At the meeting, Donald Trump Jr. and other Trump confederates, lured by a promise of compromising information on Trump’s rival, instead stumbled upon a quagmire: a fraud that bilked the Russian treasury of $230 million; a trans-Atlantic dispute over offshore accounts and tax evasion, and a U.S.-born investor, William Browder, who once ran the largest foreign investment fund in Russia, and who plays the eminence grise in this drama.
Browder is perhaps best known as an investor in Russia turned an anti-corruption activist, and the driving force behind the Magnitsky Act, the battery of economic sanctions aimed at Russian officials. However, an examination of Browder’s record in Russia and his testimony in court cases reveals contradictions with his statements to the public and Congress, and raises questions about his motives in attacking corruption in the Kremlin.
Browder has insisted that his departure from Russia resulted from his anti-corruption activities. However, Russian authorities revoked his visa in November 2005, two years after a provincial court convicted Browder of evading some $40 million in taxes. The Russian federal government next took up the case. Magnitsky was interrogated in 2006 about the tax evasion and detained over it in 2008.
Nevertheless, by 2012 Browder had convinced key U.S. politicians that Magnitsky was his lawyer, hired to investigate the theft of three of Browder’s companies and jailed by corrupt Russian authorities, who engineered his death in prison. The Magnitsky Act banned visas and business ties for a number of Russians allegedly linked to Magnitsky’s death. The impact of that legislation has spread, with US and European human rights advocates pressing for a global Magnitsky Act against public officials and corporate officers everywhere accused of corruption or rights violations.
That human rights effort, named after a man Russian investigators say was part of a tax evasion scheme, has helped sour US-Russian relations.
Back in the spotlight this summer, Browder used Magnitsky’s death to again rail against shady Russian government officials and their cronies in Congressional testimony and in the press.
It is the theft of the three companies that ties Browder to the controversial Trump, Jr. meeting. In 2007, shell companies that had once been owned by Browder were used to claim a $230 million tax refund based on trumped-up financial loses. Browder has said the companies were stolen from him, and indeed in a murky operation organized by a convicted fraudster, they were re-registered in the names of others.
About five years later, Browder went after a company he said had gotten money laundered in the tax refund fraud. He persuaded the Justice Department to bring charges in 2013 in New York against Prevezon, a Russian real estate investment firm, and others. Browder accused Prevezon of receiving $1.9 million from the tax refund fraud. It used the money to buy New York real estate, he said.
Veselnitskaya says the Prevezon suit was a distraction Browder used to cover up his own tax evasion and–she claims–collusion in the tax refund fraud. She bases her accusation in part on the role of Magnitsky. She has lobbied against the Magnitsky Act, deriding it as Browder’s way of protecting himself from Russian legal trouble.
Browder declined repeated requests for an interview about the Russian charges, his time as an investor in Russia, and his campaigns for the Magnitsky Act. Browder went so far as to have the author of this article banned from a public talk he gave at the Institute for Advanced Studies in Princeton, New Jersey, in December 2016.
But this summer, in sworn testimony before the US Senate’s Judiciary Committee, Browder made statements that appear to contradict his testimony in the Prevezon case. Statements by Browder in this article come from the printed record of his Senate testimony, and his various public appearances and writings.
A Nested Russian Tale
“While working in Moscow I learned that Russian oligarchs stole from shareholders, which included the fund I advised,” Browder told the Senators during the Washington, DC hearing this summer.
There is, however, a record that suggests Browder knew well more about suspicious transactions involving the companies he controlled. That record questions the prevalent depiction of Browder as an entrepreneur wronged by a rough-and-tumble Russian business community.
A 100Reporters investigation, published in 2014, illustrated how Russian titanium company, Avisma, in which Browder was an investor, used an Isle of Man shell company to “buy” titanium at fake low prices and sell it abroad at higher market prices, cheating both minority share-holders and Russian tax authorities. A lawsuit showed Browder knew that was the business plan.
According to corporate documents, Browder’s holding company, Hermitage Capital Management, was built on corporate registrations authored by the Mossack Fonseca law firm. That firm is the source of more than one million documents made public by the International Consortium of Investigative Journalists in its Panama Papers investigation, involving assets hidden through the use of shell companies and secret offshore accounts. Its disclosures have led to resignations by government officials worldwide, criminal investigations and charges of corruption against bureaucrats and business leaders.
Mossack Fonseca set up two companies in the British Virgin Islands, Berkeley Advisors and Starcliff, to hold shares in Hermitage. The Browder family home in Princeton, New Jersey, is registered by a Mossack Fonseca shell, Pepperdine Holdings Ltd. Browder’s $11-million vacation home in Aspen is also “owned” by a shell registered in an agent’s name. The US taxes offshore earnings. In 1998, Browder traded his US citizenship for one in the UK, which does not.
How Hermitage Got Started
In Browder’s time in Russia, a key figure was accountant Konstantin Ponomarev, who in 1995 founded Firestone Duncan with American lawyer Jamison Firestone as a minority partner. Ponomarev hired Magnitsky, with whom he had studied at the Russian Economics Academy. He named Magnitsky deputy head of the new firm’s audit department and assigned him to Hermitage. According to Ponomarev, the firm – and Magnitsky — set up an offshore structure that Russian investigators would later say was used for tax evasion and illegal share purchases by Hermitage.
In a series of emails to the author, Ponomarev said that Firestone Duncan set up a number of Hermitage shell companies in the Russian republic of Kalmykia. They held stocks in some Russian companies that Browder had purchased for himself and clients. Ponomarev said the structure helped Browder execute tax-evasion and illegal share purchase schemes. He said the holdings were layered to conceal ownership: The companies were “owned” by Cyprus shells Glendora and Kone, which, in turn, were “owned” by an HSBC Private Bank Guernsey Ltd trust. Ponomarev said the real owner was Browder’s Hermitage Fund. He said the structure allowed money to move through Cyprus to Guernsey with little or no taxes paid along the way. Profits could get cashed out in Guernsey by investors of the Hermitage Fund and HSBC.
Russian authorities contend that Magnitsky was a participant in a tax fraud led by Browder.
Ponomarev said Hermitage wanted to obtain shares of Gazprom, the giant Russian energy conglomerate. Company policy and then Russian law prohibited direct purchases of Gazprom shares by foreigners, including foreign companies and investment funds. Foreigners could buy shares only through ADRs (American Depository Receipts) sold in London, but they could not buy them in such numbers – or at the same prices – as Russians could. Ponomarev said that in 1996, the firm developed for Browder “a strategy of how to buy Gazprom shares in the local market, which was restricted for foreign investors.”
It did the same for the Ziff brothers, then owners of Ziff Davis Media, whose investments Hermitage managed. Ziff Brothers Investments did not return repeated requests for comments.
Tax Breaks and Disabled Employees
A central charge by Russian tax fraud investigators is that Hermitage’s shell companies falsely claimed they employed disabled workers and invested in the local economy. Ponomarev said the two claims would cut a company’s taxes by 40%.
He said, “After we successfully passed our own tax audit, we started to offer this to our clients, including Bill.”
In 2001, Hermitage shell companies Dalnaya Steppe and Saturn Invest declared on tax returns that a majority of their Kalmykian employees were disabled, complying with a law aimed at social rehabilitation of the disabled. But they hadn’t hired anyone, since they were just stock holding companies.
Russian tax authorities investigated the claim that disabled workers were “analysts” for the two companies. A legal judgement found that the employees were working at other locations as physical laborers. It said of the workers: “Bukayev has no education or qualifications. Badykov is a worker. Byatkiyev is a machine engineer. They had nothing to do with Saturn and were only used by the Claimant to get the income tax relief.”
The tax authority demanded overdue taxes plus a fine and interest. Russian court decisions show that Browder failed to pay, then later put the companies into bankruptcy. Back taxes could not be collected.
In a deposition he gave in the Prevezon case in 2015, Browder was asked, “Who came up with the idea that you could use this tax regime?”
“[W]e were advised by Arthur Andersen, Firestone Duncan, Ernst & Young and various other firms that this was a proper way of organizing our affairs,” Browder replied.
An important point, Ponomarev said, was that other companies had lowered taxes this way, but had actually hired disabled workers.
The alleged tax frauds came to $40 million, Russian tax authorities charged. Allegedly illegal purchases of shares in Gazprom through the use of offshore shell companies were reportedly valued at another $30 million, bringing the total figure to $70 million.
In his Prevezon deposition, Browder said that in 2004 he “transferred (Dalnaya Steppe) to be liquidated” by Visao Risk Management Group (VRMG), a Moscow security firm run by Jakir Sha‘ashoua, whom Browder has identified a former agent of the Mossad.
On June 2, 2007, Russian tax investigators raided the offices of Hermitage and Firestone Duncan. They seized Hermitage company documents, computers and corporate stamps and seals.
In a statement to US senators, Browder said that interior ministry officials “seized all the corporate documents connected to the investment holding companies of the funds that I advised. I didn’t know the purpose of these raids so I hire