South Africa isn’t the only country to suffer state capture at the hands of powerful, ruthless politicians and businessmen. Russia, too, has been captured by Vladimir Putin and his inner circle of cronies.
In South Africa, brave whistleblowers Mcebisi Jonas, Vytjie Mentor, and Themba Maseko among others, raised awareness of how state resources were being stolen. Their claims ultimately resulted in the Zondo Commission, where the sordid details of government malfeasance and corruption in the African National Congress were exposed. In Russia, the forces of state capture are far more powerful, and abuse their positions to eliminate all opposition. Very few voices have been able to sound the alarm and live to tell the tale. The most vocal and influential such voice is William (Bill) Browder.
Browder was born into a Jewish American family with a rich, communist pedigree. His paternal grandfather, Earl Browder, who was born in Kansas in 1891, was a communist radical and lived in the Union of Soviet Socialist Republics for several years starting in 1927. He was the leader of the Communist Party USA from 1930 to 1945. Browder’s father, Felix, entered MIT at the age of 16, and received his PhD from Princeton at the age of 20. In spite of his genius, Felix couldn’t find employment because of his father’s political history. He was hired by Brandeis University in the 1950s only because Eleanor Roosevelt, the former United States (US) first lady and chairperson of the board, championed his application.
Browder studied Economics and earned an MBA from Stanford before starting a career in finance in 1989, the year the Berlin Wall fell and communism was collapsing in eastern Europe. Working from London, he operated in the eastern European practice of Boston Consulting Group, then moved onto Maxwell Communication Corporation, Robert Maxwell’s media conglomerate, which went into administration in 1991 after Maxwell’s untimely and suspicious death. Browder then turned his focus back to eastern Europe, managing Salomon Brothers’ Russian property investments.
In 1996, Browder founded Hermitage Capital Management with Syrian-Brazilian Jewish financier Edmond Safra. Controversial Israeli businessman Beny Steinmetz was also a founding investor in the fund. During the heady days of early post-communism, the Russian economy was privatised in a mass sale of shares of all formerly state-owned enterprises. Hermitage Capital Management entered Russia with an initial $25 million (R364 million) investment fund. Although the 1998 financial crisis knocked investors’ confidence in Russia, Browder remained committed and became a prominent activist shareholder in large Russian companies such as Gazprom, Sberbank, and Surgutneftegas.
As an activist investor, Browder would study companies’ financials and try to account for the discrepancy between share price, assets owned, and potential earnings. Through improved business practices, Browder expected the share prices of the companies he had invested in to soar. At first, this strategy was wildly successful, and Hermitage would eventually have $4.5 billion (R65.5 billion) of assets under management, become the single biggest foreign investor in Russia, and in 1997, was the best performing fund in the world.
Diligent research in the companies he held shares in resulted in Browder exposing large-scale corporate malfeasance and corruption. The links between the state and these bastions of Russian business put Browder on a collision course with the Russian authorities and the “godfather” of the mafia-style state that Russia had become: Putin.
When Browder’s investigations questioned Gazprom and other large companies, Russia retaliated, refusing him entry into Russia on 13 November 2005, and deporting him back to London. In classic Russian style, he was declared a threat to Russian national security. On 4 June 2007, officers from the Russian Interior Ministry raided the Moscow offices of both Hermitage Capital and Firestone Duncan – the American law firm representing Browder in Russia. Browder tasked the Russian head of Firestone Duncan’s tax practice, Sergei Magnitsky, to uncover the aim of the raids. Magnitsky realised that the authorities had confiscated the registration documents for Hermitage’s investment holding companies and while they were being held by the police, the companies had been reregistered in the name of an ex-convict. The perpetrators then used these companies to apply for a $230 million (R3.35 billion) fraudulent tax refund, which the state paid out on 24 December 2007.
Magnitsky testified twice in 2008 to the Russian State Investigative Committee, incriminating among others interior ministry officials. Five weeks after his second testimony, on 24 November 2008, Magnitsky was arrested at his home. In custody, Magnitsky was mistreated and urgent medical treatment withheld from him. Magnitsky’s condition deteriorated, and he died in custody at the age of 37 on 16 November 2009. His “crime” was to document large-scale theft from the Russian state carried out by government officials.
After Magnitsky’s death, Browder lobbied Western governments to pass a law to punish Russians who violate human rights: the Magnitsky Law. In 2012, former US President Barack Obama signed the Magnitsky Law. In 2016, Congress enacted the Global Magnitsky Act, expanding the Magnitsky Law to allow the US government to sanction foreign government officials implicated in human-rights abuses anywhere in the world. (Israeli mining billionaire Dan Gertler is currently sanctioned under the Global Magnitsky Act for corrupt business practices in the Democratic Republic of the Congo.)
Putin, undeterred, had both Browder and Magnitsky tried in absentia in Russia in 2013 for tax fraud. With good reason, Browder, fearing for his life, then wrote a book, Red Notice (Transworld Books), which was published in 2015. The best way to guarantee his safety was to publicise the methods of the Russian state and to make any attempt on his life look like a retaliation ordered by Putin.
Not only does Browder recount what happened to him and Magnitsky, he also offers readers a fly-on-the-wall account of how Putin rules Russia and intimidates the richest Russians to part with portions of their wealth, which is paid to him as protection money.
Putin’s Russia has mastered state capture to a degree that even former South African President Jacob Zuma and the Guptas could only dream about, and when opponents stand in the way of the full-scale pillage of the state, nerve agent Novichok can always be used to knock people off. Just ask Sergei and Yulia Skripal, and Alexei Navalny.
Bill Browder’s story has been made into a movie scheduled for release on 12 November 2021.
Earlier this year, the United Kingdom and the US both imposed sanctions on the Guptas, citing their Magnitsky Acts.
