By Alexander Osipovich
It’s a bright, cold Thursday morning in London,
and William Browder is on the warpath again. The head of
Hermitage Capital Management is starting his day with a
two-hour media interview. This afternoon he plans to get on the
phone with members of British Parliament. And
he’ll soon fly to Washington to lobby U.S.
senators — all part of a sweeping campaign to avenge
what he calls the torture and murder of his lawyer Sergei
Magnitsky in a Moscow jail.
||William Browder: I
feel like I have two jobs at the same time.
Photographs by Tony Law
In the meantime, Browder has a couple of hedge funds to
manage. Hermitage, which used to be the biggest foreign
portfolio investor in Russia, has evolved into a long-short
emerging-markets fund manager with investments that span the
globe from Asia to the Middle East to Latin America.
"I feel like I have two jobs at the same time," says
Browder, 47, a U.S.-born British citizen whose charming,
soft-spoken manner in private contrasts sharply with his
reputation as a tough operator in the business world.
He’s sitting in a conference room, sipping a cup
of tea at Hermitage’s headquarters. The room is
decorated with framed newspaper clippings about
Browder’s war with the Russian authorities. Many
feature photographs of Magnitsky, the lawyer whose death in
2009 has become an international cause célèbre
and a major headache for the Kremlin.
Browder is fighting a war on two fronts. On one of them
he’s waging a relentless campaign to punish the
Russian officials he accuses of complicity in
Magnitsky’s death. On the other he’s
trying to make his comeback as an investor. Expelled from the
country where he achieved fame and fortune, Browder has sought
to reinvent himself as a global emerging-markets manager.
It has been a long, hard slog on both fronts. But the
ever-combative Browder shows no signs of backing down.
Ten years ago he won fame for his fierce battles with
Russian companies like state-controlled energy giant Gazprom.
He pioneered a model that blended activist investing with
skillful use of the media and applied that to the
rough-and-tumble world of Russian finance. Over its first
decade his Hermitage Fund enjoyed a total combined return of
more than 2,500 percent, with assets peaking at $4.5 billion in
2005, while Browder earned a reputation as a crusader against
"Bill single-handedly put corporate governance on the map in
the Russian investment space," says Bernard Sucher, former head
of Merrill Lynch & Co. in Russia.
Yet Browder had numerous detractors. Some griped that he was
a showman obsessed with publicity. His campaigns angered top
Russian executives, as well as some Western investors who might
have been his natural allies. Controversially, he was also a
strong supporter of Vladimir Putin, the former Russian
president who appears set to return to the Kremlin in 2012.
Notably, Browder was among the few prominent Westerners to
endorse the arrest of oil tycoon Mikhail Khodorkovsky, a
leading Putin rival.
Then, on November 13, 2005, Browder was unexpectedly denied
entry into Russia after a flight from London to Moscow. He soon
learned that he had been placed on a list of foreigners banned
from the country as threats to national security, public order
or public health. Moscow has never provided a clear explanation
for why this happened. But most analysts and investors, as well
as Browder himself, believe that one of his enemies —
and there are a lot of them — pulled strings to get
Some people say he had it coming. "It’s an
indication of how intemperate he is that he brought so many
lawsuits and made himself so obnoxious to the powers that be
that they kicked him out, " says John Connor Jr., portfolio
manager for Third Millennium Russia Fund, a $35 million mutual
fund focusing on Russian stocks that he founded in 1998.
These days Hermitage has about $850 million in assets under
management. Its flagship, $450 million Hermitage Global fund
operates in emerging markets including Brazil, China, India,
South Africa, South Korea, Taiwan, Thailand and Turkey, as well
as more-exotic frontier markets like Nigeria, Pakistan and
Qatar. Hermitage also has $350 million in managed accounts and
$50 million in its original, Russia-focused Hermitage Fund.
Founded as a long-only fund with a mandate to find deep-value
equities in markets around the world, the Global fund switched
to a long-short strategy in early 2011 and is now
market-neutral. Hermitage has fewer than 20 employees,
including support staff, and no offices except its London
Hermitage Capital Management
Assets under management: $850 million
Flagship: Hermitage Global
Founder: William Browder
Performance: -2.79% annualized since April
Emerging markets became investor darlings in recent years
because their youthful populations and huge growth potential
looked attractive next to the sluggish, debt-ridden economies
of the developed world. But the 2008 crisis, which hammered
developed and emerging markets alike, cast doubt on the thesis
that rising giants like China could continue growing even as
the U.S., Western Europe and Japan slumped. Browder maintains
that emerging markets are doomed to suffer along with the
developed world for the foreseeable future.
So what options does that leave investors? According to
Browder, now is an ideal time to be long-short in emerging
markets. He estimates that there are 1,500 stocks that trade
more than $5 million a day in emerging markets —
roughly the same number as in the U.S. — but with far
fewer hedge funds hunting for mispricings among them.
Browder thinks his team is well positioned to seize the
opportunity. "Our approach is just to apply well-developed
research skills, which we’ve learned over a decade
and a half of being in the business, to markets where
there’s hardly anyone else doing the same thing,"
Skeptics contend that Browder’s moment has
passed and that he is ill suited to investing outside Russia.
"Here he had a real advantage in terms of information flow,
deal flow, contacts," says Eric Kraus, an independent financial
adviser in Moscow who has known Browder for more than a decade.
"Now he is just one more stock picker among the masses."
Browder, however, hopes that the fund’s new
strategy will help him make his comeback. At the start of 2011,
when the global recovery still seemed to be on track, he became
concerned about the instability of the Arab Spring movements
and debt troubles in the developed world. He decided to scrap
his old deep-value strategy and make the Global fund a
long-short fund with no net exposure. The fund became
market-¬neutral just in time to avert catastrophe when
emerging markets tanked in August and September. The Global
fund was down 5.41 percent year-to-date through October, while
the HedgeFund Intelligence global emerging markets equity index
was down nearly 11 percent over the same period.
||Vadim Kleiner: We know
what questions to ask. We always anticipate the situation
to be worse than it is, because we came from Russia.
Browder remains confident about the long term. "We need a
bit of calm for this strategy to work, but I basically saved my
money and my clients’ money from this disaster,"
Many observers were flummoxed by Browder’s
abrupt expulsion from Russia. He was seen as a Kremlin
cheerleader and had tirelessly promoted investing in Russia.
After his blacklisting his team contacted all its friends in
the Russian government for help, but none of their appeals
There is much speculation about who might have ordered
Browder’s visa ban. One popular theory holds that
it stemmed from his campaign against Surgutneftegaz, an oil
company that produces 13 percent of Russia’s crude
output. In 2004, Hermitage led a consortium of minority
shareholders in suing the oil producer to challenge its
circular ownership structure, which effectively allows
Surgutneftegaz to own itself while ensuring that management
maintains a tight grip on the company. Surgutneftegaz is
famously secretive, and some analysts believe that the company
may actually be a piggy bank for some of Russia’s
most powerful interests — perhaps even people in
Putin’s inner circle.
"His deep investigations into the true ownership structure
of Surgutneftegaz and Gazprom were in my opinion the ultimate
cause of the initial denial of his visa," says Ian Hague,
co-founder of New York–based Firebird Management,
which oversees $1.4 billion in assets invested in the former
Soviet bloc and was a fellow plaintiff in the Surgutneftegaz
lawsuit. "Once he could no longer get into the country, he
became vulnerable to the kind of predation that his company
fell victim to."
Gazprom and Surgutneftegaz deny ordering
Browder’s visa ban. "How is it possible for a
private company, hardly the largest in Russia and far from
politics, to decide such political questions?" asks Raisa
Khodchenko, a Surgutneftegaz spokeswoman. She declined to
discuss the company’s ownership structure.
In March 2006, Browder’s visa ban became public
knowledge, and spooked investors began yanking cash from
Hermitage. Some were angry that it had taken four months for
Browder to disclose the problem. Browder says he kept quiet
because British diplomats had advised him to give
behind-the-scenes diplomacy a chance. "It was in
nobody’s interest for there to be a scandal from
day one," he says. "When we explained to the investors that our
approach was recommended by the British Foreign Office, nobody
questioned our approach."
Browder’s days as a Russia investor were over.
During the course of 2006, he and his team developed a plan to
move the firm to London and transform Hermitage into a global
emerging-markets fund manager. They decided to scour the world
for deep-value deals in equities, reasoning that their Russian
know-how would help them in other corruption-riddled markets.
The firm inaugurated the Global fund in April 2007 with $625
million in capital. The fund initially did well by betting on
the Middle East, spotting attractive valuations in markets like
Egypt and the United Arab Emirates. It was up 31 percent by the
end of 2007.
At that point, with the U.S. subprime mortgage crisis picking
up steam, Browder saw trouble ahead. He correctly predicted
that a major financial institution would fail, sparking chaos
in Western equities markets. "We want to achieve the financial
markets equivalent of living in a cabin in the mountains,"
Hermitage told its investors in January 2008.
couldn’t save Sergei’s life. It
breaks my heart every single moment of my life.
Unfortunately, Hermitage chose the wrong cabin. It sought
frontier markets with little integration into the global
financial system, and Middle Eastern assets, which it expected
to be supported by oil wealth. "We thought the Middle East
would have enough domestic liquidity to insulate it from the
worst of the crisis," says Grant Felgenhauer, an American who
joined Hermitage in 2004 as an investment director and is now a
partner in the firm. "That was true up to July 2008. And then
it really began to fall apart."
Emerging and frontier markets were not spared by the tremors
that swept the world after the Lehman Brothers Holdings
bankruptcy. The Global fund ended 2008 with losses of 42
percent and has yet to recover its high-water mark from before
the crisis. (The MSCI Emerging Markets Index was down nearly 49
percent that year.) In 2009 it was up 16 percent, while the
MSCI index soared more than 68 percent. Hermitage explained to
investors that it had failed to foresee the impact of
government interventions and had waited too long to dive back
into recovering markets. In 2010 the fund was up a
disappointing 5 percent, compared with a nearly 17 percent rise
in the MSCI index.
These days Hermitage’s investment team spends
nearly half its time on the road, visiting far-flung companies
and exploring ideas for potential pairs trades. In one of its
more successful 2011 investments, the Global fund went long a
Chinese jewelry retailer called Luk Fook Holdings
International, which was poised to benefit from growing
affluence in China, while shorting Esprit Holdings, a Hong
Kong–listed international clothing retailer. The trade
paid off when Luk Fook’s sales beat expectations
while Esprit’s annual profits dived 98 percent
amid weak sales in Europe.
The firm executes its global strategy with the same, mostly
Russian team that left Moscow in 2006 after
Browder’s expulsion. The group has stuck with
Browder through the firm’s ups and downs; nobody
has quit in ten years.
Team members say their Russian experience helps them spot
companies with signs of fraud, mismanagement or simply bad
business models. "We know what questions to ask," says Vadim
Kleiner, a partner at Hermitage who joined the firm in 1997 and
was the longtime head of its research team. "We always
anticipate the situation to be worse than it is, because we
came from Russia."
The team’s China experience has proved that
corporate malfeasance isn’t limited to Russian
oligarchs. Recently, Hermitage shorted a Chinese department
store company after learning that it had loaned 50 percent of
its cash to firms making speculative investments in real estate
— firms that happened to be affiliated with the
department store company’s main shareholder.
Allegations of fraud at Chinese companies have made headlines
this year and snagged U.S. fund managers like John Paulson. But
Browder says it’s easy to avoid companies that
cook their books, if you pay close attention. "Fraud in China
is no mystery," he says. "Everybody knows the fraudulent
Browder swears by the value of visiting companies and
plunging into the details of their operations instead of
relying on research from brokerages. "If you want to do
emerging markets, you have to roll up your sleeves, get on the
airplane and actually do the work yourself," he says.
This can lead to contrarian bets. Last winter Hermitage bet
against Warren Buffett by shorting BYD Co., the Chinese
electric-car company in which Berkshire Hathaway holds a 10
percent stake. Hermitage’s team found that BYD was
suffering from a stale product line and low customer
enthusiasm. The firm paired its short position in BYD with a
long position in Great Wall Motor Co., a Chinese carmaker that
lacked the Buffett blessing but boasted new lines of
sport-utility vehicles and pickup trucks with strong sales
potential. The trade has proved a success.
Sometimes Hermitage identifies a macro trend and zeroes in
on a pairs trade to gain exposure to it. Browder’s
team is now betting that upheaval in global markets will lead
to a devaluation of Nigeria’s currency, the naira.
To profit from that, Hermitage has shorted MTN Group, a South
Africa–¬based telecommunications company with a
significant presence in Nigeria, while going long on Vodacom, a
South Africa–based mobile phone operator with no
Nigeria exposure. The trade is still playing out.
Ironically, the man who grew rich off the Russian stock
market is the grandson of an American Communist. Earl Browder
led the Communist Party USA from 1934 to 1945 and ran for
president twice to challenge Franklin Delano Roosevelt from the
left. For years he was an admirer of Soviet dictator Joseph
Stalin and regularly visited the Soviet Union. On one such trip
he married a local woman. Their oldest son, born in Moscow, is
William Browder’s father.
Earl Browder died when William was nine. Still, his
left-wing radicalism shaped the world in which the young man
grew up. "Around the dinner table," Browder recalls, "the
general consensus and assumed position in my family was that
business was an entirely crude and vulgar occupation."
In a story he often tells to appreciative audiences of MBA
students, Browder says he rebelled against his parents by
putting on a suit and becoming a businessman. He majored in
economics at the University of Chicago and went on to earn his
MBA from Stanford University in 1989, the year the Berlin Wall
fell. Browder was looking for a career that would have some
personal meaning for him. He decided to jump into Eastern
Europe’s transition to capitalism.
Browder got a London-based job with Boston Consulting Group.
His first assignment was to slash costs at a failing Polish bus
factory. In Poland he learned that state assets were being
privatized at bargain prices. He invested $4,000 of his own
savings in the deals and made ten times his money in the space
of a year.
He then worked briefly for Robert Maxwell, the British
publishing tycoon who drowned off the Canary Islands in 1991,
before moving to Salomon Brothers, where he joined the Eastern
Europe investment banking team. There, Browder got his first
taste of Russia. When the young banker took a trip to the
gritty Arctic port city of Murmansk, the senior managers of a
fishing enterprise asked him whether they should take advantage
of a new government program to privatize 51 percent of their
fleet for $2.5 million. Browder calculated that the
fleet’s 100 ships were worth a stunning $2
billion. Russia, he concluded, was being given away for
Browder’s wild tales of fantastic deals on the
Russian frontier were initially met with skepticism at Salomon,
but the firm eventually gave him $25 million of its own capital
to invest. He turned it into $125 million in less than a
In April 1996, having outgrown Salomon, Browder went to
Moscow and launched the Hermitage Fund with $25 million from
his partners, who included banker Edmond Safra and Israeli
diamond tycoon Benny Steinmetz. As the first Wall
Street–trained principal based in Moscow, Browder used
his knowledge of second-tier companies to make a killing in
Russia’s brand-new stock market. The Hermitage
Fund ended 1996 with a gain of 119 percent. In 1997 it surged
228 percent, making it the world’s best-performing
fund that year, according to the AR database.
Amid economic turmoil, mafia violence and Boris
Yeltsin’s boozy presidency, Browder was reaping
profits from betting on equities that larger investors were
afraid to touch. "He was a truly independent thinker who could
see something worth 100 times its value and not say, 'Oh,
that’s crazy, I’m going to ignore
that.’ He’d go after it and get into
it," says James Fenkner, an American who worked in Russian
finance in the 1990s and now runs Red Star Asset Management, a
small emerging-¬markets fund manager, from Santa Barbara,
Browder’s knack for promotion and publicity
helped Hermitage grow quickly. "Bill was and still is a
marketer extraordinaire," says Slava Rabinovich, who was
Hermitage’s assistant portfolio manager from 1996
to 2000. He now heads Diamond Age Capital Advisors, a
Moscow-based manager with $20 million in assets.
In 1998, Browder became a British citizen. Many of his
fellow expatriates assume he was seeking to avoid taxes; the
U.S. is among the few countries that tax their citizens living
abroad. The Internal Revenue Service put Browder on a "name and
shame" list of Americans who had renounced their citizenship.
Browder, however, says he switched citizenship because his
then-wife was English and he liked Britain. "I did not do it
for tax reasons," he says. "My tax bill was roughly the same
At age 33, Browder had rock-star status, more than $1
billion under management, coverage in the New York Times and
invitations to his clients’ yachts. "I was too
young and too successful too quickly," he says. "Just my
circumstances alone should have been a strong sell signal for
everyone in the entire Russian market."
Infected by contagion from the Asian financial crisis,
Russia defaulted on its debt and devalued the ruble in August
1998. The stock market crashed, and the Hermitage Fund ended
the year with a crushing loss of 89 percent. Many other funds
shut down. "We did what we could do to minimize the impact and
not to blow up," Rabinovich recalls. Browder felt like a
laughingstock. "It wasn’t just a financial
disaster, it was a public disgrace of monumental proportions,"
Following the crisis Hermitage embarked on a new course,
which would become its trademark. Few investors had tried to be
activists in the emerging markets, but Browder says he had no
choice. As Western bankers lost interest in Russia, he says,
oligarchs and company insiders threw out the rulebook and
launched an "orgy of stealing" that threatened to devalue
Hermitage’s holdings even further.
Browder fought back, publicly accusing companies of asset
stripping, unfair stock dilutions and other moves to enrich
majority shareholders. A key weapon was his research team, led
by Kleiner, a former computer scientist; the group dug up dirt
on how funds were being embezzled. "We analyzed for ourselves
not just what was on the surface but what was hidden and could
be recovered by forensic investigation," says Kleiner. Browder
fed the information to journalists, leading to sympathetic
articles in newspapers like the Financial Times and the Wall
Street Journal, and subjecting his targets to public
"He’s a formidable operator," says a veteran of
corporate communications who was once on the opposite side of a
Browder PR campaign. "He’s very nimble. He gets
these big companies off on the wrong foot, and they have
trouble regaining their ground."
Browder’s use of publicity made some
uncomfortable. "He played an active role in advancing corporate
governance issues in Russia, and I can say that I am grateful
to him for this," says Igor Kostikov, who headed
Russia’s stock market regulator from 2000 to 2004.
"But I do not approve of the kind of activist, semiscandalous
methods that some people use. I think it’s always
possible to find ways to make companies do things more or less
Browder disputes the notion that he could have made an
impact through quiet persuasion. "The only thing you really had
was the ability to name and shame people," he says. Of course,
battling powerful Russian businessmen was risky. From 1998
onward Browder was often surrounded by an entourage of
Despite the dangers, Hermitage scored some successes. It
helped block a controversial asset sale by UES, the state-owned
electricity company, and Kleiner won a seat on the board of
Sberbank, Russia’s retail-banking giant, in 2001.
He served as an independent director on the Sberbank board
Browder had less luck with Gazprom. From 2002 to 2006,
Hermitage made annual attempts to win a seat on the Gazprom
board. While it never succeeded, each year it held a press
conference and released an embarrassing PowerPoint presentation
on how the gas giant was misspending its money.
Hermitage says its activism lifted the stocks of companies,
but some analysts doubt that. "I don’t know of an
example of a company where you can seriously claim that Browder
pressure caused improvement," says financial adviser Kraus. "He
was largely driven by beta."
Others say Browder’s activism was all about
marketing. "I don’t think the activism was
necessarily a significant contributor to
Hermitage’s returns," says one Russian markets
veteran. "In a bull market the fact that someone is talking
about corporate governance at a company might support the stock
further if it’s already rising."
Hermitage rejects such arguments. "I do think a material
part of our returns was due to changing those companies," says
Felgenhauer. He adds that Hermitage had a duty to fight abuses
by majority shareholders: "With some of the things that go on
in Russia, you would be doing your investors an incredible
disservice to just stand by and let these things happen."
In any case, the Hermitage Fund rebounded from the crisis
and enjoyed healthy double-digit returns from 2001 to 2006. But
over time it slipped behind Russia’s benchmark RTS
Index, and many years the fund lagged rivals such as the
Russian Prosperity Fund, run by Moscow-based Prosperity Capital
Management. After Browder was kicked out of Russia, the fund
faded to a shadow of its former self.
Browder’s war with the Russian authorities
began with a series of strange events that unfolded shortly
after he was expelled from the country.
When it became clear that Browder wouldn’t be
coming back, Hermitage started quietly liquidating all its
Russian-based assets for fear they might be expropriated,
replacing them with global depositary receipts that traded
outside of Russia. Meanwhile, team members were targeted by
unknown parties. One Hermitage employee told AR that in January
2007 he returned to Moscow after a weekend abroad to discover
that his apartment had been burglarized. The balcony door had
been removed from its hinges, and his files were lined up in
stacks on the living room floor. His laptop was missing, but
jewelry and other valuables were untouched, alleges the
employee, who asked to remain anonymous because of the
sensitivity of the situation.
Not long after that Hermitage says it received a call from a
man identifying himself as Lieutenant Colonel Artem Kuznetsov
of the Russian Interior Ministry. Kuznetsov said he needed
"information" and requested an informal meeting, according to
then–research director Kleiner, who took the call.
When Kleiner asked for the request in writing, the officer
Kuznetsov resurfaced on June 4, 2007, when he led 25 cops in
a raid on Hermitage’s Moscow office. They said
they were investigating a Hermitage investment vehicle called
Kameya for suspected tax evasion. Simultaneously, 25 other cops
descended on Firestone Duncan, a law firm that had advised
Hermitage on Russian tax compliance, and seized documents
pertaining to Kameya and other Hermitage vehicles.
What happened next, according to Hermitage, was a massive
fraud in which a powerful network of corrupt officials used
documents stolen in the raid to take ownership of three
Hermitage investment vehicles, then used those stolen vehicles
to steal $230 million from the Russian government via a
fraudulent tax refund paid to the vehicles. (See "Hermitage vs.
Russia," page 32.) Jamison Firestone, the law
firm’s managing partner, says the officers used
the Kameya warrant to conduct a fishing expedition. "They were
essentially ransacking my office and taking documents for any
company that had paid a large amount of tax," he says.
On November 24, 2008, police arrested Magnitsky, a tax
lawyer and auditor at Firestone Duncan, in connection with the
tax evasion probe. Hermitage alleges that he was jailed to keep
the $230 million tax fraud under wraps. Magnitsky had uncovered
information that implicated officials, including Kuznetsov, in
the scheme; it was Kuznetsov who ordered his arrest.
In jail Magnitsky was kept in harsh conditions that
contributed to his worsening health problems, according to a
Russian presidential human rights commission that has
investigated his death. Soon after his arrest Magnitsky began
to suffer abdominal pains. Prison doctors diagnosed him with
pancreatitis but repeatedly ignored his requests for treatment,
according to the human rights commission. Hermitage alleges
that Magnitsky was being pressured to retract his allegations
and testify against his former colleagues.
The lawyer was finally due to receive emergency care on
November 16, 2009, but for reasons that remain unclear, he was
taken to an isolation cell, where he died that evening, at age
37. The human rights commission has said Magnitsky may have
been beaten to death.
Today, seated in the comfort of his London office, Browder
expresses deep regret for his failure to save Magnitsky. "We
did everything we could think of, but obviously we
didn’t do enough, because we didn’t
get him out," he says. "We couldn’t save his life.
It breaks my heart every single moment of my life."
Browder has since devoted himself to an ambitious quest to
avenge his lawyer’s death. His researchers have
investigated the officials whom Hermitage accuses of stealing
$230 million and released evidence indicating that these
individuals enjoy wealth far in excess of their salaries. The
revelations have made a splash in the Russian media and won
praise from Russians alarmed about their country’s
high levels of corruption. "In Russia there are few people who
have carried out such a large, detailed investigation," says
Andrei Illarionov, a Moscow-based former economic adviser to
Putin who has since become a Kremlin critic. "For people who
live in Russia, this would be very risky."
Most impressive, Browder has become a one-man lobbying
operation who has bent U.S. and British foreign policy to his
will. He has met lawmakers in Amsterdam, Brussels, London,
Paris and Washington to push for visa bans and asset freezes on
60 Russian officials he has identified as complicit in
Under Browder’s pressure the U.S. State
Department imposed visa bans on the officials in July and the
British government followed suit in October. The European Union
may be next. Senator John McCain is a co-sponsor of the Sergei
Magnitsky Rule of Law Accountability Act, which would freeze
any U.S. assets held by officials involved in the Magnitsky
"He’s achieved quite fantastic results," says
Sir Anthony Brenton, a former British ambassador to Russia and
a supporter of Browder’s campaign. "When he
started, I don’t think anybody seriously believed
that he was going to be able to take effective action against
the people implicated in Magnitsky’s death."
Russia’s official response has been chilly.
President Dmitry Medvedev has voiced dismay at
Magnitsky’s death, and his human rights commission
has called for an investigation into the alleged tax fraud. But
Russian law enforcement agencies have dismissed the corruption
allegations and argued that Browder himself is the criminal.
"The behavior of British citizen W.F. Browder and his
accomplices testifies to their scornful attitude to Russian
law," the Interior Ministry said in 2009, shortly after
Magnitsky’s death, in a statement detailing its
tax evasion probe of Hermitage. Browder vehemently denies the
tax evasion allegations and calls them a smoke screen designed
to distract attention from officials’ own
corruption and their role in Magnitsky’s
Russia’s Interior Ministry, Federal Tax
Service, Federal Prison Service and FSB security agency did not
respond to written requests for comment from AR. Kuznetsov, the
Interior Ministry official Hermitage has accused of helping to
organize the alleged tax fraud, could not be reached. He has
previously denied the allegations and sought to have Browder
prosecuted for defamation.
Recently, after nearly two years of international pressure,
Russian authorities charged two prison doctors with negligence
for failing to treat Magnitsky. But few believe that anyone
higher up, or anyone involved in the alleged $230 million
fraud, will ever be charged. "Nobody wants to investigate that
because they’re afraid it will go too high," says
Yana Yakovleva, head of Business Solidarity, a Russian
One of the rich ironies of Browder’s life is
his 180-degree reversal on Russia. Once a passionate promoter
of Russian equities, he now warns investors away from the
country, calling it "insane" to do business there. After
initially welcoming the arrest of Khodorkovsky, he says the oil
tycoon should be freed from prison. Last January at the World
Economic Forum in Davos, Switzerland — where he used
to give presentations about opportunities in the Russian stock
market — Browder disrupted a feel-good Russia
investment road show to confront a senior Putin deputy, Igor
Shuvalov, about Magnitsky’s death. "You have to
acknowledge the country is changing for the better," Shuvalov
Browder says he regrets his days as a Kremlin booster. "I
was definitely wrong about Putin," he says. "I would say that
there was certainly a lot of wishful thinking in my own
Some Westerners still involved in Russia think Browder is
being unfair in his Russia-bashing. "He made a lot of money in
Russia," says Third Millennium’s Connor. "He
should take his lumps and move on. Instead, he’s
made it his life’s work to take his revenge on
But it’s hard to imagine that Browder will stop
fighting. Colleagues say he is driven by deep anguish over
Magnitsky’s death. "I think it really haunts him,"
Browder acknowledges that his life will never be the same.
"We’re going to carry on doing this until
we’re satisfied that the people who killed Sergei
face some kind of real justice," he says.
As a reminder to Russian officials that he
won’t go away, he’s keeping a
foothold in the country that cast him out. His original,
Russia-focused Hermitage Fund still has $50 million, though it
is no longer marketed to investors. Browder says he keeps his
old fund around, and holds some of his own money in it, as a
matter of pride. "I don’t want them to declare
victory and say that they’ve shut down the
Hermitage Fund," he says.AR
Hermitage vs. Russia
At the heart of William Browder’s fight
against the Russian authorities is a complicated web of fraud
allegations and counterclaims stemming from the disappearance
of $230 million. In June 2007 police carried out coordinated
raids of the Moscow offices of Hermitage Capital Management and
its law firm, Firestone Duncan, and seized documents pertaining
to various Hermitage investment vehicles. They also severely
beat a lawyer at Firestone Duncan, according to the
firm’s managing partner, Jamison Firestone. The
lawyer, Victor Paryugin, was hospitalized for two weeks.
Hermitage says documents taken in the raids were used to
transfer ownership of three of its investment vehicles
— Mahaon, Parfenion and Rilend — to a shell
company owned by a convicted felon. In December 2007, according
to tax records obtained by Hermitage and not disputed by the
Russian government, the three vehicles received a series of
huge tax refunds adding up to $230 million. Hermitage says it
never requested the refunds, was unaware of them and never got
the money. Browder and his team allege that senior Russian
officials embezzled the money and paid themselves via the
fraudulent refunds. The money was then moved into accounts at
two obscure Russian banks and quickly vanished, moving on to
destinations unknown, Hermitage claims.
Russian lawyers working for Hermitage filed a barrage of
complaints detailing the alleged tax fraud. But the complaints
never led to any officials being charged. Instead, Hermitage
says, its lawyers were hit with retaliatory criminal probes.
All of the lawyers fled Russia — except for Sergei
Magnitsky, the Firestone Duncan attorney who had spearheaded
Hermitage’s investigation of the alleged fraud. In
November 2008, Magnitsky was arrested in connection with a tax
evasion case against Hermitage.
That case, which remains open, focuses on structures that
Hermitage used to minimize its taxes more than a decade ago.
Hermitage, like many of its peers, exploited quirks of Russian
law to reduce its taxes in the 1990s. It registered
subsidiaries in low-tax parts of the country, such as the
impoverished southern region of Kalmykia, where Hermitage says
it got a further tax break by hiring disabled people. In
another point of contention, Hermitage used its Kalmykia
subsidiaries to hold Russian-listed shares of Gazprom. From
1997 to 2006, Russia imposed a "ring fence" that restricted
foreign ownership in the gas company to American depositary
receipts; nonetheless, many Western financial institutions held
local Gazprom shares through Russian subsidiaries, and Moscow
tolerated such arrangements at the time.
Browder says that Hermitage fully complied with Russian law
and that it stopped using the Kalmykia subsidiaries after the
region’s tax breaks were abolished in 2002. He
accuses officials of arresting Magnitsky to cover up their own
involvement in the $230 million tax fraud.
The Russian human rights commission that investigated
Magnitsky’s death said he faced "torturous"
conditions in jail. At one point he was put in a cell with raw
sewage oozing from a broken toilet. Officials subjected him to
petty punishments, denying him phone calls to his two small
children. In a series of complaints that Magnitsky wrote in
jail, he accused investigators of pressuring him into changing
his testimony. "I am convinced that the only possibility to
stop this humiliating treatment is for me to accept false
accusations, to incriminate myself and other persons,"
Magnitsky wrote in October 2009, a month before his death.
Still, Magnitsky continued to accuse officials of corruption
and fraud, and he never testified against William Browder.