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The Magnitsky Money: From Russia…And Then What?

"Ultimately, we'd like to have the police and the prosecutor prosecute any person in Moldova or elsewhere who was responsible for laundering this money through Moldova," says Hermitage CEO William Browder.
"Ultimately, we'd like to have the police and the prosecutor prosecute any person in Moldova or elsewhere who was responsible for laundering this money through Moldova," says Hermitage CEO William Browder.
What if $230 million went missing and no one wanted to get it back?

That is the puzzling question posed by Russia’s years of unwillingness to investigate the well-documented fraud claims made by lawyer and auditor Sergei Magnitsky.

At least half a dozen European Union countries, plus Switzerland, have been looking into where the so-called Magnitsky money might have gone. But Russia has done virtually nothing to investigate the allegations and documentation that Magnitsky brought to authorities before his death in pretrial detention in 2009.

Earlier this month attention was focused on Moldova, which is looking into a complaint filed in June 2012 by Hermitage Capital Management, the firm that Magnitsky represented and which was also an alleged victim of the fraud.

'Documentary Evidence'

Hermitage CEO William Browder -- whom Russia has accused of fraud in an unrelated case -- told RFE/RL’s Moldovan Service what he was seeking in Chisinau.

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"We have given [the Moldovan authorities] documentary evidence that shows money flowing into accounts at Banca de Economii and then money flowing out from those accounts," Browder said. "We'd like to have the information on who managed those accounts, who was responsible for opening those accounts, what kind of due diligence was done in terms of who was behind those accounts. And ultimately we'd like to have the police and the prosecutor prosecute any person in Moldova or elsewhere who was responsible for laundering this money through Moldova."

The Hermitage complaint allegedly traces $53 million of the Magnitsky money to Moldova’s Banca de Economii.

However, it remains doubtful whether Moldova’s probe will go anywhere.

Viorel Chetraru of Moldova’s National Anticorruption Center: "The case is dead 100 percent."
Viorel Chetraru of Moldova’s National Anticorruption Center: "The case is dead 100 percent."
Viorel Chetraru, the head of Moldova’s National Anticorruption Center, told RFE/RL’s Moldovan Service on February 11 that his office had had no response from Moscow on any of its money-laundering queries.

"The Russians did not move ahead with the criminal probe at all for more than five years. They did not reply to any of our requests," Chetraru said. "Do you think they have any interest in going ahead with this case? Only a small part of the case has anything to do with us, and it is not that relevant for the entire investigation. The case is dead 100 percent. The key to the solution is in Moscow, not here in Chisinau, nor in Washington."

Chetraru’s own commitment to uncovering the truth in this case has been called into question. He has been the subject of corruption allegations himself.

No Motivation

In his interview with RFE/RL, Chetraru said Chisinau had no motivation to track the money because Moldovan banks benefited from the fees the suspicious transactions generated. Despite having the Hermitage complaint since June 2012, Chetraru only moved on the investigation grudgingly after then-Prime Minister Vlad Filat publicly ordered him to report on the progress in the probe that was officially opened in December.

In addition, the Moldovan government collapsed last week amid corruption allegations, throwing the country into major political turmoil that will certainly slow the Magnitsky investigation. If the pro-Europe ruling coalition is unable to form a new cabinet and a more Moscow-friendly government emerges from the process, the whole matter could be in the deep freeze again.

READ MORE: Push For Magnitsky Sanctions Intensifies In Europe

In all, some $135 million of the stolen $230 million identified by Magnitsky has been traced as it was shuttled out of Russia through Europe. None of the Magnitsky money has been recovered.

Much of the progress made to date on tracking the funds is the result of an investigation published in August by the Organized Crime and Corruption Reporting Project (OCCRP), an NGO that connects media and investigative-journalism organizations throughout Eurasia.

U.S. financial publication "Barron’s" and the Russian newspaper “Novaya gazeta” partnered with the OCCRP to sift through the "maze of phantom companies, crooked banks, and offshore accounts" that the stolen money allegedly disappeared into.

OCCRP Executive Director Paul Radu: "Cross-border puzzle"
OCCRP Executive Director Paul Radu: "Cross-border puzzle"
"What we did was we dug through registries of companies worldwide," OCCRP Executive Director Paul Radu says. "For instance, we would find out that a company from Russia sent money to a bank in Latvia. And that bank in Latvia then wired the money through a second bank to a different company in New Zealand.

"What we would do is we'd check this information with organs -- like, we'd get the company records from New Zealand and match the people in that company record against people that we found in companies in Latvia and in Russia. So, what we did was trying to recreate this cross-border puzzle."

Collapsed And Died

The OCCRP investigation was able to identify two apparent beneficiaries of the fraud, while stating that others were surely also involved in the theft. One, Vladen Stepanov, is the ex-husband of Olga Stepanova, the former head of the Moscow tax office that approved the allegedly fraudulent tax return that Magnitsky had uncovered. He allegedly used some of the money to buy luxury property in Dubai.

Stepanov maintains that he is innocent. His wife’s whereabouts is unknown.

Hermitage Capital's Browder said he was approached in 2010 by a former colleague of Stepanov’s named Aleksandr Perepilichny. The Russian-born businessman, who had sought sanctuary in Britain, allegedly handed over records of Swiss bank accounts held by Stepanov that contained stolen money. In November 2012, Perepilichny collapsed and died outside his home in London. The cause of his death is uncertain.

Lawyer Sergei Magnitsky died in pretrial detention in Russia in 2009.
Lawyer Sergei Magnitsky died in pretrial detention in Russia in 2009.
The second beneficiary of the fraud identified by the OCCRP investigation is Denis Katsyv, whose father, Pyotr, is the wealthy former minister of transportation in the Moscow region. Records show that Prevezon Holdings, a company owned by Denis Katsyv, received some of the stolen money through Moldova.

Denis Katsyv also says he is innocent.

Hermitage Capital says it has financial records showing that at least $97 million went to USB, a Moscow-based bank with subsidiaries abroad that appeared to have little other business. Dmitry Klyuev, the bank’s former owner, was previously convicted of fraud in Russia and is allegedly the mastermind of a criminal syndicate that orchestrated much of the scheme Magnitsky uncovered -- the so-called Klyuev gang.

Upon exiting Russia, the money was allegedly sent into accounts in Moldova, Cyprus, the Baltics, Hong Kong, and elsewhere. The accounts were held by shell companies, many of which were registered in tax havens.

Klyuev says he has done nothing illegal.

'Tooth And Nail'

In February, several European countries conducting domestic investigations related to the Magnitsky money began cooperating under the auspices of the European Union’s Financial Intelligence Units Platform.

Authorities in Cyprus, Estonia, Latvia, and Lithuania say they are trying to trace portions of the money that may have traveled through or landed in their banks.

Estonia says $10 million of the money was laundered through its banks, while Lithuania has frozen funds held in its banks. Switzerland has frozen accounts as well.

Austria and Finland concluded their own investigations, saying there is no evidence that crimes were committed in their respective countries.

Browder told RFE/RL he had to fight "tooth and nail" to win the cooperation of Cyprus, urging sympathetic politicians and government officials in Berlin, London, and elsewhere to take the country's actions in the case into account when considering its request for an EU financial bailout.

If money is recovered in Europe or elsewhere, it could be returned to Russia -- even though Moscow is not seeking it.

"That's exactly the problem," says former Russian Prime Minister Mikhail Kasyanov, who is now co-chairman of the Russian opposition party Parnas. "By not doing anything on this, the Russian authorities are just demonstrating that to a certain extent, somehow, they are involved in that. If people don't want to make the truth clear, it means that they are somehow involved in that. That's what all the speculations are about."

RFE/RL Moldovan Service correspondent Alexandru Eftode contributed to this report

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