Exposing Browder: a glimpse into a sordid world of tax fraud and undermining a sovereign country

“Exposing Browder / Spisok Braudera” (Rassledovaniye, 2014)

At last this Russian documentary exposing the shady activities of the investment fund manager Bill Browder has an English-language voiceover soundtrack and is available on Youtube. The grandson of Earl Browder, a founder and secretary general of the Communist Party USA (which later expelled him on suspicion that he was a spy), and son of Felix Browder, a famous mathematician, Bill Browder gained experience as a consultant in the Boston Consulting Group in London and as an investment manager for Salomon Brothers. Along the way, Browder shed his US citizenship and adopted British citizenship. In 1996, he and a partner established Hermitage Capital Management to capitalise on the large-scale privatisations of state corporations in Russia. The firm used the services of Firestone Duncan as consultants on legal, taxation and accounting issues in Russia and the head of that firm, Jamison Firestone, seems to have become quite close to Browder and HCM in their subsequent forays in the Russian investment scene.

HCM did very well though the financial crisis in 1998 must surely have threatened HCM’s capital inflows and gave quite a few of its investors headaches. Riding on HCM’s success – by 2004, it was the largest foreign investment fund in Russia managing over US$3 billion and representing several thousand investors – Browder became a shareholder in the energy corporation Gazprom where he made a name for himself exposing corruption and financial mismanagement.  HCM’s strategy was ostensibly to buy shares in a large undervalued company (usually an energy company) and demand access to that company’s financial records, supposedly for the purpose of uncovering suspicious irregularities in company management. HCM would loudly bray about such irregularities in articles published in Western financial media outlets such as The Wall Street Journal or use lawsuits to shame the target company managers. Political lobbying was another weapon Browder did not hesitate to use.

HCM’s fortunes took a turn in 2005 when Browder found himself barred from entering Russia on the grounds of “national security”. Initially supportive of Russia, Browder soon turned against Moscow as HCM became the subject of tax evasion probes and government raids on its offices. In following years, Russian police came across a network of various companies based in odd parts of Russia (Kalmykia near the Caucasus being one such place) through which HCM operated. These companies employed mentally and physically disabled people as financial advisors to exploit a loophole in Russia’s taxation system so as to claim tax rebates. This harebrained scheme was the brainchild of the Firestone Duncan accountant / auditor Sergei Magnitsky.

Magnitsky’s subsequent imprisonment and later death from undiagnosed heart disease or a chronic pancreatic condition (I’m not sure which) while in prison received a great deal of publicity and media attention in the West as an example of Russia’s treatment of political prisoners. Magnitsky’s purported ill treatment was one of a number of issues the United States government flagged as a stick with which to beat and taunt Russia, and an example to sell to a gullible news media and its audience as “proof” of the authoritarian and repressive police-state nature of Russia since Vladimir Putin came to power as President in 2000 and set the country on an independent political and economic course that greatly displeased the US. Among other things, the United States government drew up and approved the so-called Magnitsky blacklist of Russian politicians, business people and other prominent figures who could not enter mainland US territory and whose financial assets in the US, if they had any, were frozen.

As there is such a huge disparity between what Browder claims the Russian government did to bring down HCM and Magnitsky, and what government investigators say they found, and given that investing in Russian companies during the 1990s and the early 2000s was a complicated business even at the best of times when the country’s financial markets were unstable and financial regulatory laws and institutions poorly developed – and the country’s assets were being seized by foreigners like Browder, HCM and Firestone Duncan – a documentary like “Exposing Browder” is very welcome to help viewers try to understand something of what happened and why the example of Browder and HCM and what they did in Russia in stripping the country’s assets and engaging in tax fraud and evasion on an outrageous scale is so important. There is no little irony in the fact that the grandson of a former Communist Party office-bearer in the US should have become the very exemplar of a predatory self-interested capitalist investor who got to the top in that supposedly time-honoured American tradition of striking out on his own, taking major risks, riding out the bad times, reaping benefits in the good times and presenting as a heroic white knight uncovering and reporting corruption and criminal activity.

It is a pity then that the documentary seems rather rushed in its English translation and looks quite slapdash in its breathless presentation. The film was made for TV as part of a current affairs program and should be appreciated in that light. It follows Browder’s career as an investment consultant and manager in the developing financial market in Russia after the country adopted free market principles in running its economy during Boris Yeltsin’s presidency. Being a Russian-made documentary, the viewpoint understandably is aligned with that of the Russian government and investigators against Browder. It makes no apologies for being partial. There is plenty of detail and viewers may need to see this film a few times to understand the scale of Browder’s underhand activities.

The second half of the film deals with Sergei Magnitsky and his involvement with Browder and Firestone Duncan, how his collusion in tax fraud led to his imprisonment and death, and the way in which the last years of his life have become politicised and exploited by others, Browder most of all. Though what he did merited serious jail-time, Magnitsky emerges as a pathetic figure. While prisons in Russia are not lovely places to be in, and the medical treatment Magnitsky received from prison doctors speaks of their incompetence and indifference to his plight, his death from heart failure is eerie in that he was one of several people associated with Browder who met mysterious deaths from heart disease and other strange causes. The film makes a case that Magnitsky remained loyal to Browder to the end and counted on the American to get him out of jail. After his death, Browder used Magnitsky’s treatment and death as a stick to continually beat the Russian government, slandering various government officials and lobbying the US government to slap travel bans, asset freezes and other punishments against Russian politicians and civil servants.

The last few minutes are a revelation in which the value of Browder and the Magnitsky List to the US government’s agenda against Russia, and the propaganda potential that can be milked from it to convince Western audiences and Russians opposed to Vladimir Putin and Moscow (whether they are genuine oppositionists or those liberal oppositionists funded by US agencies) that Russia is an authoritarian police state hell bent on persecuting individuals, is spelled out. As of this time of writing, Browder is protected by the United Kingdom from arrest by Russian authorities for tax fraud and tax evasion. He is currently working towards convincing the European Community into adopting its own version of the Magnitsky List to further damage Russian financial and other interests in European Community member countries (especially Cyprus). The feeling that Browder may be acting as an agent provocateur and spy on behalf of the UK and US governments is hard to shake off. Why have so many individuals close to Browder, HCM and Firestone Duncan died in mysterious circumstances nearly all at once? How did Browder manage to convince the US government into passing bans and restrictions against Russia and Russian individuals despite his having renounced US citizenship?

With all its faults, the documentary is an excellent introduction into the complexities of the tax fraud / tax evasion affair of Bill Browder, HCM, Firestone Duncan and Sergei Magnitsky from the Russian point of view.

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