Latest Act of Intimidation Against the Hermitage Fund and HSBC in Russia
27 November 2008 – LawFuel.com – International Legal Newswire Service – Sergei Magnitskiy, a legal and accounting adviser with the Moscow-based law firm, Firestone Duncan, was arrested by the Russian Interior Ministry following a raid on his home. Mr. Magnitskiy is currently being held in a pre-trial detention center in Moscow in the latest act of unlawful intimidation against Russian lawyers associated with the Hermitage Fund.
Mr. Magnitskiy has been detained since the morning of Monday, 24 November, by the Russian Interior Ministry, apparently in relation to his professional legal and accounting advice to a number of foreign clients, including HSBC and the Russian holding companies of the Hermitage Fund. Interior Ministry officers conducted a simultaneous raid on the offices of Firestone Duncan. In violation of the Russian law, they 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.
Yesterday the court approved the detention of Mr. Magnitskiy on the request from the Russian Interior Ministry — in what has become a routine decision in the Russian court system. Mr. Genri Reznik, President of the Moscow Bar Association, recently noted: “Pre-trial detention has become a ‘commercial business’ for Russian investigators and prosecutors. The courts have practically relinquished any responsibility in the deliberation over detention measures, and as a result 98% requests for pre-trial detention are granted.”
Sergei Magnitskiy has become another victim of the unprecedented attack on the Hermitage Fund from an organized criminal group who working in collusion with Russian officials misappropriated the three Hermitage Fund companies and then fraudulently reclaimed US$230 million 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 $230 million through various Russian and international banks.
William Browder, CEO of Hermitage Capital Management, said: “It is a travesty of justice that an innocent man is now sitting in jail in Moscow. Sergei Magnitskiy has defended his clients and this is his reward for that brave work.”
Mr. Magnitskiy was apparently targeted for providing accounting advice to two Hermitage Fund entities in 2001 that police claimed underpaid taxes in that year. In reality, both entities had been audited by the Russian tax authorities in due course who confirmed all taxes were paid in accordance with the law. Furthermore, both companies were investigated by the regional Interior Ministry in mid October 2004 for the exact same allegation and the investigator closed the case in May 2005 for “lack of any crime”. The timing of the re-opening of this case three years later was three weeks after HSBC and the Hermitage Fund’s complaint led to the opening of a criminal case by the Russian State Investigative Committee into the theft of and fraud against the three Hermitage Fund investment holding companies by individuals with previous criminal records, Markelov, Kurochkin and Khlebnikov, and abuse of office by Moscow police investigators. It was one of these investigators implicated in the HSBC complaints who specifically requested local regional police to re-open the baseless case. After this formality the case was immediately transferred to Moscow. This case along with the investigation of the fraud against HSBC and the Hermitage Fund is now in the hands of the same group of interior ministry officers about whom HSBC originally complained.
This is not the first time 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 in order to prevent these lawyers from representing HSBC and the Hermitage Fund in court proceedings scheduled for the following day.
On 3 of September, the International Bar Association (IBA) issued a statement condemning this 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. IBA President, Fernando Pombo noted that the searches of lawyers’ offices “constitute a clear disregard of these international principles.” Mark Ellis, Executive Director of the IBA, stated that such actions indicate further deterioration of the rule of law in Russia, saying, “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.”
Former Europe Minister, Dr Denis MacShane MP, has condemned the arrest by Russian police of Mr Sergey Magnitskiy: “The iron rule of democracy is that lawyers and law firms can represent their clients without this kind of intimidation and harassment. The Russian authorities do the Russian people no service by thus rejecting a core principle of the rule-of-law in an open market democracy.”
Mr. Magnitskiy has a wife and two children. He remains in the custody of the Russian Interior Ministry.
Firestone Duncan is a Moscow-based provider of legal, tax, accounting, and audit services. The firm was established in 1993 by U.S. attorneys to service the specialized legal and audit needs of foreign ventures doing business in Russia or with Russian parties.