© The Financial Times Ltd 2013 FT and 'Financial Times' are trademarks of The Financial Times Ltd.
July 27, 2012 6:03 pm
A decade ago, Bill Browder was flying high as one of the most successful foreign investors in Russia. With $4.5bn under management, Browder had committed his career and a lot of his investors’ money to proving his proposition that the shares of Russia’s newly privatised, resource-rich companies were absurdly cheap.
The cocksure, US-born fund manager aggressively argued to anyone prepared to listen – and to many who weren’t – that President Vladimir Putin had been unfairly maligned in the western press and was intent on bringing prosperity and order to the biggest country in the world, after the rapacious criminality of the 1990s. To the disgust of many, Browder declared himself delighted when Mikhail Khodorkovsky, once Russia’s richest and most powerful oligarch, was arrested in 2003 and jailed. “Who’s next?” Browder asked cheerfully.
Two years later, however, Browder’s fortunes suffered a similar convulsion of fate. Returning to Moscow one Sunday evening in November 2005, after a routine trip to London, his visa was rejected for unexplained reasons. He was expelled from the country the next morning and declared a threat to national security. His panicking investors stampeded out of his Russia fund, known as Hermitage Capital Management. He was forced into a fire sale of his Russian assets, reducing his funds to just $50m. Hermitage’s offices in Moscow were later raided by the Russian tax police, amid allegations of fraud.
Browder’s career as an investor in Russia had been wrecked, but worse was to follow. Sergei Magnitsky, a dogged lawyer who worked for the law firm that represented Hermitage, later discovered that the Russian authorities had perpetrated a tax refund fraud, using forged Hermitage documents to transfer $230m of state money to a criminal gang. Rather than congratulating Magnitsky for his assistance, the authorities accused him of orchestrating the fraud himself and arrested him in November 2008. After almost a year’s detention, during which time he was repeatedly denied medical treatment, he was beaten to death in his jail cell.
Browder remembers receiving the phone call at his London home at 7am informing him of Magnitsky’s fate. “When I learnt of his death it was like a knife going right into my heart. And I can’t say that I’ve even begun to recover from the shock, trauma and outrage that I felt on that day,” he says. “The only thing that gives me any comfort is spending my days single-mindedly pursuing his killers.”
From that day, Browder has devoted the same near-manic energy he once spent on cheerleading investment opportunities in Russia to exposing the country’s darker side. He has travelled widely in Europe and North America, publicising Magnitsky’s case and lobbying politicians and diplomats to raise the issue with their Russian counterparts. He and a team of five dedicated researchers have published reports forensically describing Magnitsky’s detention and death, financed several films highlighting the links between Russian officials and the criminal underworld, and, with the lawyer’s family and friends, helped set up a website, called Russian Untouchables, which airs the videos and documents corruption.
His campaign may soon result in the US Congress adopting a law naming the 60 Russians identified by Browder as being responsible for the false arrest, torture and death of the 37-year-old lawyer. The act, which has been ferociously resisted by the Kremlin and the US administration and some business interests, would freeze the foreign assets of, and deny visas to, those named individuals.
If adopted, as now seems likely, the law would be one of the most arresting human rights initiatives in years, an extraordinary example of what Browder calls “civilian diplomacy”. Unprosecuted miscreants from other countries could be added to the list. Parliaments in Europe could well be encouraged to follow the US lead. “There could be no more fitting tribute to Sergei,” says Browder. “He believed in the power of the law.”
Cussed contrarianism appears to course through the veins of the Browder family. Bill’s grandfather, Earl, was a communist, who twice contested the US presidential elections, in 1936 and 1940. Earl Browder’s arguments mostly fell on deaf ears in the US – even during the Depression era. But the Kremlin did not receive them much more warmly either. His conviction that communism and capitalism could peacefully coexist in the postwar world earned him the enmity of Stalin, who denounced Browderism as an ideological deviation.
Growing up in Chicago in the 1970s, Bill rebelled against his upbringing – like any self-respecting teenager. “But if you come from a family of left-leaning communists the best way to rebel is to put on a suit and become a capitalist. And that’s what I did,” he says.
After studying economics at the University of Chicago, famed for its espousal of free market principles, Browder worked at Bain Capital, the private equity firm, where his first boss was Mitt Romney, now the Republican presidential candidate. “He was exactly like he is today: one of the most competent, charismatic, reliable leaders you could ever come across,” Browder recalls. “He was like this perfect human being destined for great things.”
Browder filled out his résumé by studying for an MBA at Stanford Business School, graduating in 1989, the year the Berlin Wall fell. The collapse of the Soviet empire piqued his imagination and fuelled his ambition. “I had this epiphany: my grandfather was the biggest communist in America; wouldn’t it be beautiful if I could be the biggest capitalist in eastern Europe. So I set out to do that,” he says.
After stints working for Robert Maxwell’s eastern European private equity business – until the corrupt British magnate fell off his yacht – and Salomon Brothers, “the most Wall Street of Wall Street firms”, as Browder describes it, he decided to set up his own Russia investment fund, backed by $25m from Edmond Safra, the legendary Lebanese-born investor.
the amount Bill Browder’s Hermitage fund managed in Russia at its height in 2005
To pursue his dream, Browder moved to Moscow in 1996, working out of a small office with picnic tables and chairs. By the end of the first year the fund had grown to $125m. The next year, surging on a wave of foreign money flowing into Russia, his fund returned an astonishing 228 per cent. “I had clients inviting me on their yachts,” he says. An interview in the FT in 1997, in which Browder talked enthusiastically about the country’s possibilities, was headlined “Russia’s True Believer”.
The financial crash of 1998, resulting in the default on government debt and the devaluation of the rouble, shattered Browder’s faith in Russia and devastated his fund. Without the lure of foreign investment, Russian corporate bosses, including Khodorkovsky, had little incentive to treat their minority shareholders – such as Browder – well. “There was an orgy of stealing unprecedented in business, with dilutive share issues, transfer pricing, asset stripping and embezzlement,” he says.
the amount of state money involved in the tax refund fraud perpetrated using forged Hermitage documents
Stung by the loss of so much of his investors’ money, and appalled by the behaviour of some of Russia’s companies, Browder began campaigning against these corporate abuses. For a while, his troublemaking was aligned with the Kremlin’s interests. Putin had vowed to crack down on the oligarchs and Browder was helping him to do just that by exposing their misdemeanours. But Browder believes that Putin’s tactics changed following the arrest of Khodorkovsky and the seizure of his Yukos oil company, causing a shift in the balance of power between the Kremlin and the oligarchs. Until then, Browder argues, Putin had mostly been acting in the national interest. But after 2003, Russia’s fearful oligarchs rushed to cut deals with the Kremlin, presenting Putin with an irresistible opportunity to extend his power and wealth.
“Putin tasted the forbidden fruit,” Browder says. “From that moment on, the oligarchs became his business partners as opposed to his opponents, and all the corporate governance work I had been doing became a huge pain in their backside.”
Browder does not know for sure what triggered his expulsion, but suspects it was his corporate governance campaign against either Gazprom, the vast, state-backed gas business, or Surgutneftegaz, a Siberian oil giant. But the consequences for his business were fatal.
Among western observers of Russia, Browder remains a contentious figure. Some are privately critical of him, first for being blind to so many of Russia’s flaws, and latterly for being blind to any of its virtues. Some investors also note that the moral outrage he displayed during his corporate governance campaigns often appeared conditional on which side of the deal he was on.
Leon Aron, a Russia scholar at the American Enterprise Institute in Washington, says: “We were appalled when Bill Browder attacked Khodorkovsky when he was arrested and kicked a man when he was down. But I believe in epiphanies. Browder is now conducting a moral crusade.”
. . .
At times, the 48-year-old Browder, in common with some other Chicago school economists, radiates the impression that any overt display of emotion is a suboptimal form of human behaviour. But no matter how many times he has recounted the tale, the tears well up in his eyes and his monotonal voice begins to waver when he describes what happened during the final months of Magnitsky’s life.
After Magnitsky was arrested at his home in November 2008, the lawyer was detained for 358 days and subjected to intense pressure to confess that he had masterminded the $230m tax fraud. With an abiding faith in the importance of procedure, Magnitsky meticulously documented his detention and repeatedly challenged the authorities about perceived abuses. Forced into overcrowded, underheated cells with convicted murderers, Magnitsky fell seriously ill in June 2009 with severe abdominal pains, later diagnosed as pancreatitis, cholecystitis and gallstones.
days, the length of time Sergei Magnitsky was detained before his death in November 2009
Magnitsky and his lawyers claimed they lodged 20 requests with the authorities for urgent medical attention. They were all denied. In November, he fell into a critical condition and was transferred to Matrosskaya Tishina (Sailors’ Rest) detention centre for emergency hospitalisation. But instead, he was placed in an isolation cell, handcuffed to a bed, and beaten by eight prison officers until he collapsed. Civilian doctors were called but were not allowed to enter his cell for one hour and 18 minutes. They found Magnitsky dead on the floor, lying in a pool of urine with bruises on his wrists.
Magnitsky’s family – and a local police officer – pressed to open a murder investigation. But the interior ministry claimed that Magnitsky had never complained about his health and his death had come as a “shock” to the investigators. Similarly, the prosecutor’s office found that there had been no evidence of wrongdoing, attributing his death to heart failure.
Russia’s then president, Dmitry Medvedev, keen to project an image as a champion of judicial reform, called several times for a proper investigation. In an interview with the FT in June last year, he said: “The Magnitsky case is a very sad incident. However, it is an incident that needs a very thorough investigation, first of all, what really happened and why he was taken into custody, who was behind that, what deals were clinched by both those he represented and by the other side.”
But in August that year, in a twist worthy of a Gogol novel, the interior ministry investigators responsible for Magnitsky’s arrest opened a new case against the deceased lawyer – and Browder – for tax evasion dating back to 2001.
Every setback only appears to have fired Browder’s determination to pursue the issue to the end. He says many friends and advisers have urged him to walk away, telling him his campaign is unsafe and unprofitable. But Browder says he has a “physical, visceral aversion to not doing what I thought was right”. “I couldn’t walk away and swallow what they had done to Sergei,” he says.
Browder has rebuilt his career as a successful fund manager in emerging markets – excluding Russia – and has settled in London with his family. An avid hiker and skier, he is also a big fan of the conspiratorial Bourne movies, starring Matt Damon. But Browder still devotes much of his time, energy and money to “getting the bad guys”, as he puts it, in real life. “If I had devoted the last three years to making money, I could easily have made tens of millions of dollars. But this is more important than money,” he says.
“Bill, you are a genuine American hero,” senator John McCain told Browder at a meeting in Washington last month. McCain was the 2008 Republican presidential candidate and is now the senior Senate Republican on foreign affairs; Browder became a British citizen more than a decade ago. But in today’s polarised Washington, interest in the Magnitsky case knows no political boundaries. McCain was speaking hours before the Senate foreign relations committee unanimously approved the Magnitsky bill, the first step towards becoming a law. “Without your unyielding sacrifice,” McCain said to Browder, “we would not be where we are today.”
The final approval of new laws in the US remains dependent on dozens of political calculations that can change at any minute. Yet there is a strong chance that the US Congress will approve the Magnitsky bill in the coming weeks and that President Barack Obama will then sign it into law. It will be, as David Kramer, president of the Freedom House think tank, puts it, “the most significant human rights legislation about Russia since the end of the cold war”.
McCain, one of the early supporters of the bill, recalled the day he first heard about the case, when Browder visited his spacious offices in the Russell Senate office building. “I did not know who Bill was. I have to be honest and say that I did not know quite whether to believe the story. It seemed like something from a novel,” he said. “But in the end I was deeply moved by it, and by his passion and his commitment.”
Browder had meetings with pretty much anyone in Washington who would agree to see him. Not only was the case of Magnitsky a compelling one – “he is almost a literary figure, a genuine Russian hero”, as one Senate aide puts it – but Hermitage had the technical skills to provide the precise details about money flows that backed up the story. And in Browder, it had a figure who could present the case with fluency and energy. In 2009, Ben Cardin, a Democratic senator from Maryland, chaired a hearing on human rights issues in Russia, with the Magnitsky case given top billing. Browder presented his case to great effect. “He is very good at telling his story,” says the aide. “That makes all the difference up here.”
Yet even as Browder gathered support on the Hill, his campaign could easily have languished. The fact that the US Congress is now on the verge of passing a law based around the Magnitsky case revolves around three further factors – the behaviour of the Russian government, the response of the State department and a liberal dose of political luck.
. . .
At the time Browder began doing the rounds in Washington, Dmitry Medvedev had recently taken power in Russia and relations with the US seemed to be improving. The US officials and members of Congress who raised the Magnitsky case took seriously Medvedev’s insistence that the case would be thoroughly investigated. But gradually, members of Congress began to believe that a substantial cover-up was taking place. About one year after Magnitsky’s death, word began to leak out that several of the Russian officials involved in his case had been awarded medals. The news was greeted with outrage among those members following the case.
the number of Russian officials implicated in Sergei Magnitsky’s death and the corruption he exposed
Growing anger with the Russian authorities combined with a feeling on the Hill that the State department was largely indifferent. In April 2010, Cardin’s office prepared a list of the officials involved, with help from Browder’s office, and sent it to the State department, demanding they be banned from visiting the US. In the House, Jim McGovern, a Democrat from Massachusetts, was already pushing the idea of introducing legislation to target the Russian officials. Cardin said he would wait to see how State dealt with the case. In the end, he had to wait about two months for a response. The State department dismissed his call for a visa ban.
Cardin is diplomatic about the administration’s performance. He says that the State department was “initially reluctant”, but began to take the case seriously once secretary of state Hillary Clinton became personally involved. He lays the blame on the Russians. “If the Russians had handled the case better, we would not be here today,” he says. Senate aides who worked on the bill say, however, that Cardin only threw his weight behind the bill after the initial brush-off from the State department.
As support for the bill grew in Congress last year, the State department tried to head off the problem by letting it be known that it had banned visas for those involved. However, it did not give any details about how many people it was banning. While Cardin’s list contained 60 people, Russian newspapers suggested that 11 people would be denied visas. In an editorial in the Washington Post, Cardin signalled that the State’s response was welcome, but that he was forging ahead with his bill. “We must be willing to see beyond the veil of sovereignty that corrupt officials often hide behind,” he wrote.
Even then the legislation did not progress, held up by other senators sympathetic to the administration’s desire to avoid an open confrontation with Moscow. But that resistance broke down earlier this year, when Russia completed negotiations to gain entry to the World Trade Organisation. The US Congress still has a 1974 amendment on its books called Jackson-Vanik, a series of trade restrictions to encourage the Soviet Union to allow Jewish emigration and improve human rights. The law is incompatible with WTO rules, so if US companies want to get the benefit of lower Russian tariffs and other business-friendly measures, Jackson-Vanik must be repealed.
The Obama administration has found itself snookered. Under heavy pressure from business lobbies, normalising trade relations with Russia has become a priority. But in the process, it gave the many supporters of the Magnitsky bill the leverage they needed. We will support your bill to normalise trade relations with Russia, they said, but the price will be approval of Magnitsky.
the number of people who have watched Bill Browder’s films on the Russian Untouchables’ website
Shortly after Michael McFaul arrived in Moscow earlier this year to take up his post as the new US ambassador, he began to find that Russian TV crews were following his every move. As he came in and out of meetings he was subjected to highly aggressive questioning by journalists from NTV, a government-controlled channel. McFaul had previously been a Stanford academic specialising in human rights in Russia, making him a provocative choice as ambassador. At one stage he began to think that his emails were being hacked to get hold of his agenda. “You are with me everywhere, at home – it’s interesting,” he says on one of the filmed exchanges with a Russian TV crew. “Aren’t you ashamed to be doing this?”
The casual harassment of McFaul could be the prelude to a much rougher phase in relations with Russia if the Magnitsky law is passed. The Russian authorities have already promised they will retaliate in kind. In early July, a group of Russian senators even visited Washington to deliver this message. There will be “countermeasures that would let the Americans feel the strength and power of Russia’s political clout”, said Valery Shnyakin, deputy chair of the upper house’s committee for international affairs. During the cold war, the Soviets and the US expelled each other’s diplomats: this time they could end up in tit-for-tat visa bans.
But Browder argues that there is a lot of support for the legislation among ordinary Russians. He says that 2.35 million people have viewed his films on the Russian Untouchables website, 95 per cent of them in Russia. The site encourages “citizen investigators” to submit evidence of corruption. Much of the evidence amassed by Browder’s team has been provided by whistle-blowing Russians fed up with the lawlessness of their own system.
Some of Russia’s present-day dissidents welcome the Magnitsky law as a powerful external constraint on bad behaviour. Vladimir Ashurkov, a supporter of Alexei Navalny, the anti-corruption blogger who has been one of the leaders of the recent anti-Kremlin protests, urges the west to be tougher in dealing with those involved in “hideous crimes”, which go unprosecuted in Russia.
“What Russia’s political and business elite most fear is not having access to capital in the west or a vacation on the Côte d’Azur or sending their children to British private schools,” he says. “I think one of the most important things the west could do is to adopt the Magnitsky legislation.”
the number of former foreign ministers backing a British version of the Magnitsky bill
The tensions over the bill are playing into a broader sense of unease about ties with Moscow that have accompanied the return in May of Vladimir Putin to the Russian presidency. Putin has already brought with him a more pronounced anti-western tone to Russian rhetoric. Within days of taking office, he skipped a G8 summit in May at Camp David, in what was interpreted as a snub to President Obama. Instead, they met two weeks later on the sidelines of a G20 summit. The video footage of the meeting did not suggest a fruitful exchange. “I have watched a number of meetings before between world leaders, but I doubt if I have seen anything quite like the body language between Putin and our president,” McCain said shortly afterwards.
The State department has long argued that the Magnitsky bill is unnecessary because it already has the power to deny visas to the Russian officials involved. Some lawyers fret that the proposed law also violates the presumption of innocence for those named and contains no adequate process for appeal. US diplomats worry that Russian co-operation over Afghanistan and Iran might be endangered, and that it will become ever harder to get Russia to switch sides on Syria. Dealing with Putin is hard enough, they suggest, without the added provocation of the Magnitsky bill. Browder has a more blunt view of the administration’s opposition to the bill.
“There is an almost universal fear of Russia. Democrat or Republican, Tory or Labour – all foreign ministries are afraid of Russia and of doing anything to upset it,” he says. “The White House and State are terrified of Putin.”
As passage of the Magnitsky law has become more likely, there have been various attempts to soften the blow to Russia. One solution in the Senate has been to frame the bill as being about human rights violators everywhere, not just in Russia. Some in the human rights community think this is a bad idea, because without a clear focus they fear the law will lose its impact. However, others are delighted at the prospect.
They believe this would oblige the State department to publish regular lists of the worst abusers around the world, forcing it to become a more public advocate for human rights. And they have one clear target in mind – China.
. . .
Support for the Magnitsky bill can be found in some surprising places in Washington. Dimitri Simes runs a think tank called the Center for the National Interest, one of the intellectual homes for realist thinking about the foreign affairs, the idea that policy makers should pursue an unsentimental defence of national interests rather than defend moral causes. There is a holier-than-thou quality to the Magnitsky bill that is almost designed to grate with realists, yet Simes believes the bill is a potentially good idea. He offers his support with a large caveat, though. “Pressure does work,” he says. “But you also have to know when to stop.”
Stopping appears to be the last thing on Browder’s mind, as he attempts to use the momentum his campaign has gained in the US to speed the adoption of similar legislation elsewhere. Several parliaments across Europe have backed resolutions urging the Russian authorities to conduct a proper investigation into the Magnitsky case and pressing their own governments to act.
In Britain, Conservative MP Dominic Raab wants a British version of the Magnitsky bill. In March, he sponsored a parliamentary motion backed by five former foreign ministers and unanimously approved by the House of Commons, calling on the government to enact legislation imposing asset freezes and visa bans on Russian officials involved in the Magnitsky case. Raab, a former foreign office lawyer, believes such legislation could create a “workable mechanism” that would enable western democracies to express their revulsion at flagrant human rights violations without wrecking state-to-state relations. “I like it because it is doable,” he says.
Earlier this month, Raab hosted Browder in Committee Room Nine at the House of Commons, allowing him to show his latest film and discuss his campaign. When challenged from the floor as to why he was pursuing the Magnitsky case so relentlessly, Browder replied: “He got killed because of me. If I had not personally persuaded him to work for me he would still be alive.”
But Browder made clear that even the successful adoption of punitive legislation against those involved in the Magnitsky case would not mark the end of the affair. “Our strategy is to make it ever-more costly for the Russian government to protect these people rather than prosecute them,” he said. “We have a lot more fun planned for those people involved.”
John Thornhill is the FT’s news editor. Geoff Dyer is the FT’s US foreign policy correspondent, based in Washington, DC
Copyright The Financial Times Limited 2013. You may share using our article tools.
Please don't cut articles from FT.com and redistribute by email or post to the web.