March 24, 2010 1:59 PM
From Russia with Fear
Posted by Brian Baxter
When he opened his law and audit firm Firestone Duncan in Moscow in 1993, Jamison Firestone saw Russia as a land of opportunity. Today Firestone is essentially exiled abroad, managing his business from thousands of miles away, and afraid of what could happen to him should he return to the city he called home for 17 years.
Firestone decamped to London in December after a lawyer from his firm died amid mysterious circumstances in a Moscow pretrial detention facility and in the midst of a long-running investigation by Russian authorities into one of his firm's clients, Hermitage Capital Management.
Hermitage, once the largest investment fund in Russia, is owned by William Browder, whose grandfather at one time headed the American Communist Party. Browder ran afoul of Russian authorities by railing publicly against what he called the country’s culture of corruption, as reported by The New York Times. He was ultimately punished for his outspokenness when Hermitage and two subsidiaries were put under the control of Victor Markelov, whom Browder accuses of being a former sawmill employee and convicted murderer.
Markelov entered the picture after Hermitage's lawyers, including Firestone Duncan, were caught up in the drama. The decisive event: a 2007 raid on Firestone's Moscow office staged by police from Russia's Interior Ministry. Sergei Magnitsky, the head of the firm's tax practice, later accused two officers who led the raid of stealing Hermitage documents in the process. Russian authorities, Jamison Firestone claims, subsequently used those documents as the basis for seizing the three Hermitage funds, handing them over to Markelov, and, later, collecting a questionable $230 million tax refund.
The Am Law Daily spoke with Firestone after Magnitsky's death spurred him to flee Moscow. Initially optimistic that an investigation promised by Russian president Dmitry Medvedev would determine how Magnitsky died, Firestone says he quickly grew skeptical. One reason: In December he received from Russian tax authorities a batch of documents bearing what he says was his forged signature.
The documents were connected to a company called OOO Anrider, a Russian investment unit of a U.S. hedge fund and a Firestone Duncan client that was due a $21 million tax refund from the Russian government. Firestone says that, like the stolen Hermitage documents, the bogus Anrider papers were snatched from his offices during the 2007 raid. Once he saw them, he says, Firestone feared he was being set up the same way Magnitsky had been.
The following interview with Firestone has been condensed and edited for style, grammar, and clarity.
Why did you leave Russia?
I got tired of waiting within the grasp of people that could grab me, arrest me, and kill me. I'm the one who is trying to stop a crime. [Hermitage] has already lost $230 million--you'd think they'd like to prevent the theft of another $21 million. The system is broken.
[With Anrider], the crime is the same. It's a government refund crime--it's not that common.
What was it about the Anrider documents that made you suspicious?
I get a letter from the tax inspector that says, 'We received these amended declarations and we're not accepting them because the signature doesn't match yours.' Clearly someone had filed false declarations from my company, as there's 40 or so pages of my signature forged.
How did you respond?
I'm not some little guy. I run a law firm and at the time I sat on the board of the American Chamber of Commerce in Russia. So I thought I'd file a few complaints with the prosecutor's office and get the U.S. government involved.
Did that work?
Nope. It doesn't matter who you are anymore. Sometimes you think to yourself, 'God, if I could only get this heard at a high level, something would happen.' That happened here, with my employee in prison in a bad way, and nothing happened.
What would you like to see the Russian authorities do?
I'd like to see some of the offices involved lose their ability to bring these false lawsuits and false imprisonments.
Why did you choose to relocate to London?
My legal colleagues who have fled [Russia] are here, as well as a major concentration of investors interested in Russia. There are a lot of clients and potential clients here and the time difference between Moscow and London is only three hours.
Tell us how you believe these alleged schemes involving Anrider and Hermitage worked.
Think of it this way: there's a guy in a criminal group who understands how to steal taxes back from the government. He's the mastermind. And he says if you have a company that paid a lot of taxes and you create a lot of fake liabilities, you can submit an application for a refund that his buddies in the tax inspector's office can push through lightening fast.
How, in your opinion, is that accomplished?
You need some muscle to steal the companies with the taxes--that's the police. They come in and steal the company. Now you need to put them under criminal control. So you take some stupid, fall-guy criminal that doesn't have an education-- a sawmill foreman like Markelov, say--and you make him the managing director of a company with $4.3 billion in assets.
What comes next in this scenario?
You create the liability through a bunch of bogus court cases that claim the company owes the plaintiffs the exact amount of profits it declared. So if the company made $1 billion in profits, you sue the company for $1 billion to create a $1 billion liability. Then you get crooked lawyers and crooked judges involved. And the crooked lawyers bring suits against these companies that they know are completely bogus for the amount of money that the companies had previously earned. And then you get other crooked lawyers to represent the companies in court. And in court they say, 'Oh, you've got a $1 billion claim against our client, no contest!' And the crooked judge enters a judgment immediately in favor of the plaintiffs.
What makes you think all these individuals are corrupt?
Because this didn't happen once--it happened ten times with different companies, three of which belonged to Hermitage. And the same lawyers are involved in all of these cases, except sometimes they represent the plaintiffs and sometimes they represent the defendants. And the same judges are involved too. It's a classic cookie-cutter scheme with the same contracts and no contests.
Who are these lawyers?
They're Russian private practitioners and they raid companies and do illegal acts for a living.
Do your colleagues in Russia--not just at your firm, but other firms--support you in speaking out about what's going on?
They're supportive, but they don't want to scare their clients away. My firm was raided in June 2007 and lots of law and accounting firms [in Moscow] have been raided. Nobody wants to be a crusader. [My] feeling is we need to make this public not only to defend our clients, but also because if you aren't noisy, then you have no chance. I think more lawyers here are realizing that situations like this are occurring more often, and it's threatening their ability to protect their clients.
What have Western lawyers done to insulate themselves and advise their clients in this climate?
Western law firms occasionally have to rotate people out of the country because it is unsafe for them to remain. Usually it's because they have a managerial position in a firm where the authorities want to put pressure on that firm to do something that a firm wouldn't normally do--such as reveal information or falsify information about their clients.
You've been in Russia for almost two decades, probably some of the most turbulent times in the nation's history. I understand that your time there began with the death of your firm's cofounder, Terry Duncan, during clashes between reformers and Communist hardliners in 1993.
Terry was putting wounded people into ambulances in an active war zone. He wasn't asking whether they were pro- or anti-Yeltsin, they were just people to him. And he lost his life when the last guy he was pulling to safety was a 24-year old American kid and New York Times photojournalist. It wasn't a political thing during a mini-revolution.
Is there still a struggle between the old and the new?
No, I think the struggle deals more with the complete breakdown of authority in Russia. [Outsiders] think the Kremlin is in complete control of stuff, but it isn't really. Everyone basically has their own game and is stealing from everyone else. There is no authority. The people that you're supposed to get help from if you're attacked are almost always the same people that are involved in the theft. Things aren't just bad for foreign investors--they're also bad for Russians.
Medvedev has said he plans to take on Russia's 'legal nihilism.' What's your view of that?
Medvedev says the right things, but if you look at the Hermitage case, some of the corrupt police officers that stole the money are in plain sight and you can't get them investigated. Maybe Medvedev can't do it by himself.
What would you tell people about living and working in Moscow today?
I recently had a very promising University of Michigan law graduate write to me. And he said, 'I've seen your case all over the place, and I want to know whether I should still practice law in Russia.' And my answer was, 'I love Russia, but practicing law there is a different question.' If you love and have a deep respect for the law, and it's going to morally bother you to see judges, lawyers, and prosecutors shamelessly run roughshod over the system, then no, you shouldn't practice law in Russia.Make a comment