Financial Observer: What kind of risks does a foreign investor face when he enters Russia?
William Browder: The main risk is that some law-enforcement agencies, the FSB or Russian prosecutors may try to steal your assets and your business by opening false criminal cases against you. At the moment one out of every six Russian businessmen is jailed as a result of efforts to expropriate their assets by illegitimate means. The problem is that your money is not the only thing you put at risk – you may also lose your freedom or even your life.
My case is a perfect example. When my company entered Russia, it was the largest portfolio investor and we soon discovered corruption in companies we invested in. When we started to expose it, I was soon expelled from the country. My office was raided by the police, the documents were seized and used afterwards in a massive fraud, which aimed to steal $230 million taxes that we paid. Our lawyer, Sergei Magnitsky, who exposed the fraud was arrested, tortured and killed. In the same time all crimes against us were covered up by the government.
How was it in 1996 when you started your business – the times were more unstable then?
The times were also dangerous, but in a different manner. Back then, Russia had disorganized crime initiated by random criminals. Nowadays the country has highly organized crime – managed by the top of Russian authorities and law-enforcement agencies. In the 1990’s if you were smart, you could have invested in Russia avoiding these problems, by keeping a low profile and staying out of the way. But now, if you are making any money, the authorities want to deprive you of it. Sooner or later they will figure out how to take it from you, one way or another.
But in 1990’s nobody demanded you to pay bribes? Did you have to meet top officials in order to get support – so called in Russian a “krysha”?
In 1990’s there wasn’t a need to pay bribes or have a “krysha” in my business. I run a very simple business then, buying shares of Russian companies on stock market. I was sitting in an anonymous office that nobody knew about. I was just buying stocks when they were down and selling them when they went up. That was my only economic interaction with the country. There were no requests to pay bribes and no need to have a “krysha”.
However in Russian internet there are many accusations that your business wasn’t clean – that for example you were employing disabled people in Kalmykia in order to avoid taxes…
All of these allegation were made against us by the very same corrupt and compromised law-enforcement officials, who were involved in stealing our company and killing Siergiei Magnicki after we exposed them. Everything they say is motivated by their own criminal activities.
With all due respect, I don’t understand your strategy of revealing secret information about corruption of strategic Russian companies you were invested in. In Russia there’s saying “tishe edesh dales budies” – “the quieter you go, the further you’ll get”. You could expect that it would provoke many problems for you?
I use Gazprom as an example. We discovered that the shares of Gazprom traded at a 99,7% discount per barrel of reserves compared to the valuation of Exxon and British Petroleum. And the reason for such a big discount was that the market perceived that almost all Gazprom assets had been stolen by corrupted members of management. So when we conducted the analysis of Gazprom, we were able to figure out exactly how much had been stolen, who had done it and how.
We exposed our findings through the international media which caused a huge political scandal in Russia. As a result people who committed theft were fired and the government decided to undertake necessary actions to recover stolen assets. Owing to that, the price of Gazprom shares between 1999 and 2005 went up a hundred times. So the results were quite satisfying not only economically but also from a moral point of view, because we managed to kick out the people who were responsible for stealing from the company.
It reminds the case of Russian opposition activist Aleksey Navalny who in his blog had been also exposing corruption in Russian top companies in a very similar way – by buying small amount of shares of Russian top companies that gave him insight into the documents.
Yes, and if you look what they have done to him, it was very similar to what they did to us. The authorities just opened a criminal investigation against him and tried to silence him.
Your critics describes you as a person who ripped Russia off – buying stocks at funny prices when its budget were in trouble – what would you say on that?
It’s a complete nonsense. I was a major contributor to making Russia a better place. I probably did more good to Russia than any of these critics has ever done. Firstly, we exposed corruption and stop it in a number of very important companies and that made the corruption to stop. Secondly, I have told everybody in the world that there’s an opportunity to invest in Russia and many people came there to invest their money thanks to my efforts.
Do you think that situation for investors changed after Russia joined WTO?
The only thing that changed in Russia during last few months is that Putin lost his sense of balance and has created much more unfavorable investment climate than existed before. Every few months the situation in Russia gets worse as political situation becomes more brutal. I don’t think that joining the WTO by Russia has any impact whatsoever, because Russia has a history of abrogating most treaties it signs anyway.
For example, Russia is a member of Council of Europe, nevertheless the number of extrajuridical killings cases proceed in European Court of Human Rights involving Russia is bigger than in any other country.
Considering your case – should Russia be granted the status of normal trade partner by the USA? Is it not too early?
I think everybody should be free to trade with anybody else. For us it was important to make sure that Russia was granted the status of normal trade partner at the same time when the US passes the Magnitski Act that sanctions individual corrupt officials in Russia.
By Jakub Biernat