By Patricia H. Kushlis
The last time I visited Moscow was three years after the Soviet Union collapsed. It was an unsettling experience and one reason why I have yet to return.
Crime was rampant and one of our exchange professors – a young Russian speaking teacher – had just been assaulted on the Stari Arbat, one of Moscow’s most prestigious central shopping streets, by men in Russian army uniforms. She had been physically attacked, robbed and her teeth smashed. This had happened one early Friday evening in October during the height of an after work shopping excursion.
This young woman and her friend and colleague - another American teacher who also spoke fluent Russian – blended in with the crowd in appearance and language. Other Russians were horrified at what had happened and tried to help her. An Embassy officer and I interviewed her in her dormitory soon after. The physical violence was painfully obvious.
A culture of seemingly senseless crime
This was not the first time I had experienced similar senseless street crime in that city. When I was exchanges officer at the US Embassy nearly a decade earlier, three foreign women – two American exchangees and a Finnish nanny - had been physically accosted at different times and places during my two year tenure there by drunken Russians and a male student had reported seeing fresh blood smeared on the walls of his apartment building’s stairwell one weekend.
Since the Soviets then tried to shield foreigners from the effects of the country’s rampant criminality and physical violence (bad press for a society that claimed to be the crimeless Communist Nirvana), I still wonder what occurred in less well guarded buildings – away from the possibility of prying foreign eyes.
In 1978, the caviar-packed-in-tuna-fish-cans-for-export scam broke. This almost laughable crime against state property involved the highest levels of the Soviet government. Essentially, profits from the sales of the expensive contents of the cans made their way into secret foreign bank accounts of high level Soviet officials.
That was then, this is now
Has anything changed subsequently since the Communist regime collapsed?
Certainly. Both for good and for bad.
Many more Russians are allowed to own private property. Moscow is jammed with cars. Russians travel and live abroad. They work for private companies formed after 1991. They dress well and fashionably. And, more importantly they write about events such as the Magnitsky affair in print and post them on the Internet even though the country's major mass media messenger - television is thoroughly controlled by the Putin regime.
Beneath the surface, however, corruption and the violence that accompanies it thrive big time. Perhaps even bigger time than when the stakes were far smaller. Now not just state property is the object of personal avarice – individual and corporate holdings have become subject to the dictum that operated during the Soviet Union - “what’s mine is mine and what’s yours is mine too – that is if I can get my hands on it – never mind how.”
The Law of the Jungle Still Applies
That’s what seems to have happened in terms of Sergei Magnitsky and the head of Tax Office Number 28, a woman named Olga Stepanova. This former mid-level tax official who now works as an adviser to the head of Russia's new and powerful arms procurement agency clearly did not operate alone. Investigative reporters have shown that she and her accomplices stole at least half a billion dollars, including or perhaps, in addition to, private property owned by individuals acquired by Stepanova by forging and issuing fraudulent deeds.
Russian Tax Rubles Siphoned Off
Some of the money has traveled abroad to purchase luxury villas on the Mediterranean, into dummy companies in Cyprus and the Caribbean and Swiss bank accounts. Private property has mysteriously changed ownership. Victims or investigators who tried and still try to fight the scam are harassed, jailed and murdered – as was Magnitsky. Or poisoned, threatened and worse – in Russia but also in Europe.
This is the riveting story told in a 14 minute video in Russian and English entitled “Olga Stepanova” that was posted on the Russian Untouchables web page of the Russian radio station Echo Moskvy a few days ago in Russian and English. The Untouchables page contains a collection of articles and media reports about the Magnitsky case. The video "Olga Stepanova" has also been added to You Tube.
It tells the tragic story of the now deceased 37 year old tax lawyer for the firm Firestone-Duncan Sergei Magnitsky who died in questionable circumstances while being held in pre-trial detention in Moscow for over a year. The reason for his arrest – and likely murder – was his work as an “outside counsel" for the Hermitage Fund according to The New York Times.
According to Jamison Firestone, managing director of Firestone-Duncan in the video interview of him, Magnitsky had been assigned by his company, Firestone-Duncan, to assist their client the Hermitage Fund with its tax problems.
The video and other media reports tell us that the Russian Ministry of Interior and Justice officials are implicated in the continuing scam and its cover-up. Since Ms. Stepanova has now landed a cushier job at the new Russian Arms Procurement Agency, elements of the military and the FSB could also possibly be involved.
To date, Ms. Stepanova, her construction worker husband and his 85 year old pensioner mother own a villa in Moscow’s prestigous Archangelskoe estate, another along the Montenegrin Coast as well as two luxury apartments in Dubai and dummy companies in Cyprus and the Caribbean all the while declaring a salary of less than $40,000 per year on their Russian tax returns.
They have thus far been untouched by the scandal unfolding around them although Mr. Stepanov is now reportedly on indefinite leave from the company where he works. Instead, they have been protected by powerful individuals some of whom, at least, also likely profit from the audacious scheme.
This unnerving story, however, worsens. Its sickening tentacles may extend into the Prime Minister’s office. This involves a feud between William F. Browder, the grandson of American Communists and founder of the successful emerging markets hedge fund Hermitage Capital Management which invested heavily in post-Communist Russia. Its reported profits were excellent.
Browder even supported Vladimir Putin’s election for president – but then something happened.
Their feud now dates back several years when Browder revealed this wide-scale corporate identity theft scheme and delivered evidence to Russian prosecutors that the scam was an inside job involving Stepanova, Interior Ministry cops and a number of career criminals. Yet, instead of investigating Stepanova, the Russian government arrested Magnitsky and tried to implicate him and Browder for tax evasion. The charges didn’t stick likely because Magnitsky refused to lie to save himself.
After Magnitsky’s death, Browder received copies of suspicious Credit Suisse records from a disillusioned Russian businessman who said he’d been part of the network responsible for the scam and tasked with paying off the corrupt officials involved. Hermitage’s money laundering complaint with Credit Suisse and the Swiss Attorney General is reportedly based on these documents.
A "cause celebre" and a posthumous hero
The case has subsequently become a “cause célèbre” and Magnitsky a posthumous hero in Russia. It has not only touched Switzerland. The story and its sordid implications are also beginning to reverberate in the US Congress.
Media reports in the West have largely been confined to the financial press - Barrons, Bloomberg, and the Economist - which helps explain why it has not been more widely known on in the US. Besides, this complex story doesn't fit into short, simple news items of 500 words or less so popular here. But there are clear and troubling political implications for US policy makers that cannot be kept under the carpet forever.
In addition to the Swiss government’s investigation into secret accounts at Credit Suisse of the potential beneficiaries of the missing tax money, the US House of Representatives has just introduced a bill to bar visas for travel to the US for Russians implicated in this criminal activity.
Good. As far as this goes. But then what? Could Putin himself end up on America's “no admit” list? Is this why the Obama administration would rather deal with Medvedev?
And what about the scam’s many likely victims beyond Magnitsky, Browder, and several other Hermitage Capital employees who are also being harassed and threatened by elements of the Russian Government? There must be other innocent people whose property has been stolen by Ms Stepanova and her cohorts. Who speaks for them?
Is, for instance, there some kind of victims’ protection program that provides them with safe asylum outside of Russia and the mafia's long reach until the scam is unraveled, its perpetrators tried and incarcerated and it is again safe for them to return home?
The State Department’s 2010 Human Rights Report issued on April 8, 2011 includes details of the Magnitsky case as part of much larger sections on wide-spread corruption in Russia, corruption that permeates all levels of the Russian government so the Human Rights Bureau of the Department is well aware of the problem.
Magnitsky is dead. It’s too late to help him. But what about all the living who still suffer the wrath of the scammers? Who are these people? It’s one thing to document a problem, condemn the perpetrators – but another to help unknown victims. Will State, the US Congress and the Swiss Attorney General, consider their fate too?
An addendum: read Jamison Firestone's article "Russia's Crime of a Century How crooked officials pulled off a massive scam, spent millions on Dubai real estate, killed my partner when he tried to expose them" in the April 20, 2011 issue of FP.