The Inconsistencies of Bill Browder and the Magnitsky Act

By Jeff Carlson
Jeff Carlson
Jeff Carlson
Jeff Carlson is a co-host of “Truth Over News” on EpochTV.
September 6, 2018Updated: September 7, 2018

News Analysis

The Magnitsky Act, co-sponsored by Senators John McCain and Ben Cardiff, was signed into law by Obama in December 2012. The Act barred Russian officials suspected of human rights abuses from entering the United States, allowed for their U.S. assets to be frozen, and prohibited financial transactions with U.S. financial firms. The Act was expanded in 2016, allowing the U.S. Government to sanction foreign government officials anywhere in the world.

The Magnitsky Act came into being through the actions of Bill Browder, the CEO of Hermitage Capital Management. Hermitage Capital was formed in 1996 for the purpose of investing in Russia. The firm benefited from the wave of privatization that occurred, ultimately becoming one of the largest foreign investors in Russia.

When Putin became president of Russia in 2000, Browder became a vocal supporter, saying that Russia needed an authoritarian leader to establish order. Browder called Putin his “biggest ally” in Hermitage’s efforts at business reform. Browder’s firm initially thrived, and assets under management reportedly grew to more than $4 billion.

Browder has billed himself as a shareholder activist and forensic accountant who fought against corruption in the Russian business world. Upon discovery of malfeasance, Browder would often give information to the press—both Russian and international. Some of Browder’s actions were simply motivated from asset preservation. In the rough and tumble landscape of Russian politics populated by powerful Oligarchs, sharp elbows were often a necessity:

“It became a matter of desperation, not inspiration. You had to become a shareholder activist if you didn’t want everything stolen from you.”

However, it appears Browder wasn’t always consistent when it came to corporate governance. Some observers noted that “the moral outrage he displayed during his corporate governance campaigns often appeared conditional on which side of the deal he was on.”

Browder remained a strong supporter of Putin while investing in Russia—a stance that not only suited his business interests but may have afforded him a certain level of protection against competing players:

“[Browder] aggressively argued to anyone prepared to listen that President Vladimir Putin had been unfairly maligned in the western press and was intent on bringing prosperity and order to the biggest country in the world.”

He publicly celebrated the arrest of Mikhail Khodorkovsky, Russia’s richest and most powerful Oligarch, famously asking, ‘Who’s next?’

Browder’s investment activities continued until November 2005, when the Kremlin abruptly pulled his visa and banned him from Russia.

Browder has claimed he doesn’t know with certainty what triggered his expulsion from Russia, but later speculated that it was his campaign against either Gazprom, the state-backed gas business, or Surgutneftegaz, a Siberian oil company.

Browder would often target large holdings of major Oligarchs and filed lawsuits against a number of Russian companies. As one reporter noted; “much of the time he loses, but he causes enough trouble to force shareholder-friendly changes.”

Despite his expulsion from Russia, Browder publicly maintained his support for Putin through 2006 and expressed hopes that Putin might eventually lift his visa ban and allow for his return to Russia:

“I saw what life was like under the oligarchs…Sometimes you need a strong man to pull together a country. Russians can objectively say that their lives are much better now—the average person’s income is five times higher than when Putin came to power.”

However, Browder’s support for Putin, along with his timeline, appears to have shifted with subsequent events. In a 2012 article from the Financial Times, Browder pointed towards a break with Putin in 2004:

“Putin’s tactics changed following the arrest of Khodorkovsky and the seizure of his Yukos oil company, causing a shift in the balance of power between the Kremlin and the oligarchs.

“‘Putin tasted the forbidden fruit,’ Browder says. ‘From that moment on, the oligarchs became his business partners as opposed to his opponents, and all the corporate governance work I had been doing became a huge pain in their backside.'”

Browder continued to promote his new narrative that the arrest of Mikhail Khodorkovsky was the defining event that altered his personal fortune. In a 2015 Op-Ed, Browder again pointed to 2004 as the break with Putin:

“In the summer of 2004, Putin publicly crushed Russia’s biggest oligarch, Mikhail Khodorkovsky, who was put on trial and sentenced to nine years in prison. From that moment forward, Putin’s interests diverged from mine. Shortly thereafter he expelled me from Russia and declared me a threat to national security.”

Browder, who personally cheered the arrest of Khodorkovsky and maintained personal support for Putin through 2006, was now citing these events as the reason for his expulsion.

The reasons for Browder’s expulsion from Russia vary depending on who’s doing the telling. Browder’s version of events describes himself as a victim of Russian politics and corruption:

“After I was deported, 25 police officers raided our offices in Moscow and seized our corporate documents. These were used to steal our investment companies and ultimately to commit a $230 million tax-rebate fraud, the largest in Russian history.”

The tax-rebate fraud appears to have been real, but neither Browder nor any of his investors were financially impaired. During the 2007 raid on Hermitage, company seals and corporate certificates were gathered and taken into custody as evidence. In what appears to have been a complex financial scheme, these documents were used to transfer ownership of some Hermitage shell companies.

Fraudulent lawsuits were then created demanding reparations for alleged contract violations, which in turn created fictitious losses for the subsidiaries. The subsidiaries then applied for a tax rebate from the Russian government. On December 24, 2007, Russian tax officials signed off on the rebate which amounted to a staggering $230 million. The money was wired to Universal Savings Bank which was subsequently liquidated following completion of the tax rebate.

But the loss was not to Hermitage, it was the Russian Treasury that saw the money siphoned off. Several people were arrested, although details remain somewhat unclear.

One of those accused of being involved in the scheme was Sergei Magnitsky, who was arrested in November 2008 in relation to the tax rebates. According to Browder, Magnitsky was framed, his arrest the result of Magnitsky’s exposure of wrongdoing by the Russian government. Browder would repeatedly put forth this version of events and it has become the accepted sequence of events in the media:

“Magnitsky, a dogged lawyer who worked for the law firm that represented Hermitage, later discovered that the Russian authorities had perpetrated a tax refund fraud, using forged Hermitage documents to transfer $230m of state money to a criminal gang. Rather than congratulating Magnitsky for his assistance, the authorities accused him of orchestrating the fraud himself and arrested him in November 2008. After almost a year’s detention, during which time he was repeatedly denied medical treatment, he was beaten to death in his jail cell.”

Browder has consistently maintained that Magnitsky was beaten to death by Russian guards. A 2011 medical report by Physicians for Human Rights does not appear to support Browder’s assertion, but does cite ongoing inhumane conditions and untreated health problems:

“Repeated medical neglect and outright disregard for the well‐being of Mr. Magnitsky was undoubtedly a significant factor leading to his death.

“Mr. Magnitsky suffered prolonged severe pain, was denied regular contact with his family, denied medical evaluations for his complaints, fed meals irregularly, and kept under inhumane conditions. This cumulative inhumane treatment was also one of the contributing factors leading to his death.”

Browder has also repeatedly described Magnitsky as a lawyer—which is strange given that Magnitsky appears to have been an accountant. Russia IC listed Magnitsky as an auditor at the consulting company Firestone Duncan… engaged in tax consultation and audit. Magnitsky listed himself as an “auditor in CJSC Firestone Duncan” with a background in economics, in an October 18, 2006, Record of Evidence taken with Russian Investigators.

In a 2015 deposition regarding Prevezon, Browder again described Magnitsky as his lawyer. He was quickly questioned by opposing counsel. This time, Browder was under oath (page 25):

Q: Mr. Magnitsky is an attorney; you think that’s accurate?

BROWDER: He was my attorney.

Q: I see. And he had a law degree in Russia?

BROWDER: I’m not aware that he did.

Q: I see. And he went to law school?


Magnitsky had been granted power of attorney on several occasions, but he was not a lawyer. As Browder would detail in his deposition, when there was a 2002 challenge regarding tax payments, Magnitsky represented Hermitage in court.

Browder told a differing story two years later during his 2017 Senate Testimony. Following the Russian seizure of Hermitage’s corporate documents, Browder said he: “hired the smartest Russian lawyer I knew, a 35-year-old named Sergei Magnitsky. I asked Sergei to investigate the purpose of the raids and try to stop whatever illegal plans these officials had.”

Browder failed to disclose that he had employed Magnitsky since 2002—admittedly through Firestone Duncan. He also failed to mention ongoing tax issues and investigations at Hermitage. And Browder again refers to Magnitsky as a lawyer, when that does not appear to be the case.

Worth asking is why Browder intentionally concealed Magnitsky’s much earlier involvement in Hermitage affairs—and why would he misrepresent Magnitsky’s true employment as a tax consultant and auditor.

One of the main charges made by Russian tax fraud investigators is that shell companies held by Hermitage incorrectly claimed they employed disabled workers. In doing so, these shell companies obtained material tax breaks they were not entitled to. This is never disclosed in Browder’s version of events but a careful reading of his deposition provides insight as to what was really occurring (page 63):

Q: The tax regimes in that were set up in Kalmykia required the hiring of basically Afghan war veterans who had disabilities, right?

BROWDER: The Kalmykian tax regime… allowed the companies to pay lesser tax than in other regions, and the handicapped tax benefit.. allowed a reduction in the federal tax rate.

Q: A majority of your employees in Kalmykia had to be physically challenged persons?

BROWDER: Handicapped tax regime required that more than 50 percent of the employees qualify under certain rules of definition of handicapped individuals.

Q: So you represented on the Saturn tax returns that a majority of your Kalmykian employees were physically challenged persons?


It seems that Browder’s subsidiary companies were falsely listing employees as meeting the definition of “handicapped individuals” when in fact they did not. In other cases, workers were listed as holding certain jobs on paper only. They worked in other positions and in some cases did not work for the company at all.

Browder claimed in his deposition that he didn’t recall listing certain employees as being disabled because he had contracted out management of these shell companies to Firestone and Duncan (page 69). Although Browder does not disclose the individual responsible, it’s worth noting that Browder’s primary point of contact was Sergei Magnitsky.

And despite Browder’s claims of ignorance, it was Browder himself who signed the tax forms (page 78):

Q: The court found that the employees who were listed as those with handicaps in fact did not work for the company or were not capable of doing the work that the tax returns said they were capable of doing. So who signed the tax returns that made those representations?


Other material tax violations that occurred prior to Browder’s expulsion from Russia are covered in the deposition. There also appeared to be strategic use of bankruptcies at certain shell companies as a means to avoid payment of certain taxes and obligations. The Prevezon lawyers summed up the situation succinctly (page 91):

“At the time that the search warrant was executed in June of 2007, the situation was that the courts had found that you had taken advantage of the tax regime in Kalmykia, had taxes due, they were unpaid, the company was bankrupt.

“You’ve said that the investigative authorities had absolutely no basis for conducting an investigation of Hermitage Fund in 2007. What these decisions show is there were false statements on tax returns, there were taxes due, they went unpaid, and the company was placed in bankruptcy.”

It turns out there had already been two separate fraud investigations into Hermitage in 2004 and 2005. Both appear to have remained open and active (page 95). It was these initial fraud investigations that apparently led to the search of Heritage offices in 2007.

On December 29, 2017, a Russian court on Friday sentenced Browder to nine years in prison in absentia after finding him guilty of deliberate bankruptcy and tax evasion. The evasion of taxes appears to have been material:

“The tax evasion by Browder and co-defendant Ivan Cherkasov had caused some 3.4 billion rubles ($58.76 million) in damage to the Russian federal budget.”

On June 9, 2018, HSBC, a British bank that was affiliated with Browder’s Hermitage Fund, was ordered to pay Russia £17 million for its part in alleged tax avoidance. HSBC held private discussions with the Russian authorities last month to reach a settlement on the case. In a surprise move, Russia’s Supreme Court rejected the settlement agreement on July 30, 2018. HSBC had been “seeking written assurances from tax authorities that it won’t face future charges or claims.” A written opinion has yet to be issued.

There are more questions still to be asked. Browder appears to have shifted his views on Putin as it suited his purposes. It also appears that he’s intentionally failed to disclose crucial details in the narrative he’s presented to the public—and to Congress. And the ramifications have extended far beyond Browder himself.

The Magnitsky Act has been the subject of much discussion. Some have portrayed it as an overdue penalty against Russian officials. Others have called it a “measure that effectively ended post-Cold War hopes for normal relations between Washington and Moscow.”

The primary targets of the Magnitsky Act are included in Section 404 (page 11). They list, without name, all those responsible “for the detention, abuse, or death of Sergei Magnitsky” along with anyone “involved in the criminal conspiracy uncovered by Sergei Magnitsky.”

An excellent article by Lucy Komisar delves into some material problems surrounding the “criminal conspiracy” that Magnitsky supposedly uncovered. She states that “Magnitsky did not uncover the December 2007 tax refund fraud that cheated the Russian Treasury of $230 million” and notes that “the three testimonies he gave before his November 2008 arrest did not reveal the fraud.”

Instead, Komisar’s article notes that the “first indication of the fraud was by the Russian, Rimma Starova, who worked for one of the implicated shell companies.” Starova’s testimony was taken on April 9, 2008. In translated testimony Starova details the re-registration of three Hermitage shell companies and the creation of fictitious losses that led to the fraudulent tax rebates. No individuals are specified as being responsible, but critical to note is the date of her testimony—April 2008.

Sergei Magnitsky would not be arrested for another seven months. It appears that at no point prior to his arrest had Magnitsky detailed or alleged fraud. In and of itself, this raises serious question over the entire series of events.

Browder’s 2015 deposition resulted from the Prevezon case. Browder had made certain allegations against Prevezon, accusing the company of using proceeds from the Hermitage tax rebate scheme to purchase New York real estate.

Prevezon was represented by a Russian lawyer named Natalia Veselnitskaya. It was Veselnitskaya’s lawyers from BakerHostetler who deposed Bill Browder. If her name sounds familiar, it’s because Veselnitskaya was one of the participants in the infamous Trump Tower meeting that took place in June 2016. Veselnitskaya had been an opponent of the Magnitsky Act and claims that was her purpose for attending the meeting.

In some respects, the June 2016 Trump Tower meeting virtually ensured that the Magnitsky Act will remain in force. That one event accomplished more than Browder could have accomplished in a year of lobbying. The Trump Tower meeting rendered the Magnitsky Act politically untouchable in the intermediate term. In August 2017, President Trump placed additional sanctions on Russia.

Details involving Magnitsky’s role and subsequent death remain uncertain, despite the many media reports. As we have seen, the story surrounding actual events appears to be far more convoluted than Browder has led the public—or Congress—to believe. Hermitage was already under investigation for fraud years before Magnitsky’s arrest, and Browder’s 2015 deposition makes clear some significant differences from his public description of events.

Penalties from the Magnitsky Act assume that Browder’s version of events, including Magnitsky’s role, is the correct one. Yet Browder’s story appears to be subject to material inconsistencies and misrepresentations.

Meanwhile, the Magnitsky Act is effectively passing legal judgment on a case that resides in Russia. And impacting our nation’s foreign relation policy in the process.

Jeff Carlson is a CFA charterholder. He worked for 20 years as an analyst and portfolio manager in the high-yield bond market. He runs the website

Views expressed in this article are the opinions of the author and do not necessarily reflect the views of The Epoch Times.