The Magnitsky Case

By Petra Blum, Frederik Obermaier und Paul Radu

Sergei Magnitsky died on Nov. 16, 2009 in a solitary confinement cell of the infamous Matrosskaya Tishina Prison in Moscow. He was 37. His death rocked U.S.-Russia relations and sanctions were put in place by Washington, followed by countermeasures from Moscow.

Magnitsky had been a lawyer and auditor and, while working for the investment company Hermitage Capital, had uncovered an alleged case of fraud amounting to several million U.S. dollars. According to his research, Russian civil servants had, in conjunction with criminals, managed to steal $230 million from the treasury and transfer it abroad through a very complex web of shell companies. The people suspected of pulling the strings are still at large. But the search for the missing money continued by others after Magnitsky’s death, and is ongoing to this day. The Panama Papers, the database sent to Süddeutsche Zeitung by an anonymous source, now show that there are apparently connections between this web of money transactions and shell companies that Magnitsky uncovered, and one of the best friends of Russian President Vladimir Putin, namely cellist Sergei Roldugin.

What is the connection between the Magnitsky case and the Roldugin network?

The leaked documents contained a contract according to which in 2008, an amount of $800,000 was to be transferred from one shell company, named in the Magnitsky documents, to another based in the British Virgin Islands. That shell company belonged to Putin’s friend Roldugin and was dubbed the International Media Overseas. This company belongs to the network of offshore firms about which Süddeutsche Zeitung and other media had reported at the beginning of April and from which countless Putin friends are accused of profiting. According to the Panama Papers, more than $2 billion flowed through this interwoven network of shell companies in the space of just a few short years.

So what exactly is the connection between the Magnitsky case and the Roldugin network? And how was the money allegedly transferred? The devil is in the detail, so to speak, as it is often the case with these kind of activities. The initial tax fraud that Magnitsky uncovered, and which seems to be the start of the whole series of money transfers, apparently took shape in June 2007 when dozens of policemen stormed the offices of Hermitage Capital, a company founded by the American Bill Browder. The purported reason for the raid was to gain information on one of the investors. The police seized the company seal and found documents of the company. In Russia, possession of these documents gives you the same rights as those of the business owner, even if it is not your company. Shortly thereafter, the business was turned over to presumed accomplices of the policemen participating in the raid. Other presumed accomplices wound up suing the sub-companies, claiming that they had been cheated by Hermitage Capital out of more than $1 billion in 2006 — and won their case. Hermitage capital had made an annual turnover of $1 billion that year, which was retroactively subtracted from their balance sheet.

Fighting to restore Magnitsky’s name

The presumed accomplices then went to the Ministry of Finance to claim a refund of the taxes paid on Hermitage Capital’s supposed turnover. And lo and behold, they were paid $230 million one day later. This money was, among other things, transferred to an account of the Russian Universal Savings Bank. From that point, the $230 million was then apparently transferred through a network of shell companies with seats in Cyprus, Panama Moldova and the British Virgin Islands, until its trace was lost. According to research by the journalist network Organized Crime and Corruption Reporting Project (OCCRP), several million dollars were transferred to a company called Delco Networks, based in the British Virgin Islands. A company that would apparently end up doing business with Roldugin’s shell company.

Magnitsky, who had uncovered the tax refund scheme in the first place, was arrested just a few days after having sought charges in this case. Interestingly enough, the policemen who had been accused of tax fraud by Magnitsky were the same to arrest Magnitsky. The authorities accused Magnitsky of having orchestrated the supposed tax fraud himself. He died prior to a trial under circumstances that have never been fully disclosed.

Bill Browder, founder of Hermitage Capital, has been fighting to restore Magnitsky’s name ever since his death. Browder has given impetus to further global investigations over the last few years and has documented the incredible wealth of several Moscow-based investigators and tax officials. It is also Browder’s doing that U.S. President Barack Obama signed the Magnitsky Act in 2012 which froze accounts of Russians who were, according to the U.S. Senate, involved in Magnitsky’s death. The legislation also prevents these individuals from travelling to the United States.

Russia’s reaction to the Magnitsky Act was swift: A law was passed in early 2013 that prohibited Americans from adopting Russian children. Meanwhile, Magnitsky was posthumously found guilty of tax evasion in July 2013 by a Russian court. Browder, though absent, was also found guilty. Research by the OCCRP and Süddeutsche Zeitung in the Panama Papers now reveals the connection between the Magnitsky case and the Roldugin network. The same network that was used to divert hundreds of millions of dollars from the Russian State can now be linked to the network of shell companies of Putin’s friend Sergei Roldugin.

What happened to money?

The cellist Sergei Roldugin is godfather to Putin’s oldest daughter and was responsible for introducing the president to his future wife. According to the Panama Papers, the International Media Overseas, one of the many shell companies of Roldugin’s network, finalized a contract with the shell company Delco Networks, one of the shell companies allegedly utilized to transfer the diverted Russian taxes of the Magnitsky case in early 2008.

Research of the OCCRP has demonstrated that several million dollars of the presumed tax evasion case, spearheaded by Magnitsky, were transferred to the Delco company. But what happened to that money? Who received it in the end? That has, to this day, not been uncovered.

As previously mentioned, the Panama Papers contain a 2008 contract set up between Delco Networks and Roldugin’s International Media Overseas. According to this contract, Roldugin’s company agreed to sell 70,000 shares of the Russian oil company Rosneft to Delco Networks for $807,800. The money was supposed to be paid from an account at the Lithuanian Ukio Bankas to a Swiss account of Roldugin’s company.

To date, Roldugin himself has not answered inquiries from Süddeutsche Zeitung’s and OCCRP regarding the presumed dealings with Delco Networks. After the first disclosures several weeks ago, he did, however, acknowledge in an interview on Russian State television, that he holds shares of Russian companies through offshore firms. He stated that nearly all profits accumulated are used to support the development of young musicians in the Saint Petersburg House of Music, as well as to buy cellos and other musical instruments.

And what did Putin have to say about these disclosures? The Russian president argued that these reports were a “provocation” and were meant to destabilize Russia, but he also agreed that the information gleaned from the Panama Papers, on which these reports are based, are “truthful.”

English translation via Worldcrunch