Written evidence submitted by William Browder, Founder and Chief Executive, Hermitage Capital Management

[Note: This evidence has been redacted by the Committee. “***” represents redacted text.]

 

Money laundering in the UK

 

EXECUTIVE SUMMARY

 

 

INTRODUCTION

 

  1. I make this submission in my capacity as CEO of Hermitage Capital Management (“Hermitage”).  In 2007, $230 million of taxes that Hermitage Fund’s Russian Companies had paid the previous year to the Russian State Treasury were stolen from the Treasury by a group of corrupt Russian government officials and criminals headed by *** – ‘*** Crime Group’. The fraud involved the theft of three of the Hermitage Fund’s Russian companies, sham litigation and fraudulent tax refunds approved by Russian authorities in one day. This crime was uncovered by our Russian lawyer, Sergei Magnitsky.

 

  1. Sergei Magnitsky and other Hermitage lawyers investigated the details of the fraud and prepared complaints to Russian authorities. Sergei Magnitsky also gave testimony, identifying the Russian officials who were involved. He was then arrested by some of the same officials he had implicated in his testimony. He was placed into various Russian pre-trial detention facilities, moved between cells, tortured and eventually killed after 358 days in detention.

 

  1. Rather than being held responsible for the crimes that they committed, the corrupt Russian government officials were, instead, promoted and some even given state honours.

 

  1. Following Sergei Magnitsky’s death, Hermitage continued to investigate and pursue justice for Sergei Magnitsky so that those involved are held accountable for their actions. We continue in our effort to identify who benefited from the $230 million fraud and related criminality. To date our information has led to investigations in eleven different countries, with $40 million of illicit funds frozen in countries such as the USA, France and Switzerland.[1]

 

  1. About $30 million connected to the $230 million fraud was sent to the UK through a number of shell companies and accounts. This money was spent on lavish luxury items such as couture dresses, yachts, real estate, limitless credit cards, and plane charters, among other things.

 

  1. On 21 March 2016 Hermitage filed a formal complaint with the National Crime Agency, urging the NCA to open a criminal money laundering investigation, gather available evidence without delay to prevent its dissipation and loss, and advance the prosecution of persons who were involved in money laundering, benefited from it, and facilitated it in the UK.

 

*** AND THE *** CRIME GROUP

 

  1. *** is the head of a criminal enterprise known as the *** Crime Group, and was the owner of *** Bank which received and laundered proceeds of the $230 million fraud that Sergei Magnitsky had uncovered. *** was one of two initial banks which received proceeds from the $230 million fraud; it also received proceeds from similar frauds against the Russian Treasury before and after the $230 million fraud.

 

  1. The *** Crime Group is highly dangerous and powerful because it has infiltrated various levels of the Russian government. For example, ***, member of the Russian Interior Ministry, was involved in raids on Hermitage’s Moscow office and that of its lawyers, Firestone Duncan.  The raids were conducted under the guise of a sham investigation, in order to obtain corporate documents and seals to enable the *** Crime Group to fraudulently re-register the Hermitage Fund Companies, which had legitimately paid $230 million in Russian taxes the previous year. Another Russian Interior Ministry official, ***, kept custody of these documents. ***, a Russian lawyer, orchestrated the sham litigation relying on those documents in order to obtain fraudulent judgments totalling about US$1 billion. This enabled the *** Crime Group to file fraudulently amended accounts for the stolen companies, showing a zero profit for the previous year due to these enormous liabilities.

 

  1. *** and ***, as Heads of Moscow Tax Offices, *** and *** respectively, authorised the fraudulent tax refund applications in one day, and $230 million were wired from the Russian Treasury to new accounts opened for the stolen companies by members of *** Crime Group, including with ***’s *** Bank.  Other members of the *** Crime Group, such as *** of the FSB (Russia’s security services - successor agency to the KGB) and ***, ***, ensured the cover up of the fraud at the top levels of the Russian Government.

 

  1. In fact, the recent Panama Papers leak revealed that at least US$800,000 was paid from companies involved in laundering proceeds of the $230 million fraud to a company owned by ***, who is closely associated with Russian President Vladimir Putin. This would suggest that the *** Crime Group’s influence extends to the highest echelons of Russian Government.

 

  1. This allows the *** Crime Group to exert influence on various agencies and government departments, among them law enforcement and the judiciary.  As a criminal organization they operate with impunity.

 

  1. *** was previously convicted by the Presnensky District Court in Moscow for his role in organising an attempted fraud ***, but he was given a suspended sentence.

 

  1. Pursuant to the US Magnitsky Act, on 20 May 2014, *** was placed on the United States OFAC Sanctions list for his role in the Magnitsky case.

 

*** CONNECTION TO $2 MILLION OF ILLICIT FUNDS SENT TO THE UK

 

  1. Of the $30 million sent to the UK connected to the $230 million fraud, about $2 million were wired to the UK by two companies beneficially owned by ***. These companies, *** and ***, were both registered in BVI, by the same registration agent. Both had accounts opened in Cyprus.

 

  1. Both of ***’s companies had UK citizens as their directors.

 

  1. ***, a UK citizen, was:

 

  1. ***, a UK citizen, was:

 

HOW WAS THE $2 MILLION SPENT?

 

Private Jet Hire

 

  1. Between December 2011 and January 2013, ***, one of the companies beneficially owned by ***, wired a total of $176,084 to an account in the name of *** at *** Bank in London. *** specialise in private jet chartering.

 

Luxury Interior Design

 

  1. In April 2012, *** wired $192,963 to ***, via its *** bank account in London. *** is an exclusive yacht and home interior design company based in Chelsea, London.

 

Private School Tuition Fees

 

  1. In March 2012, $20,792 was wired by *** to an account at *** Bank in the name of ***, a private school in the UK.

 

Couture clothing

 

  1. In 2009, ***, another company beneficially owned by ***, wired the sum of $41,436 to the *** Bank account of ***, a couture wedding dress designer.

 

  1. On 15th March 2010, *** company *** made a payment of $19,559 to a *** Bank account, in the name of the fashion boutique “***”.

 

Exclusive Credit Cards

 

  1. In 2008, ***’s *** made payments totally $295,622 to an account at *** in the name of ***. ***

 

Luxury Property

 

  1. Between March and May 2012, *** made two payments totalling $259,532 to *** into an account held at *** Bank. An Internet search suggests that *** is connected to an expensive property in Surrey.

 

Tire Manufacturer

 

  1. Between February and August 2012, *** made multiple wire transfers totalling $819,351 to a tire manufacturer, ***, into an account with *** Bank in Bristol.

 

 

ADDITIONAL $28 MILLION LAUNDERED THROUGH UK

 

  1. Further discoveries indicate that at least $28 million of funds connected to the $230 million fraud were wired to the UK from shell companies used in ***’s money laundering network. Below are just some of the transactions that were identified.

 

Yachts and Yacht transport

 

  1. In 2010, the sum of $240,000 was transferred to an account with *** Bank, using *** Bank in London as a correspondent bank. The information given for the payment was “for yacht.”

 

  1. In 2008, the sum of €75,470 was transferred to an account at *** Bank in London, in the name of ***, specialists in yacht transporting services and logistics.

 

Interior Design

 

  1. On 17 February 2012 $100,000 was transferred to an account in the name of ***, held at *** Bank, for “provisional design.”

 

Property

 

  1. In September 2009 a payment of £115,315 was wired to ***, with an account held at *** London. *** is a luxury London property agent which specialises in property sales and rental at the top end of the price range in the London market.

 

  1. On 6 April 2010, £19,500 was paid to *** into its account at *** in Berkeley Square. The information provided for the transfer was “Rent Demand.”

 

Exclusive Concierge Services

 

  1. On 26 March 2008, a payment of £2,500 was made to ***, into its account at *** Bank in Cavendish Square. *** is a well-known, exclusive concierge service.

 

Designer clothes

 

  1. Between 2010 and 2012 payments totalling £18,470 were made to an account at *** Bank in the name of ***, a fashion designer.

 

IT Solutions and Services

 

  1. Between 2008 and 2011 various payments were made to ***, totalling $7,592.109.

 

NEXUS TO THE UK AND WHY AN INVESTIGATION IS IN THE PUBLIC INTEREST

 

  1. The UK law enforcement agencies have a duty to investigate these money laundering flows for the following reasons:

 

35.1                          There have been two high-profile deaths connected with the exposure of the $230 million fraud.

35.1.1.                     Sergei Magnitsky was killed on 16th November 2009 after giving several testimonies which named the individuals involved.

35.1.2.                     On 10th November 2012, Alexander Perepilichnyy suddenly died whilst jogging near his home in Surrey, UK. He was 44 years old and his death is currently unexplained. Mr Perepilichnyy had been a whistle-blower to Hermitage, identifying ***, husband of the Russian tax official who approved fraudulent tax refunds, as a beneficiary of some of the proceeds of the $230 million fraud. Mr Perepilichnyy provided information which showed that proceeds from the $230 million fraud were wired to Switzerland for the benefit of ***, and also identified multi-million dollar property assets which were purchased in Dubai with proceeds of the $230 million fraud, for the benefit of other Russian Tax Officials from the tax office responsible for the refund. At the time of his death, he was a key witness in the criminal case opened by the Swiss Prosecutor’s Office into the laundering of proceeds from the $230 million fraud.

 

35.2.                 The *** money laundering network wired illicit funds to many banks in the UK. Nearly every major UK Bank has had money pass through its systems.

 

35.3.                 The *** money laundering network used a number of UK-registered companies, which laundered illicit proceeds.

 

35.4.                 UK citizens were involved in the *** money laundering network as directors of these companies, which appear to have no legitimate business or trading purpose.

 

35.4.1.                     ***, the director of *** and ***, both connected to the $230 million fraud.  Director of 214 BVI companies, 36 UK companies, 43 Irish and 4 New Zealand companies.

35.4.2.                     ***, the director of *** and director of 256 BVI companies, 364 UK companies, 29 Irish and 3 New Zealand companies.

35.4.3.                     ***, a UK citizen, was the director of one of the companies involved in the *** money laundering network, which laundered proceeds of the $230 million fraud, and director of a further 708 companies, of which 430 are UK registered companies.

35.4.4.                     ***, a UK citizen, was director of another of the companies involved in the laundering of the $230 million fraud proceeds, and also a director of a further 332 BVI companies, 668 UK companies, 248 Irish Companies and 8 New Zealand companies, according to the same public reports.

 

REFUSAL BY UK LAW ENFORCEMENT TO INVESTIGATE

 

  1. Despite repeated attempts by Hermitage to engage UK law enforcement agencies to investigate transnational organised crime, foreign corruption and money laundering in the UK connected to the Magnitsky case, to date, not one of the five agencies that we have written to have opened an investigation. 

 

  1. In 2010, Hermitage wrote to the Metropolitan Police Service (the “MPS”) highlighting the *** Crime Groups’s criminal activity and its nexus with the UK.  The MPS responded with a refusal to investigate on the basis that “In considering the issues that concern you I am of the view that Jurisdictional responsibility to investigate the fraud and money laundering to which you refer does not lie with the MPS.”

 

  1. In 2012, Hermitage wrote to the Serious Organised Crime Agency (“SOCA”) requesting an investigation into the UK connections to the $230 Million Fraud. SOCA responded stating “I can confirm that we have accepted your letter….as other suspicious activity reports [SAR]…., however,…. SOCA….neither confirm[s] nor deny whether a particular SAR has led to an investigation. To the extent that your client is a victim of crime and wishes to make a formal crime report, SOCA is not the appropriate body for this.”

 

  1. In 2012, Hermitage also wrote to the Serious Fraud Office (“SFO”), further highlighting the financial crimes which had occurred within the UK jurisdiction. The SFO refused to investigate because “matters which you have raised in your letter of 20 January 2012 do not fall within the offences that the SFO is permitted to investigate….There is nothing that the SFO can do to assist…..There is no doubt that you have raised serious concerns.”

 

  1. In 2013, Hermitage wrote to HMRC, seeking a review of the UK company formation agent which facilitated the *** Crime Group’s money laundering in the UK. HMRC refused to investigate stating “You will be well aware for reasons of confidentiality HMRC neither provides feedback….nor we disclose any information…..and this includes progress reports or the results of any enquiries made.”

 

  1. In 2015, Hermitage filed an application with the NCA outlining the flow of money from the $230 Million Fraud to the UK. The NCA replied that “At this stage a domestic criminal investigation relating to money laundering in the UK is not the most effective way forward.”

 

  1. In 2016, Hermitage wrote again to the NCA requesting that a criminal investigation be opened into money laundering in the UK of $30 million connected to the $230 million fraud, examples of which I have set out in this submission. The latest response from the NCA is that at present they have not been able to consider our complaint due to priority being given to an investigation into the Panama Papers.

 

 

A UK MAGNITSKY ACT

 

  1. It is also the case that the UK Government has shied away from publishing the names of persons who are denied entry to the country because of their involvement in the Magnitsky case and similar human rights abuses. This is despite recommendations from the UK Parliament’s Foreign Affairs committee to do so.[2] Naming such individuals is a powerful deterrent for similar violations and for others to become associated with such individuals.

 

  1. The USA has already enacted the Magnitsky Act, federal legislation which enforces visa bans and asset freezes on those individuals who were involved in the mistreatment and death of Sergei Magnitsky, the subsequent cover up and in the criminal conspiracy he had uncovered.

 

SUMMARY AND RECOMMENDATIONS

 

  1. There has been a continual failure by UK Law enforcement agencies to investigate what is a serious case of money laundering. This is an inexcusable reticence to get involved, especially considering that countries such as the United States of America, France and Switzerland have taken action against money laundering in their respective jurisdictions.

 

  1. The UK has one of the most well developed and respected legal systems in the world. However, it appears from the circumstances of the Magnitsky case that the UK is also now increasingly seen as a jurisdiction which is, at best, ambivalent towards money laundering, or at worst, conducive to it. 

 

  1. I urge the UK Parliament to ensure that money laundering in the Magnitsky case is investigated and that the necessary action is taken to bring those responsible to justice and prevent the ongoing laundering of illicit funds into the UK.

 

  1. I also urge the UK Parliament and UK Government to adopt a UK Magnitsky Act.  By publicly naming individuals involved in the Magnitsky case and other human rights abuses, and freezing their UK assets, it will bring an end to the impunity enjoyed by foreign human rights abusers who continue to launder proceeds of their crimes and corruption into the UK.  It will also act as a powerful deterrent for similar violations, sending a clear and important message that the UK will not accept or benefit from money obtained in contravention of another’s human rights. 

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[1] OCCRP, “Following The Magnitsky Money,” 12 August 2012 https://reportingproject.net/occrp/index.php/en/ccwatch/cc-watch-indepth/1619-a-convoluted-money-trail

[2] http://www.publications.parliament.uk/pa/cm201213/cmselect/cmfaff/116/116.pdf