Investment firm dares to push charges of corruption in Russia

By Philip P. Pan
Monday, October 19, 2009

MOSCOW -- Hermitage Capital Management, once the largest foreign investor in the Russian stock market, is escalating its campaign to force the Kremlin to punish officials suspected of stealing $230 million from the government last year, saying in a new complaint that the same people have bilked the Russian treasury out of another $230 million.

The document, delivered Friday to Sergei Stepashin, head of the state audit authority, bolsters evidence previously presented by the London-based firm implicating a host of police officials, bankers, judges and lawyers in a massive fraud remarkable even by standards in Russia, where official corruption is widespread.

Businesses here rarely go public with such specific allegations of corruption for fear of angering high-level officials and closing off commercial opportunities. But Hermitage has mounted an unusually stubborn campaign to shame the Kremlin into taking action, releasing YouTube videos in English and Russian this month that have been viewed more than 50,000 times. It has also obtained subpoenas in New York seeking to follow the trail of the stolen funds through Western banks.

Its latest complaint accuses several bureaucrats in two Moscow tax agencies of involvement in the crime and lists more than 30 suspicious tax refunds issued by the agencies between 2006 and 2008, as well as the account numbers of the recipients.

Hermitage's U.S.-born chief executive, William F. Browder, was expelled from Russia in 2005, and the firm sold its Russian assets and relocated to London soon afterward. But criminals later seized control of its Russian holding companies and used them to obtain a fraudulent tax refund of $230 million, Hermitage says.

When the firm reported the scheme, the authorities ignored its complaint and went after its lawyers, several of whom fled the country. One, an accounting specialist named Sergei Magnitsky, was arrested and is awaiting trial on what his defenders say is a trumped-up tax-evasion case. Russia's Interior Ministry has also said it wants to pursue charges against Browder.

The ministry has acknowledged the $230 million theft, but it assigned officials implicated by Hermitage to handle the case and has prosecuted only one suspect, a sawmill employee whose name appeared on some of the fraudulent documents.

In the latest complaint, which Hermitage provided to reporters, the firm says two subsidiaries of the well-known Russian investment firm Renaissance obtained nearly $110 million in fraudulent tax refunds in 2006 and lists eight other bank accounts that received $120 million more in suspicious refunds. Renaissance has denied any knowledge of or involvement in the alleged fraud, saying it had sold the companies.

The complaint also identifies 10 tax officials in Moscow whose names appear in documents approving or covering up the transfers. Reached by phone, one of the key officials, Olga Tzyimai, a department chief in Moscow Tax Authority No. 28, declined to comment and referred questions to the agency's press service, which did not respond to questions.

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