Hermitage claims further intimidation as Russian police arrest adviser

By bne IntelliNews November 28, 2008

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Hermitage Capital Management, which once ran Russia's largest investment fund, has condemned what it claims is further intimidation by an organized criminal group working in collusion with Russian authorities after one its legal advisers was arrested by the Interior Ministry on November 24.

Sergei Magnitskiy, a legal and accounting adviser with the Moscow-based law firm Firestone Duncan, which has provided services to a number of foreign clients including HSBC and Russian holding companies of the Hermitage Fund, was arrested by the Interior Ministry following a raid on his home and is currently being held in a pre-trial detention centre in Moscow. The Tverskoi District Court approved the detention in what the fund claims has become a routine decision in the Russian court system, which has overseen the turning of pre-trial detention into a "commercial business" for Russian investigators and prosecutors.

"In violation of the Russian law, [the Interior Ministry] did not allow Firestone Duncan's lawyer to be present during the search. The officers seized numerous privileged legal and audit documents in respect of various clients of Firestone Duncan. This was the third such raid on Firestone Duncan by Russian police conducted in breach of the Russian law since 2007," Hermitage said in a statement released November 27.

Hermitage claims this is yet another example of intimidation by a criminal gang, backed by corrupt elements within the Russian state, which misappropriated money from the three Hermitage Fund companies and then fraudulently reclaimed $230m in taxes. "The perpetrators of the large-scale fraud against the Russian government and the Hermitage Fund directed the money to specially opened accounts in two small Russian banks, Universal Savings Bank and Intercommerz, and subsequently laundered the $230m through various Russian and international banks," Hermitage claims.

Hermitage has been embroiled in a battle with shadowy forces within the Russian state since 2005, when the investment firm's CEO William Browder, a crusading investor-rights activist, suddenly had his visa for Russia revoked and was barred from entering the country. It's widely suspected that the decision to revoke his visa was connected with his outspoken attacks on Gazprom and Kremlin-linked oil major Surgutneftegaz for their dodgy business practices.

Hermitage says this latest move by the Interior Ministry is not the first time that lawyers and advisers representing HSBC and the Hermitage Fund have been the subject of unlawful harassment. In August, the offices of three other Moscow-based lawyers were illegally searched by the Interior Ministry to prevent these lawyers from representing HSBC and the Hermitage Fund in court proceedings scheduled for the following day.

On September 3, the International Bar Association (IBA) issued a statement condemning the treatment of the HSBC and Hermitage Fund lawyers as a contravention of the Basic Principles on the Role of Lawyers adopted by the United Nations. Mark Ellis, executive director of the IBA, stated that such actions indicate further deterioration of the rule of law in Russia. "When government agents interfere with the work of lawyers, it is not only the legal profession that is threatened, but the overall legal order in the state," Ellis said.


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Hermitage claims further intimidation as Russian police arrest adviser

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