Sergei Magnitsky was a Firestone Duncan attorney representing a UK-based investment advisory firm Hermitage Capital Management on trumped-up charges of tax evasion and tax fraud. He was a specialist in civil law.
Over the years of its operation, Hermitage had supplied information to the press on a number of occasions related to corporate and governmental misconduct in alleged corruption within state-owned Russian enterprises. Company co-founder BillBrowder was soon expelled from Russia as a national threat, though Browder himself has indicated that he represented only a threat “to corrupt politicians and bureaucrats”, believing that the ouster was conducted to leave his company open for exploitation. In November 2005, Browder arrived in Moscow to be told his visa had been annulled. He was deported the next day and has not seen his Moscow home for 10 years.
In June 4, 2007, Hermitage’s office was raided by the police. The offices of Firestone Duncan, Hermitage’s law firm, were also raided. In both cases, tax documents were stolen. In October 2007, Browder received word that one of the firms maintained in Moscow had a judgement against it for an alleged unpaid debt. This was the first Browder had heard of it.
In his investigations into the charges against Hermitage, Firestone Duncan attorney Magnitsky came to believe that tax fraud had been perpetuated, but not by Hermitage: evidence he discovered suggested a group of conspirators had stolen the seals and documents of Hermitage and used them to fraudulently reclaim $230m (£140m) of Hermitage’s taxes. Magnitsky’s testimony implicated police, the judiciary, tax officials, bankers and the Russian mafia. In spite of the initial dismissal of his claims, Magnitsky’s core allegation that Hermitage had not committed fraud but had been victimized by it would eventually be validated when a sawmill foreman pled guilty in the matter to “fraud by prior collusion”, though the foreman would maintain that police were not part of the plan. Before then, however, Magnitsky had himself been brought under investigation by one of the policemen he had testified was behind the fraud. According to Browder, Sergei was “the ‘go to guy’ in Moscow on courts, taxes, fines, anything to do with civil law.”
According to Magnitsky’s investigation, the documents that had been stolen in June 2007 were used to forge a change in ownership. The thieves then used forged contracts to claim Hermitage owed $1 billion to shell companies. Unbeknownst to Hermitage, those claims were later authenticated by judges. In every instance, lawyers unknown to Hermitage pled guilty on the organizations behalf.
The new owner, based in Tatarstan, turned out to be Viktor Markelov, a convicted murderer released only two years into his sentence. The company’s fake debt was then used to claim a tax break of $230 million, issued Christmas Eve of 2008. It became the largest tax rebate in Russian history. Hermitage contacted the Russian government with the investigation’s findings. The money, which was not Hermitage’s, belonged to the Russian people. Rather than Hermitage, the Russian authorities opened a criminal case against Magnitsky.
Sergei Magnitsky was arrested and imprisoned at the Butyrka prison in Moscow in November 2008 after being accused of colluding with Hermitage Fund. Held for 11 months without trial, he was, as reported by The Telegraph, “denied visits from his family” and “forced into increasingly squalid cells.” He developed gall stones, pancreatitis and calculous cholecystitis, for which he was given inadequate medical treatment during his incarceration. Surgery was ordered in June, but never performed; detention center chief Ivan P. Prokopenko later indicated that he “…did not consider Magnitsky sick…Prisoners often try to pass themselves off as sick, in order to get better conditions.”
On November 16, eight days before he would have had to have been released if he were not brought to trial, Magnitsky died for reasons attributed first by prison officials as a “rupture to the abdominal membrane” and later to heart attack. It later emerged that Magnitsky had complained of worsening stomach pain for five days prior to his death and that by the 15th was vomiting every three hours, with a visibly swollen stomach. On the day of his death, the prison physician, believing he had a chronic disease, sent him by ambulance to a medical unit equipped to help him, but the surgeon there — who described Magnitsky as “agitated, trying to hide behind a bag and saying people were trying to kill him” — prescribed only a painkiller, leaving him for psychiatric evaluation. He was found dead in his cell a little over two hours later.