While armchair espionage is a fool’s errand, somebody seeking one explanation of why human rights activists are clamoring for Russian sanctions could turn to Red Notice by Bill Browder. Russian oligarchs, of course, will tell another story.
The book is very well-written; turning a cruel true-crime story into a tear-jerking labor of love. And while it would be preferable to try to crowd out the darkness in the world by filling our short lives with joy; it was such a naïve choice that led Sergei Magnitsky to a sad end.
Browder is the grandson of Earl Browder, the leader of the Communist Party USA at its height. Browder points out the irony in the grandson of the man who wanted to bring communism to the West being driven to bring capitalism to Eastern Europe.
Already in finance, Browder’s break came when Poland was privatizing assets. A recurring theme in the book is that when Browder comes across something that sounds too good to be true, he asks why and then gathers the data he needs to answer. In this case, he found the Polish government was selling one particular company for half its earnings, so he invested. Within the year, his investment grew almost tenfold.
He found signs of the same issue in Russian privatizations, so he investigated whether the process was widespread and found enormous untapped potential in the strange voucher system the Russians were using, the one that transferred 39% of the Russian economy to 22 oligarchs.
Browder was able to get backing from a renegade at the firm for which he was then working. But profits were so good, he founded Hermitage Capital Management with $25 million from Beny Steinmetz and asset management from Edmond Safra. The company continued uncovering, investigating, and exploiting chinks in the Russian stock market.
Browder’s first encounter with the Russian oligarchs came when one of Hermitage’s large investments, Sidanco, maneuvered to dilute his shares exclusively. Browder and others working with him exposed the scam, and they received a fair judgment from Dmitry Vasiliev, chair of the Russian Securities and Exchange Commission. Vasiliev was one of very few bureaucrats they would encounter who was bold enough to enforce the rule of law.
The next blow to Hermitage came when the Russian economy tanked. Interest rates reached 120%, the government stopped supporting the ruble, and it defaulted on domestic debt. Then, Russian oligarchs pocketed the $22.6 billion bailout arranged by the IMF and the World Bank.
Browder recovered from that, but he kept uncovering ways oligarchs were stealing businesses. Once he obtained a copy of the meticulous records of the Moscow Registration Chamber Database, he was able to more clearly identify when it was happening. And he would go public with his findings.
This is something Russians wouldn’t do for fear of retaliation; but Browder claims he succeeded, at first, because people assumed he was “Putin’s boy.” Back then, Browder thought he was working with Putin to bring kleptocratic oligarchs to justice. This changed when he saw Putin was only going after them for what might be called theft insurance, and to make an example of anybody who did not support him politically.
Eventually, Browder was detained and deported. Fortunately, he was connected enough to have body guards and government contacts. Persons investigating the matter told him this was only the beginning, and people in Putin’s inner circle at the FSB had been sicced on him to, “deprive Hermitage of its assets.”
Browder’s offices were then raided, and materials collected therefrom were used to reregister some of his holdings and claim tax refunds totaling $232 million. The money was invested in laughable excesses in the perpetrators’ parents’ names. The perpetrators, Artem Kuznetsov and Pavel Karpov, were then given oversight of investigations into the trumped-up charges.
Browder got his clients’ money and his at-risk employees out of Russia safely, except for the brilliant lawyer who unraveled the scheme. Magnitsky would not leave Mother Russia because its citizens had been slighted, and he believed justice would prevail in the end.
Instead, Magnitsky was imprisoned and tortured until he was beaten to death. While he still had breath, Browder was crusading for his liberty. Only after it was too late for Magnitsky did the United States take the lead in sanctioning Russian oligarchs for human rights violations.
And Putin retaliated by saying if the United States deprived his oligarchs of their graft, he would prevent American families from adopting children needing medical attention they couldn’t get in Russia. And that’s where we are today.