Ruble Trouble

Bill Browder: Red Notice - A True Story of High Finance, Murder, and One Man's Fight for Justice

The Weekly Standard, December 4, 2015

Not long after Russia's financial crisis, in 1998, I attended a conference on Eastern European stock markets. The keynote speaker was Richard Pipes, veteran historian of Russia and the Soviet Union. His talk included an examination of how property rights had evolved—or, rather, failed to evolve—in Russia over the centuries. "If we'd heard that a year ago," one battered investor told me, "we would have saved a lot of money." It's a shame that Bill Browder was not there that day.

Browder is an American-born financier who was early to grasp the opportunity that investing in the companies of chaotic post-Communist Russia could represent. He weathered 1998 and built up his Hermitage Capital Management to become one of the largest foreign investors in Russia. By November 2005, its assets stood at $4.5 billion.

Then Browder was frozen out by the Kremlin, with consequences that proved fatal to Sergei Magnitsky, an auditor working for Hermitage's law firm, who was jailed on trumped-up charges, denied medical treatment, and beaten to death in prison. In response, Browder tried to get a measure of posthumous justice, campaigning successfully for the passing of the Magnitsky Act, American legislation imposing sanctions on some of those allegedly responsible for what had happened. The Kremlin hit back with posthumous injustice, refiling charges of tax evasion against Magnitsky, the first prosecution of a dead man in Russian history. (He was found guilty.)

Here, Browder, a grandson of Earl Browder, general secretary of Communist Party USA throughout much of the Stalin era, tells his own story and that of Hermitage Capital, Magnitsky's killing, and the crusade to ensure that those responsible did not get off completely scot-free. It's a fascinating and, ultimately, tragic tale, vividly told in a sometimes combative style that occasionally tips into Wall Street swagger—all those dolts who didn't see what Browder saw in Russia as he made his way to the top.

It is also the tale of a failure to grasp that an older, rougher Russia—the patrimonial state that Pipes had described so well—was more resilient in the face of the encroaching free market than Browder and many others had believed. History failed the Communist grandfather. It failed the capitalist grandson, too.

And success must have reinforced Browder's confidence that the world was usually as he saw it—a world, what's more, where he would normally get his way. After all, he had been mostly right for a long time. By his early thirties he was in Moscow, running his own fund. At first everything went well, but in a harbinger of much worse to come, an oligarch attempted to use a highly dilutive share issue to reduce the value of Hermitage's stake in Sidanco, an oil company, to next to nothing. Browder—protected, sensibly enough, by 15 bodyguards—fought back and, somewhat surprisingly, won.

That was then. After the 1998 crash—which, as Browder admits, came as a shock (Hermitage took a big hit)—the oligarchs continued to play fast, loose, and greedily with corporate governance. Faced with the looting of yet another portfolio company, Browder pushed back, and again he prevailed, this time with some unexpected assistance from Russia's newish president, Vladimir Putin. Hermitage's return was enormous. It was a lucrative formula that Browder was to repeat. He investigated corruption in other companies in which he had invested and publicized what he found: "Once the campaigns reached a fever pitch, Putin's government would generally step in to flex its muscles."

But what, as he concedes, Browder had failed to understand was that he was being used by Putin to cut the oligarchs down to size. When, in October 2003, Mikhail Khodorkovsky, the CEO of the oil company Yukos and Russia's richest man, was arrested, Browder explains that he thought that it might signal the "beginning of a crackdown on the oligarchs, [which] meant that Russia had a chance of becoming a normal country."

Putin's subsequent expropriation of Khodorkovsky's stake in Yukos sent a more sinister message, but (although he doesn't mention this in Red Notice) Browder was happy to keep talking Putin ("my biggest ally") up in public, telling the New York Times in 2004 that "we want an authoritarian—one who is exercising authority over mafia and oligarchs."

Browder was not, he writes, "paying enough attention." Well, that's what he says now: A more cynical observer might think that this very savvy investor had decided to turn the blindest of blind eyes to what was going on or, at the very least, had indulged in some extremely wishful thinking.

Browder and Putin were on a "collision course." With the oligarchs brought to heel, and Putin (Browder claims) cut in on the action, Browder's attacks on their maneuvers had been transformed into attacks not on Putin's enemies but on the Russian leader's personal "economic interests"—and although Browder doesn't make this point, on Putin's status as a chieftain who looked after his own.

In November 2005, Browder was barred from Russia, and the assault on Hermitage began. The second half of this book recounts the unraveling that followed, a dismal, tautly told saga in which it becomes clear what the withdrawal of the chieftain's favor meant: raids, the twisting of the law, and the looting of Hermitage by officials operating a complicated scam.

Typically, Browder punched back: He also extricated his people, but Magnitsky hung on in Russia, heartbreakingly confident. The time of Stalin had passed. But history doesn't repeat itself; it rhymes. Magnitsky ended up dead all the same.

The final sections of Red Notice blend two stories. The first is of Browder's battle (which he had the resources to wage, albeit from a distance of thousands of miles) against the officials who had robbed him, some of it very public (Browder has learnt how to weaponize YouTube), some of it much more discreet (a Russian named Alexander Perepilichnyy shows up under an alias with some damning bank statements from Switzerland). The second is his successful efforts to get the Magnitsky Act passed into law, a story from which John Kerry, then chairing the Senate Foreign Relations Committee and angling for the State Department, emerges characteristically poorly.

Putin's response to the Magnitsky Act was not confined to orchestrating a vicious and petulant ban on the American adoption of Russian orphans. Along with his murdered colleague, Browder was charged with tax evasion. That he was safely outside Russia did not end the matter. Not for the first (or last) time, Russia abused its Interpol membership and issued an Interpol "Red Notice" that subjected Browder to the risk of arrest and extradition any time he traveled: something that Browder persuaded Interpol to annul, no small achievement. That a Moscow court found him guilty along with Magnitsky is no great surprise.

Browder is not finished with Putin, and Putin, he recognizes, is not finished with him. There is, he maintains, a "very real chance" that he will be killed, a grim possibility that deserves to be taken seriously. Towards the conclusion of Red Notice, he notes that the 44-year-old Alexander Perepilichnyy died suddenly in Britain just before the Magnitsky Act passed the House. Initial postmortem results were inconclusive, and the police seemed slow to take much interest.

That may change. This past May, a toxicologist told a pre-inquest hearing that Perepilichnyy's stomach contained traces of a rare and highly poisonous plant.