Magnitsky and Toting Up the Deadly Price of Legal Defense

The last several years have proven dangerous for Russian lawyers. Vasily Aleksanyan, lawyer for fallen oligarch Mikhail Khodorkovsky, was jailed for two years before being released last year, stricken with AIDS and cancer. Stanislav Markelov, a lawyer who robustly challenged a Russian military officer who raped a teen-ager, was shot dead on a Moscow street early this year.

Given this playing board, why do Russian lawyers continue to involve themselves in politically charged cases in the country? And in the same vein, why do Western managers employ them rather than sticking with Western lawyers who, in a fix, at least have a foreign passport and thus a chance at protection?

The latest victim of this set of circumstances is Sergei Magnitsky, a lawyer for American investor William Browder, who was buried yesterday in Moscow after dying in a Russian prison. Browder, the head of Hermitage Capital Management and once Russia's most prominent foreign investor, has been persona non grata in the country for three years. Magnitsky, a partner with the firm Firestone Duncan, was helping Browder to build a $230 million tax fraud case.

I asked Browder for the background on how Magnitsky happened to get stuck in Russia when other associates fled, and about the wisdom of employing Russian lawyers in such cases. His emailed response:

We hired four different law firms to help us untangle the complicated fraud that we were victims of in 2007. After much investigative work by the lawyers, it became clear that the main purpose of the theft of our investment companies by interior ministry officers was to use those companies to fraudulently reclaim $230 million of taxes that we paid a year earlier. The fraudulent tax refund requests for $230m were processed in two days. After that, two of the four law firms wrote and filed criminal complaints about the theft of budget money. The interior ministry immediately opened criminal charges against those lawyers. We got those lawyers out of Russia and safely to the UK. Then the Interior Ministry started going after Magnitsky. He wasn't scared because he had never done anything wrong and he believed that the law protected him. Even after much discussion from our side to leave, he insisted on staying. His life was in Russia and he didn't want to be uprooted. He testified in October 2008 against Lieutenant Colonel Artoum Kuznetov for his involvement in the stolen $230 million and a month later, Kuznetzov arrested him and put him in pre-trial detention on spurious tax charges. Over the course of the year, the investigators kept pushing Sergey to sign papers admitting to various crimes and implicating me as his accomplice. He always refused, and they kept moving him to worse and worse conditions to try to break him. He developed medical problems and they refused him treatment unless he confessed to the false crimes. He continued to refuse, but at the same time, in October 2009, Sergey gave even more incriminating testimony on Kuznetzov to the State Investigative committee. A month later he was dead.

Magnitsky apparently somehow felt himself bullet-proof. But he wasn't. The playing board is fairly clear -- there is a mortal risk not just for lawyers, but for executives of companies that end up crossing local or federal authorities, or politically powerful businessmen.

So one poses the question: Regardless of whether Russian lawyers themselves are willing to work on such matters, should foreigners employ them?

The Khodorkovsky Rule

Before you slink away for the weekend given the wonderful weather, take a look at a piece today by the FT's Charles Clover, my former Almaty roommate. In it, Clover weighs in along with a couple of colleagues on the tectonic shift under way in the great game in Central Asia: The U.S. is out, and Russia is in.

The August events in Georgia triggered this shift -- the countries along Russia's western and southern borders learned that friendship with Washington is worth only so much when Moscow is willing to use actual troops in defense of its sphere of influence.

The most interesting part of the long piece is a quote from Dimitri Simes, the head of the Nixon Center in Washington. In Simes' view, Russia has conveyed the following message for neighbors that want to remain on friendly terms:

Number one: you can't join a military alliance with an outside power. Number two: do not deploy third-party military forces without Russia's consent. Number three: do not move third-party military forces through your country without Russia's consent."

I don't doubt that Simes is right. In more than one way, those rules bear a striking resemblance to those set out by Vladimir Putin in 2000 for Yeltsin-era oligarchs. The popular version of the story is that Putin presented the oligarchs a choice -- get out of politics, or lose your fortunes. But the truth is probably that the oligarchs themselves, seeing the writing on the wall, sought the deal. As I wrote in Putin's Labyrinth, the oligarchs, including Yukos owner Mikhail Khodorkovsky, Russia's richest man, did so

to head off a Putin attack on all of them. One oligarch, Mikhail Fridman, told [John] Lloyd, the Financial Times writer, that he and the other billionaires deserved Putin’s wrath. In an interview at the time, Fridman said they asked only that past wrongs be forgotten. “I think the best plan would be if Putin were to declare an amnesty on everything that happened in the past,” Fridman said.

As Central Asia's leaders are all cognizant, Khodorkovsky refused the deal, and consequently has languished in prison. It will be difficult if not impossible for the U.S. or anyone else to again break the region from a similar fear.

The Other Khodorkovsky Case

Much attention is focused on the latest news of dethroned Russian oligarch Mikhail Khodorkovsky, the imprisoned former CEO of Yukos Oil who is undergoing a new trial in Moscow at the moment. But a second drama is also going on in the six-year-long Khodorkovsky saga -- a $33.4 billion legal battle against Russia being staged by Yukos' divested owners.

In 2003, Russian commandos stormed Khodorkovsky's private jet after he launched a political challenge to then-President Vladimir Putin. He was sentenced to eight years in prison for fraud and tax evasion, and the Kremlin -- backed by western investment banks -- sold off highly profitable Yukos in apparently fixed auctions, mostly to the Russian oil company Rosneft. Also imprisoned was Platon Lebedev, chairman of Bank Menatep, Khodorkovsky's holding company.

Last week, Tim Osborne, a London lawyer who is representing GML, as Bank Menatep is now called, passed through Washington in what has become a routine in the shareholder effort to gather political support for their case in the U.S. and Europe. Osborne visits the State and Energy departments, with congressmen, and has testified before Congress.

Despite Khodorkovsky's imprisonment, his public relations effort remains formidable.

In London, Canadian lawyer Robert Amsterdam is Khodorkovsky's main legal spokesman, writing a much-read blog, delivering speeches and generally talking up his client's cause. Khodorkovsky and Lebedev have another, official web site, too.

In Washington, Osborne is represented by the influential lobbying firm APCO, where he and I spoke. Osborne says that Khodorkovsky is no longer a shareholder of GML, and that the legal battle has no political motive. Yet official interest is almost entirely reliant on western sympathy for the jailed former oligarch. And, if Russia happens to decide that it wants to settle -- something that Osborne doesn't expect -- GML might "do a different deal if Lebedev and Khodorkovsky were part of the equation," he says. Meaning that Khodorkovsky is still woven into the company's fabric.

Despite the loss of the Yukos oilfields, GML retains some $3 billion in assets including real estate, alternative energy investments, cash and bonds, Osborne said. But the oilfields beckon.

The GML case is complicated. It's based on a reading of the Energy Charter Treaty, an obscure agreement meant, among other things, to facilitate the movement of oil and natural gas across multiple borders. It's been signed by 51 states, including Russia.

Osborne argues that, under the treaty, GML can sue in The Hague for compensation for expropriation. GML must persuade the Permanent Board of Arbitration that it has jurisdiction. If GML wins that round, the panel will begin hearing arguments on the merits of the case.

Russia is arguing that it isn't bound to the Energy Charter because the Duma didn't ratify it. Osborne contends that the signature alone obligates, but admits that the assertion "is not a slam dunk" -- in order to make it stand, he needs officials in Brussels, Paris, London, Berlin and Washington to maintain a solid front that the Energy Charter is valid.

"It's really about pressure," Osborne says, "to try to get this raised with the Russians as often as possible by as many people as possible."

Russian Spy Priests and Venture Capitalists

I'm reading two excellent stories that use different prisms to examine the growing tentacles of the intelligence services in Russian society.

In the first, Andy Higgins, my former colleague at The Wall Street Journal, produces one of his best pieces in a couple of years. It's a look at how Vladimir Putin has re-corrupted -- or perhaps just increased the corruption -- of the Russian Orthodox Church. The church, which was a conspiring arm of Stalinism, has granted Putin deific cover, silencing any priest who strays from Putin's pronouncements. Higgins' main character, Sergei Taratukhin, transforms in the telling from a stiff-backed human rights proponent and defender of imprisoned oil magnate Mikhail Khodorkovsky into a sniveling sycophant of the Putin regime. As the Journal is not yet free on line, you might have to borrow or buy a copy to read this one. But it's worth it.

The second piece, by New York Times writer Andrew Kramer, offers a new take on the often-told story of the FSB's intrusion into high Russian business. Now senior intelligence officials are the ranking investors in multi-billion-dollar venture capital equity funds. The story's lead character is Oleg Shvartsman, a smooth, English-speaking VC who wanders into Silicon Valley and smoothly informs his interlocutors that he represents these spies. He was outed by a Kommersant reporter. Shvartsman does not deny his words but says that, for his indiscretion, the reporter should "drink poison." How apt.

Photo: DionGillard
Rights: Creative Commons