Switzerland has opened a money-laundering probe at the request of Hermitage Capital Management Ltd., the first criminal investigation outside Russia linked to the death of lawyer Sergei Magnitsky in a Moscow prison.
The allegations involving a former Russian tax official are the most recent lodged by Hermitage founder William Browder as he asks authorities around the world to sanction officials he blames for Magnitsky’s death. The lawyer, who alleged Interior Ministry officials fraudulently collected a $230 million tax refund using documents seized from Hermitage, died in 2009 after a year in pre-trial detention.
“It’s been impossible to get any kind of real criminal investigation in Russia,” Browder said yesterday by phone. “It’s highly significant that a Western law enforcement agency is taking this seriously and is launching an investigation.”
According to Hermitage, once the largest foreign investor in Russia, Olga Stepanova authorized $155 million of the tax rebates in 2007 as head of Moscow Tax Inspectorate No. 28. Since then, at least $38 million flowed through bank accounts opened on behalf of companies incorporated by Stepanova’s husband, partly to buy homes in Dubai, Montenegro and Russia, London- based Hermitage alleged in a Jan. 28 letter to the Swiss Attorney General and Credit Suisse AG.
The couple’s average declared income from 2006 through 2009 was $38,381 a year, according to Russian income declarations included in Hermitage’s filing with the Swiss authorities.
“The Office of the Attorney General of Switzerland confirms having officially launched a criminal investigation in respect of suspected money laundering,” spokeswoman Jeanette Balmer said yesterday in an e-mail after she was asked about the Hermitage letter. “The investigation relates to persons unknown,” she said, declining to release further details.
Stepanova, now an adviser to the head of Russia’s arms procurement agency didn’t respond to e-mailed, faxed and phone requests for comment submitted to the agency’s press service yesterday. Her husband, Vladlen Stepanov, an employee of Moscow- based OOO Volsstroy, is on vacation until mid-May, according to a person who answered the company’s phone and said she would pass on a reporter’s contact number.
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Russia is the world’s most corrupt major economy, according to Berlin-based Transparency International’s 2010 Corruption Perceptions Index released in October. It ranked 154th among 178 countries, tied with Tajikistan and Kenya.
Crime and Punishment in Putin’s Russia
Russian police say they have closed the case file on the country’s largest tax fraud. It occurred on December 24 in 2007, when Moscow tax officials approved a same-day refund of 5.4 billion rubles — or $230 million — to a gang masquerading as officers of Hermitage Capital, once the largest hedge-fund manager in Russia and founded by financiers Edmond Safra and Bill Browder. Interior Ministry police claim the complex scam was pulled off by a sawmill worker and a burglar, both currently serving five-year sentences, in cahoots with four others, all of whom are now dead. One had a fatal heart attack before the crime took place. A second fell from his balcony. The third plummeted out a penthouse window.
And then there was Sergei Magnitsky, a 37-year-old lawyer for Hermitage who died in prison after complaining police were torturing him to retract evidence that the $230 million had been stolen by a ring of corrupt tax officials, Interior Ministry cops and career criminals. Magnitsky’s November 2009 death made him an icon to those who want to clean up Russia’s chronic corruption — yet the Interior Ministry surprisingly turned the tables, claiming he was one of the culprits. The police ministry exonerated the cops and tax officials who Magnitsky had accused — most of them got promotions.
As for the $230 million, almost all of it is still missing. Interior Ministry spokesperson Irina Dudukina told Barron’s on Tuesday that all the bank records police needed in order to trace the loot were in a truck that crashed and exploded in 2008.
The case may have ended there for Russian authorities, but Hermitage’s London-based chief Browder has devoted himself to pursuing those he holds responsible for the original crime and Magnitsky’s death. In English and Russian campaigns on a Website (russian-untouchables.com) and on YouTube, the investor has presented evidence that he says proves the tax heist was an inside job and has asked the public to send him additional evidence.
“The facts of this case are absolutely damning for the Russian government,” says Browder. “First Sergei Magnitsky uncovers and reports criminals preparing a major crime three weeks before it happens, and the police do nothing. Then Russian tax officials make the largest fraudulent tax refund in Russian history, in one day, on Christmas Eve, to a convicted murderer, with no questions asked.”
Browder’s outreach program has paid off. He recently received new evidence that raises questions about the Russian government’s official story that honest bureaucrats were tricked by wily outsiders. The records from two secret accounts at a Credit Suisse branch in Zurich show that shortly after the huge tax payout was approved by the Moscow tax bureau run by Olga G. Stepanova, her husband received $10.9 million (seven million euros) in his Cyprus shell corporation. The Credit Suisse accounts also were the source of funds for $800,000 in construction payments for the couple’s seaside villa in Montenegro and for $4 million toward another villa on Dubai’s fabulous Palm Island with two additional condos for Stepanova’s tax-office deputies.
And those were just Stepanova’s vacation homes. A year after the tax scam, Stepanova’s family was living in a $20 million mansion outside Moscow, designed by Russia’s celebrity avant-garde architect Alexey Kozyr.
The money arrived at Credit Suisse through a globe-spanning trail of shell companies created by a Who’s Who of offshore-secrecy consultants — including a New Zealand agent whose operation we’ve previously found amid North Korean arms trafficking and money laundering for a Mexican drug cartel.
Bernd Pulch 
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