Slimy Roots of the Second Cold War

The Untouchable Mr. Browder?, by Israel Shamir

Chapeau, Mr Browder! Hats off for this incredible man. Last month, he succeeded in stopping a film screening in the European parliament and took off a few articles from American web sites. This week, he turned the only US screening of a film critical to his version of events into a ruckus. No freedom of speech for his enemies! His lawyers prowl around and issue summons to whoever digs in his sordid affairs. His hacks re-wrote his Wikipedia entry, expunging even discussions of the topic: despite hundreds of edits, nothing survived but the official version. Only a few powerful men succeed purifying their record to such an extent. Still, good fortune (a notoriously flighty lady) is about to desert Mr Browder.

Who is this extremely influential man? A businessman, a politician, a spy? The American-born Jewish tycoon William Browder, says The Jewish Chronicle, considers himself Putin’s Number One enemy. For him, Putin is “no friend of the Jews”, “cold-blooded killer” and even “criminal dictator who is not too different from Hitler, Mussolini or Gadhafi”. More to a point, Browder is the man who contributed most to the new cold war between the West and Russia. The roots were there, still he made them blossom. If the US and Russia haven’t yet exchanged nuclear salvos, do not blame Browder: he tried. For a valid reason, too: he was hit by cruel Hitler-like Mr Putin into his most susceptible spot, namely his pocket. Or was there even a better reason?

Browder, a grandson of the US Communist leader, came to Russia at its weakest point after the Soviet collapse, and grabbed an enormous fortune by opaque financial transactions. Such fortunes are not amassed by the pure of spirit. He was a ruthless man who did as much as any oligarch to enrich himself.

Eventually he ran afoul of Mr Putin, who was (and is) very tolerant of oligarchs as long as they play by the rules. The oligarchs would not be oligarchs if they would found that an easy condition. Some of them tried to fight back: Khodorkovsky landed in jail, Berezovsky and Gusinsky went to exile. Browder had a special position: he was the only Jewish oligarch in Russia who never bothered to acquire the Russian citizenship. He was barred from returning to Russia, and his companies were audited and found wanting.

As you’d expect, huge tax evasion was discovered. Browder thought that as long as he sucked up to Putin, he’d get away with bloody murder, let alone tax evasion. He was mistaken. Putin is nobody’s fool. Flatterers do not get a free ride in Putin’s Russia. And Browder became too big for his boots.

It turned out that he did two unforgivable things. Russians were afraid the foreigners would buy all their assets for a song, using favourable exchange rates and lack of native capital, as had happened in the Baltic states and other ex-Communist East European countries. In order to avoid that, shares of Russian blue-chip companies (Gazprom and suchlike) were traded among Russian citizens only. Foreigners had to pay much more. Browder bought many such shares via Russian frontmen, and he was close to getting control over Russian oil and gas. Putin suspected that he had acted in the interests of big foreign oil companies, trying to repeat the feat of Mr Khodorkovsky.

His second mistake was being too greedy. Russian taxation is very low; but Browder did not want to pay even this low tax. He hired Mr Magnitsky, an experienced auditor, who used loopholes in the Russian tax code in order to avoid taxes altogether. Magnitsky established dummy companies based in tax-free zones of Russia, such as pastoral Kalmykia, small, Buddhist, and autonomous. Their tax-free status had been granted in order to improve their economy and reduce unemployment; however, Browder’s companies did not contribute to economy and did not employ people; they were paper dummies swiftly bankrupted by the owner.

Another Magnitsky trick was to form companies fronted by handicapped people who were also freed from paying tax. In the film, some of these persons, often illiterate and of limited intelligence, told the filmmaker of signing papers they could not read and of being paid a little money for the millions passing through their account.

(Mr Browder does not deny these accusations; he says there is nothing criminal in trying to avoid taxes. You can read about Browder and Magnitsky tricks here and here, and learn of the ways they attacked companies using minority shareholders and many other neat schemes.)

Eventually Magnitsky’s schemes were discovered and he was arrested. Ten months later, in 2009, he died in jail. By that time, his patron Mr Browder was abroad, and he began his campaign against Russia hoping to regain his lost assets. He claimed Mr Magnitsky had been his lawyer, who discovered misdeeds and the outright thievery of government officials, and was imprisoned and tortured to death for this discovery.

The US Congress rushed in the Magnitsky Act, the first salvo of the Cold War Two. By this act, any Russian person could be found responsible for Mr Magnitsky’s untimely death and for misappropriation of Browder’s assets. His properties could be seized, bank accounts frozen – without any legal process or representation. This act upset the Russians, who allegedly had kept a cool $500 billion in the Western banks, so tit for tat started, and it goes to this very day.

The actual effect of the Magnitsky Act was minimal: some twenty million dollars frozen and a few dozen not-very-important people were barred from visiting the US. Its psychological effect was much greater: the Russian elite realised that they could lose their money and houses anytime – not in godless Putin’s Russia, but in the free West, where they had preferred to look for refuge. The Magnitsky Act paved the road to the Cyprus confiscation of Russian deposits, to post-Crimean sanctions and to a full-fledged Cold War.

Continue reading.

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