Private probe: Officials in Russian tax fraud case stashed millions offshore


Russian lawyer Sergei Magnitsky in Moscow. The November 2009 death of 37-year-old attorney Sergei Magnitsky gained broad international attention and refocused Western concerns about corruption in Russia. (-/AFP/GETTY IMAGES)
April 18, 2011

The American investor who once employed Sergei Magnitsky, a whistle-blowing lawyer who died unattended in a Moscow jail cell in 2009, said Monday that tax officials involved in the fraudulent $230 million refund scheme that Magnitsky was trying to expose have bought millions of dollars’ worth of real estate in Russia, Montenegro and Dubai, and stashed millions more in offshore bank accounts.

The accusation, which came in the form of a YouTube video and an application to the investigating committee of the Russian prosecutor’s office, includes banking and property records that appear to back up its allegations.

“This information is so damning that if Russia continues to deny that anything happened, it becomes impossible for Western leaders to look [President Dmitry] Medvedev in the eye and see him as a legitimate head of state,” said William Browder, the investor who runs Hermitage Capital and who has spent the past year and a half trying to expose the circumstances of Magnitsky’s incarceration and death.

“This is a pivotal moment for Russia,” he said.

The choice facing Russian leaders, he said, is whether to “hang these people [the tax officials] out to dry,” thus jeopardizing the loyalty of the legions of other corrupt officials who make up the system today, or continue to deny that Magnitsky was the victim of a conspiracy and deal with a loss of trust internationally and probable sanctions.

A spokesman for the Russian tax agency said Monday it would have no comment.

The case has attracted considerable international attention. The United States, Europe and Canada have moved to place sanctions on the movements and overseas holdings of 60 Russian officials who were involved in it.

It began in 2007, when police raided two subsidiaries of Hermitage Capital here, and seized corporate records and stamps. A year later Magnitsky discovered that control of the companies had been transferred— Browder says they were stolen — and that they were applying for a $230 million tax refund. That refund was granted within the space of a day, and the money was deposited in a Russian bank that has since gone out of business.

Hermitage’s accusation says the money was sent to an account at Credit Suisse in Switzerland. That account was then used to buy properties at a development in Dubai for several officials at the tax office that handled the refunds, according to records supplied with the accusation. The head of the office, Olga Stepanova, also bought a seaside home in Montenegro and built a design-award-winning house in Moscow’s most prestigious suburb, the complaint says.

In all, Browder said, Hermitage believes that it has traced up to $43 million of the tax refund. The company argues that the tax officials were aided by the police officers who raided the Hermitage affiliates, the same ones who later arrested Magnitsky. They have since been decorated and promoted. Browder said the company has about 100 sources within Russia who have provided information about the case.

Magnitsky was taken into custody in November 2008 after he alerted authorities to the scheme, and he was charged with planning it himself. Denied medical care, he died in apparent agony after spending a year in jail. In Browder’s view, he was murdered.

A Russian court ruled in 2009 that the tax refund was a fraud. But prosecutors said that the tax officials were duped into approving it. Apparently none of the money has been recovered.

Stepanova, who with her husband reported an income of less than $40,000 a year, left the agency after the Hermitage deal; Alexei Navalny, the crusading anti-corruption blogger, says she now works for the state-owned company that handles delivery of Russia’s weapons sales. A representative of that company said Monday she would not confirm that Stepanova works there.

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