Streetwise Professor

August 22, 2008

There They Go Again

Filed under: Economics,Politics,Russia — The Professor @ 10:28 pm

From BNE:

Russian Interior Ministry raids four law firms defending HSBC and the Hermitage Fund
August 22, 2008

Looks like the campaign against Bill Browder is gathering momentum as more bad news comes out of Russia. The below is a press release sent out by Hermitage Capital and follows on from a letter it circulated to investors describing a corporate raid on some of their assets (see the bne archive).

22 August 2008 – On the evening of August 20, 2008, four Moscow law firms defending
HSBC and the Hermitage Fund from an ongoing fraud in Russia were raided by officers from
the Moscow and Kazan branches of the Russian Interior Ministry. The raids specifically
targeted the lawyers because of their professional involvement on behalf of HSBC in legal
actions to recover ownership of three Hermitage Fund investment vehicles that were stolen
last year.

In an elaborate criminal scheme, corporate raiders – with the assistance of the Moscow
Interior Ministry – fraudulently changed the ownership of the three Russian investment
vehicles owned by HSBC. Subsequently, using forgeries and false contracts, the raiders
obtained court judgments against these vehicles and used these judgments to defraud the
Russian budget of $230 million that had been paid in taxes by the three Hermitage Fund
vehicles in 2006. In order to destroy evidence of the fraud, the new “owners” of the stolen
vehicles recently filed to liquidate and bankrupt them. The lawyers whose offices were raided
Wednesday night were challenging this in Russian courts. Several hearings on the matter had
been scheduled for the following day, August 21.

In total, four groups of Interior Ministry officers conducted the raids on the lawyers in

The first raid took place at 6:20pm and lasted until 10:30pm at the Bureau of Corporate
Consultants, a Moscow law firm. Five Interior Ministry officers seized the powers of attorney
issued by HSBC and Hermitage authorizing the lawyers to appear in court yesterday.

Fortunately, the lawyers were still able to appear because they had maintained duplicate
powers of attorney at an off-site location.

This type of thuggery will only worsen the case of the yips that is currently afflicting foreign investors–and Russian investors and small and medium size businesses lacking the right krysha–in the aftermath of Mechel and the midst of the Georgia imbroglio. It is also a case study in legal nihilism that everybody’s favorite liberal (in their dreams, anyways), Dmitri Medvedev, bewailed. Direct attacks by the agents of the state on the ability of private parties to obtain legal representation is antithetical to the operation of a law and rule-based state.

How many examples such as this will be required to remove the scales from the eyes of the credulous? In the face of such actions, why do some continue to deny that in Russia the law is a sword in the hands of the state, rather than a shield protecting the citizens from the predations of those in power?

The best defense of Putinism I have seen lately is an article in the Moscow Times (I’ll post the link later when I have time to track it down) which argues that a truly democratic Russia would be ruled by even more virulently anti-western and anti-market nationalists. The sad thing is that this may well be true. The ultimate problem is that the cult of the state is so deeply embedded in Russian political culture. The choice is between different flavors of gosudarstvenniki.

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