By Lucy Komisar
June 1, 2019

William Browder filed a petition May 28^th in US Federal Court for discovery about bank transfers to correspondent accounts of 13 banks operating in the US. 

He says he needs the information to defend against a Russian indictment. The indictment cites major Browder tax evasion crimes, but the one he cares about is the charge that he was a perpetrator of a tax refund fraud that cost the Russian Treasury $230 million in 2007.

 That is the major claim in the December 11, 2018 indictment of Browder and collaborators by Special Investigator of the First Department of the Directorate for Investigation of Organised Criminal Activity of the Investigation Department of the Ministry of Internal Affairs of Russia, Lieutenant Colonel of Justice M.S. Korovaikin, in the criminal case No. 11801007754000244.

The indictment accuses them of

*non-payment of corporate income tax, which were committed in especially large amounts, during the financial and economic activities on purchase and sale of RAO Gazprom shares by the Russian legal entities controlled by him,

*deliberate bankruptcy of a legal entity, and

*embezzlement of money from the Russian Federation budget in especially large amounts.” That is the charge that concerns Browder.

The indictment was sent to the Russian General Prosecutor. It is copied in Case 1:19-mc-00262-JMF Document 6-1 Filed 05/28/19 Southern District of New York (SDNY).

From the indictment: Browder‘s “embezzlement of money from the Russian Federation budget in especially large amounts.”

This claims that Browder was involved in the use of Hermitage shell companies to claim a fake tax refund of $230 million in December 2007. He has blamed Russian tax officials for the scam, saying the companies were re-registered and used in a fake legal operation by the thieves, and that he had nothing to do with it.

[Important that it lists Sergei Magnitsky, Browder’s accountant, as one of the criminals. Browder claims Magnitsky discovered and revealed the scam.]

The indictment: In 2007, [S.L.] Magnitsky engaged in a criminal community S.M. Korobeinikov, O.G. Gasanov, V.A. Markelov, V.G. Khlebnikov, V.N. Kurochkin, whom he entrusted with duties on direct participation in embezzlement of the money from the Russian Federation budget by means of using Makhaon LLC, Parfenion LLC, Ryland LLC which the community controlled.

The crimes used “commercial organisations established through dummies [the above shell companies] with no intent to carry out the business and the settlement accounts of those organisations in credit institutions.”

In detail

“…. in the period from 3 September 2007 to 26 December 2007 when the members of the criminal community which W.F. Browder managed, including S.L. Magnitsky, S.M. Korobeinikov, O.G. Gasanov, V.A. Markelov, B.G. Khlebnikov, V.N. Kurochkin were located in Moscow, they embezzled the money from the state budgets of the Russian Federation and Moscow by means of deceiving the employees of the Federal Tax Service Inspectorate No. 28 for Moscow and the Federal Tax Service Inspectorate No. 25 for Moscow when they filed false specified tax declarations for income tax of Makhaon LLC, Parfenion LLC, Ryland LLC controlled by the criminal community, decreasing the tax base through supposedly unprovisioned losses of the companies and declaring the supposed overpayment of taxes for illegal reimbursement.

As a result, on 26 December 2007 the Federal Treasury Department for Moscow of the Ministry of Finance of the Russian Federation transferred the funds of 5,409,503,006.48 Russian rubles [the $230 million] to the bank accounts of the specified companies from the state budgets of the Russian Federation and Moscow, those funds were embezzled by the above mentioned members of the Community managed by W.F. Browder, which inflicted damage on the Russian Federation in an especially large amount.”

V.A. Markelov was convicted on 28 April 2009, V.G. Khlebnikov was convicted on 10 March 2011 by the Tverskoy district court of Moscow to five years‘ imprisonment each for said crime.

From the indictment: Past tax evasion

Sergei Magnitsky, one of the directors of the accounting and law firm Firestone Duncan which handled Browder‘s Hermitage account, “directly developed schemes of evasion of taxes.”

From January 1, 2001 to 29 March 2002, Browder did not pay the income tax of Dalnaya Step LLC, in the amount of 319,310,825 Russian rubles to the state budgets of Elista, the Republic of Kalmykia, and the Russian Federation, and also did not pay the income tax of Saturn Investments LLC in the amount of 203,284,689 Russian rubles to the state budgets of Elista, the Republic of Kalmykia, and the Russian Federation. Today‘s exchange rate total about $10 million.

Browder was found guilty of those tax evasions by the Tverskoy district court of Moscow 11 July 2013 and was convicted (in absentia) to nine years‘ imprisonment. The court stopped the case against Magnitsky due to his death.

New charges

Browder, as an agent, failed to pay taxes for Kameya LLC of 1,147,854,600 Russian rubles. [Kameya was managed by Browder but owned by the Ziff Brothers, Americans.] Today‘s exchange rate, $21 million.

In 2006 and 2007, Browder failed to pay taxes

for Makhaon LLC of 125,437,399 Russian rubles 54 kopecks;
for Ryland LLC of 553,715,780 Russian rubles;
for Parfenion LLC of 1,116,130,500 Russian rubles;
for Pifagor Investments LLC of 462,646,768 Russian rubles;

The total came to 3,405,785,047 Russian rubles 54 kopecks.  In today‘s exchange rate, $62 million.

Deliberate bankruptcy

From October 2004 to 05 October 2007 Browder implemented a deliberate bankruptcy of Dalnaya Step LLC, so it could not pay past due taxes from 2001 and 2004. [Browder was asked about this in his 2015 deposition in U.S. Federal Court in New York.

Sha’ashoua had been hired to bankrupt the company so it could not be pursued for tax evasion.

Russia says the taxes evaded were 1,253,026,159.08 Russian rubles.   $23 million today.

All the numbers add up to over $100 million in claimed evaded taxes.

Q: There were taxes due. Is that the way you would understand that?
                12           A.            Yes.
                13           Q.           And you were totally unaware of
                14           these events? You weren’t aware of this
                15           decree, aware of the appeal, aware of the fact
                16           that Dalnaya Step was placed in bankruptcy,
                17           and that taxes were owed?
                18           A.            Totally unaware.
                19           Q.           How would that happen within
              20     Hermitage?
                23           Q.           How could it happen that one of
                24           your companies is placed in bankruptcy and has
                25           taxes due and you don’t even know about it?
                A.            This wasn’t one of our companies at
                4              that point.
                5              Q.           Whose company was it?
                6              A.            We had transferred this company to
                7              be liquidated in 2004.
                8              Q.           Without paying the taxes,
               9      apparently.
              10           A.            No. We paid the taxes and had it
              11     confirmed.
                12           Q.           Confirmed by what?
                13           A.            By the person we transferred the
                14           companies to.
                15           Q.           Who did you transfer the companies
               16     to?
                17           A.            We transferred it a firm called
                18           VMRG [sic].
                19           Q.           What is VMRG?
                20           A.            Visao Risk Management Group.
                21           Q.           Visao? How do you spell that?
                22           A. V-I-S-A-O.
                23           Q.           And who runs that group?
                24           A.            It’s run by a man named Jakir
              25           Sha’ashoua.

Use of offshore Cyprus shells

Shell companies set up in the secrecy haven, Cyprus — Zhoda, Peninsular Heights, Giggs Enterprises, Glendora Holdings, Cerasus Investments, Sedena Holdings, Apricus Investments, Kone Holdings, and Children Investment Master Fund — were used by Browder for his criminal activities.

[Most of these companies owned the Russian shells and were in turn owned by Browder‘s Hermitage shells, including one in the British Virgin Islands set up by Mossack Fonseca of Panama Papers fame.]

Finally

“Thus, W.F. Browder, when using his official position, organised the criminal community (the criminal organisation) in order to jointly commit serious and extremely serious crimes, managed this community (the organisation) and coordinated the criminal actions…”

Browder appears to be building a defense on showing that money stolen in the tax refund fraud was transferred through international accounts by others and ended up in the correspondent accounts of banks in the US. He would have to connect them to the individuals he accuses. But the Justice Department, with much greater resources, was not able to prove that in the Prevezon case.

And without data of all the intervening transfers, Browder cannot prove that money deposited in the two Moscow banks that got the purloined $230 million can be traced to accounts in New York. So, the demand for account data might be a tactic to delay the case from going forward.

On the other hand, if the Russians can prove the facts of the indictment, it would be a game-changer. It could take down Browder. Especially if the western media reports the evidence. Of course, based on its failure to report Browder‘s fakery till now, that is not something one can assume.

Here is an article June 3, 2007, in the Russian newspaper Kommersant about the tax investigations into some Hermitage shell companies. Tax investigators had searched the offices of Hermitage and its accountant Firestone Duncan ten days earlier to collect information about Hermitage tax evasion. Though the article clearly details the investigations, Browder would later connect the June 4th searches to a tax refund scam against the Russian Treasury more than six months later. (First date shown is access date, go below for pub date.)