This is the story of a plot so complicated, it took a lawyer to unravel. And when he finally did, he was killed.
The lawyer, Sergei Magnitsky, worked out of Moscow for an American firm, and discovered that one of his clients, Hermitage Capital Management, was defrauded 230 million dollars.
It all started in 2007 when 50 police officers from the Moscow Interior Ministry raided both the offices of the law firm and the fund, claiming to be working on a tax investigation. The officers confiscated documents related to all of the fund’s investment companies, in gross violation of the search warrant that they actually possessed.
However, my suspicion is that such seizures aren’t entirely out of the ordinary in Russia, and so nobody was alarmed when this happened. Nobody was confused until later that year when the investment firm received a telephone call inquiring about a court judgment that had fallen against one of the fund’s Russian companies, that had, to the recollection of those legitimately involved, never been to court.
Mr. Magnitsky looked into the situation and found out that some of the Russian companies that Hermitage was invested in had been sued by fake companies using forged and backdated contracts, documents whose creation would have only been possible with the seizures from the raids on their offices. The Hermitage fund’s companies were represented by dummy lawyers that weren’t hired by the firm, and they plead guilty to all of the charges levied against them in court. This is where the fraud occurred; the liabilities from the forged contracts amounted to millions upon millions of dollars, and the judgment was the the companies owed that money to their clients.
Going beyond even that, the companies were effectively stolen by a murderer, who re-registered the companies under the name of one of his own. This was done so that the companies, now run by thieves, could turn around and claim that the illegitimate court judgments had wiped out their profits, and ask for their tax money on the now-nonexistent profits to be returned.
The Russian tax authorities granted this request. A “refund” of $230,000,000 for overpaid taxes – indeed, the largest of its kind in Russian history – was wired to the stolen company.
If this all sounds like the most elaborate and disturbing way of conducting a heist, just wait. It gets worse.
Before the money had even been “refunded” to the stolen company, Mr. Magnitsky had, on the behalf of Hermitage Capital Management, already filed numerous and lengthy complaints detailing the frauds with three different Russian law enforcement agencies. The agencies proceeded to pass those filings back to the police officers named in the complaints as a substitute for conducting investigations. The police officers retaliated by starting criminal cases against various employees of the fund.
Mr. Magnitsky sent different government offices over 50 requests for information regarding the stolen companies, and managed to piece together what had happened. The corruption was blatant, and stunning in its magnitude and reach within the Russian government. He felt compelled to do something, so he prepared a detailed complaint about the stolen tax money and filed it with seven different Russian government agencies.
The Interior Ministry officers implicated in the complaints opened criminal cases targeting all of the lawyers representing Hermitage. The pressure was intense, and six of the seven lawyers fled Russia. Magnitsky remained, because he was sure that he hadn’t really done anything illegal. He naively believed that innocence alone would be enough to win a case in the Russian justice system.
It wasn’t. After testifying against powerful, but corrupt officials in court, he was arrested on a phony charge and spent the short remainder of his life being moved through a set of progressively worse prisons before finally dying of illness caused by conditions tantamount to torture. The cell that Magnitsky was kept in lacked glass in the windowpanes, enabling the frigid weather to do its worst. There was no toilet, only an overflowing hole in the floor. Nobody ever held a gun to his head, yet his ability to survive was slowly chipped away at by a system that denied him the good health he had been in when he had arrived.
Like the convoluted way Hermitage’s adversaries had gone about their fiscal crimes, the murder of Sergei Magnitsky is similarly troubling; not only because of the evil inherent in the deed, but also because of how utterly legal the method was.
Rather than sending a hit man to his house with a gun, Mr. Magnitsky’s tormentors had him locked away in a cell. Not one in somebody’s basement, but one in a federal prison run by a national government that operates with all of the airs of legitimacy that bureaucracies the world over do, but which happened to be run by crooks. Smart crooks, who used the powers vested within the papers they pushed around to silence the one man who tried to get in the way of their undue windfall.
Instead of defending the lives and property of its citizens from wrongdoing and holding those who perpetuate misdeeds accountable, the Russian government has instead done the exact opposite: it has let itself become a tool for those with criminal intentions. In this case, it was used to move a massive amount of money from one bank account to another, and kill the man who tried to expose it all. To anybody who had hoped for reforms, transparency, and reduced corruption from the Russian government in the 21st century, those hopes were dead before the first decade of it ran out.
Sergei Magnitsky died on November 16, 2009. R.I.P.
- sf1
For the much-longer piece that inspired this post, click here
Another article I referred to while writing this – on WSJ.com
