The Browder Defense

-- 13 October 2009 --
TEXT: J. VERMIN

William Browder, the head of Hermitage Capital, the largest portfolio investor in Russia just a couple of years ago, was charged on Thursday with tax evasion and illegal buying of Gazprom stocks.

On the same day Mr Browder distributed a video on youtube accusing top Russian officials of fraud, racketeering, and corruption.

Similar charges have been filed against Sergey Magnitsky, the managing partner of the law company Firestone Duncan, who has spent last ten months in detention.

The investigators accuse Hermitage Capital of the violation of the President’s Decree of 1997 ‘On circulation of Gazprom shares’ which prohibited acquisition before 2006 of the monopoly’s stocks by foreign-owned companies. Non-residents had to buy the shares on the LSE in the form of depository receipts at a substantially higher price.

Mr Browder and Mr Magnitsky have also been accused of tax evasion through several companies they set up in the Russian regions, including those incorporated in the ‘internal free economic zone’ Kalmykia.

One of Browder’s know-hows is his use of western media in support - or instead – of legal battles. In 2002, for instance, he launched a media campaign against Gazprom which triggered extensive allegations of abuses by the management of Gazprom and auditors in the western press, despite the fact that the lawsuits against PricewaterhouseCoopers, the company’s auditor, were dismissed by the courts.

In the words of Bill Browder, cited by Alexander Dyck from the University of Toronto, ‘Our basic approach is to thoroughly research and understand where the corporate malfeasance is taking place and then go to great pains to simplify the story so the average person can understand what is going on.…. We then share the stories with the press. By doing so, we want to inflict real consequences – business, reputational and financial’

The country has changed and, as the Telenor case shows, it is now less sensitive to attacks by the western media. What