently, prevailed with Putin.

“At that point I realized there was something deeply wrong in terms of my own situation with Putin,” Browder said. “He clearly wasn’t my friend.”
¹⁴⁴

Who were those “certain people,” and why was it only then that they succeeded in lobbying Putin even though Browder had been making mischief for Russian oligarchs for a good part of ten years?

Finding irrefutable answers to those questions is impossible for the same reason that investigative journalism is all but absent in Russia – no one will ever go on the record with an account of what happened in backroom talks at such a high level.

But we can easily discern a pattern whereby favour at the very top and protection from above not only determines a businessman’s fortune, but the extent of his chances of winding up in jail. Browder may have misread those patterns, or overestimated his own privilege with regards to Russian elites.

Browder said he believes that one of the companies he invested in, like Gazprom, Surgutneftegaz, and Transneft – though he does not know which one – was behind the move to kick him out of Russia. Indeed, Russian authorities have since accused Browder of buying Gazprom stock to “try to get access to financial and other documents that have strategic significance for Russia.”
¹⁴⁵

“I can’t tell for sure which of the companies gave the order to bar me from Russia,” Browder told me. “I’m certain it was coming from one of the companies whose corruption we were exposing.” If that was the case then it isn’t clear why these companies – which have a hefty state presence or Browder wouldn’t have invested in them – hadn’t pounced sooner, as when Browder helped get the CEO of Gazprom fired in 2001.

The answer may have something to do with the cumulative effect of Browder’s activities in Russia’s hydrocarbons sector.

In 2003, the arrest of Yukos chief Mikhail Khodorkovsky, Russia’s richest oil magnate, sent shockwaves through the business world. The jailing, as we shall see in
Chapter 13
, was the result of
a Russian oligarch breaking the unwritten rules that governed the delicate balance of power between the realm of the businessmen and the realm of the sovereign.

At the time, Browder had believed that the arrest was an attempt by Putin to clean up corporate governance, and even praised the persecution.

“In retrospect, my appreciation of [Putin] was wrong, but at the time I thought he was cleaning up Russia,” Browder said. He saw Khodorkovsky’s arrest as the final coup in reining in the Yeltsin-era oligarchs. The way he understood the aftermath, oligarchs came to Putin “one by one and asked him what they needed to do not to get arrested.”

But Browder’s approval of Khodorkovsky’s arrest may also have been influenced by Hermitage’s financial losses connected with Yukos.

Browder would later recall that Hermitage had a share of Yukos stock in 1999, but that Yukos management deliberately caused those shares to plummet – losing over 99 percent in value. And even though Yukos cleaned up its act, Browder admitted that he was still angry at the company in 2005 for all the pain that it had caused Hermitage.
¹⁴⁶

In 2005, the Rosneft state oil company had capitalized on the partition of Khodorkovsky’s Yukos empire. After the forced bankruptcy of Yukos, its chief production asset, Yuganskneftegaz, was auctioned off to a single bidder, the previously unknown Baikalfinansgrup, for $9.7 billion. Just days later, on December 22, Baikalfinansgrup was purchased by Rosneft. The chairman of Rosneft’s board of directors is Igor Sechin, Putin’s right-hand man, who for years has been regarded as the second most powerful man in the country. It is to him that critics credit the dismantling of the Yukos empire.

According to one version of events cited by one of Russia’s most respected business dailies, in October 2005, just a month before Browder was expelled, Hermitage had interfered with the consolidation of Rosneft’s subsidiaries just as it was gearing up for an initial public offering in April of 2006. According to this version, the interference was reportedly serious enough that it prompted Sechin to lobby personally for Browder’s expulsion.
¹⁴⁷

Browder has denied any involvement in Rosneft and its subsidies; more convolutedly, so has Sechin himself.

According to Yelena Panfilova, the head of the Russian branch of Transparency International who has extensively investigated not only Magnitsky’s case, but Browder’s work in Russia as well, indirect involvement in Yukos assets probably contributed to Browder’s eventual expulsion – but could not have been the only factor.

“The strengthening of his position in regards to these assets could have caused some degree of nervousness among the players, who saw this as their spoils alone,” she told me when I asked about the Yukos connection. “I can’t say that he took part directly, but that when these assets were sold, certainly some shares wound up in their portfolios.”

“He got a false sense of being privy to these elites, and it was false because these elites had their own criteria about who was privy and who was not,” Panfilova explained. “And this let him down him, as it let down a lot of people in history. When you think you’re an insider, but it turns out that they’ve only let you near them, but haven’t made you one of them.”

When Browder started flaunting his “alignment of interests” with Putin in 2005, he crossed the line by presuming a degree of closeness and loyalty that no foreign investor could ever have. When Browder crossed the line, he lost his
krysha
, his “roof,” and his presumably “favoured” status. The “inner circle” of ministers that Browder had so prided himself on knowing, now cut him loose. The state, personified by Putin and by the ministers, turned away from him and left him at the mercy of the paper law. They didn’t trigger the string of embezzlement, fraud and extortion charges – that came from specific law enforcement officials – but by distancing themselves from Browder they made it clear to law enforcement predators that he was fair game.

The phone call from Lieutenant Colonel Artyom Kuznetsov, ostensibly about Browder’s visa, was an overture from a new, albeit, lower level type of
krysha
– Kuznetsov was offering Hermitage his protection services. But Hermitage refused.