Tyler Lawrence: First of all, thank you for talking with us. For those who may not be familiar with your work, could you give us a brief outline of who you are and your advocacy against corruption around the globe?
Bill Browder: I was once an investment fund manager. I ran something called the Hermitage Fund, and we became the largest foreign investment fund in Russia. The Hermitage Fund invested in Russian public equity, so we discovered that a number of the companies that we had invested in were being robbed in a very brazen way by the oligarch majority shareholders. We decided to try to fight the corruption by researching how it was done and then exposing it through the international media, and for a period of time we had a lot of success. In the process, we ended up becoming a very serious irritant to a number of the most highly placed people in the country. In 2005, I was expelled from Russia and declared a threat to national security. In 2007, my offices were raided by members of the Moscow Interior Ministry. They seized all of our documents, and then those documents were used to commit a $230 million tax rebate fraud of taxes that we had paid in the previous year.
I had a young lawyer named Sergei Magnitsky who I assigned to investigate the fraud. He investigated it, he discovered who was involved, he testified against these officials who were involved, and he was subsequently arrested, tortured, and killed on November 16, 2009.
Since then I’ve been on a mission to get justice for Sergei Magnitsky, which has pretty much consumed my life. I’m now no longer a financier, but a full-time human rights activist. The most notable accomplishment in our campaign for justice is the passage of the Magnitsky Act, which is a piece of legislation put together by the US Congress, passed in 2012, which imposes visa sanctions and asset freezes on corrupt Russian officials committing human rights abuses, including those who were responsible for Sergei Magnitsky’s murder.
TL: But then in 2016 the US expanded the Magnitsky Act in the Global Magnitsky Act, which targets human rights violators from any country in the world. What are your thoughts on how the Global Magnitsky Act has been implemented so far by the United States and the other versions of it passed in other countries?
BB: The big fear when we were advocating for the Global Magnitsky Act was one word in the legislation that had been changed from the Russian Magnitsky Act of 2012, which was the president “may” sanction people who are guilty of human rights abuses, as opposed to the president “shall.” May versus shall. Because the White House had fought so hard to make it less of a requirement and more of an option, we thought it would never be used. I’m quite pleased and surprised at how broadly the Global Magnitsky Act has been implemented since it was passed, and there’s now more than 100 people and entities under Global Magnitsky Sanctions from many countries, including countries that are long-term allies of the United States like Israel and Saudi Arabia. I think it’s really a great tool that’s been used properly. My only hope is that it continues to be used and used in a wide manner against people who do bad things.
In terms of other countries, unfortunately, the US is well ahead of everybody else in terms of the use of this tool. The Magnitsky Act exists in six countries so far: the United States, Canada, the UK, Estonia, Latvia, and Lithuania. However, the US is way ahead of other countries in terms of adding people to the list. There’s only about 50 people on the Canadian list, and about the same amount on the Estonian, Latvian, and Lithuanian lists. The UK has not even started implementing it yet.
TL: What would your response be to critics of the legislation who say that it is inevitably going to be tied up in foreign policy, or that Magnitsky sanctions are going to be used against countries that the United States wants to pressure?
BB: That’s the obvious concern. It was my concern that the US and other countries wouldn’t sanction the “good” human rights violators and only sanction the “bad” human rights violators. That actually hasn’t turned out to be true, in the sense that the US has sanctioned 17 Saudis and one Israeli, who were from countries that were considered to be friends of the United States. I think that because the tool is so targeted and it goes after individuals, you can sanction people from states that are normally considered to be friendly to the United States. Equally, you can even sanction people from countries like China. The US would never sanction the country of China, but you can sanction Chinese officials, and they have.
TL: Moving back in your history a bit, during your time operating in Russia, one of your main anti-corruption tactics as an investigator was essentially to name and shame corrupt actors. How effective do you think that was as an anti-corruption tactic for you as a foreign individual and company operating in Russia? Are there ways that multinational companies and investors today could employ similar tactics that might be more successful?
BB: The big problem with investing in most emerging markets is that there is no rule of law, and there are no property rights. Your ability to enjoy the fruits of your success is very arbitrary and dependent on whether somebody comes and tries to take it away from you. In those countries, if someone does try to take things away from you, you have very limited recourse. Generally, you can’t go to court because the courts are effectively captive to oligarchs and corrupt government officials, and you can’t go to regulators because they’re all on the payroll. You’re really left with either doing nothing, or doing things where you do have some leverage.
Our leverage, at least in Russia, was to research how the corruption worked, and then expose it through the international media. Although that wasn’t by any means a foolproof solution, it was the only solution that was available. Naming and shaming had a relatively disproportionate effect because many of these people wanted to commit their crimes in Russia and still be admitted to polite society in the West. If they were being labeled as criminals for what they’re doing in Russia, that made their access to the West that much more difficult.
TL: Do you see companies still doing that today?
BB: I think it has been very rare. It’s very hard, if you’re part of a big international corporation, because it’s not considered to be very civilized to do that kind of stuff. Of course, you end up with very strong enemies. It’s very rare.
If you’re an employee, you don’t really have much of an incentive to do this even if there’s a lot of money being stolen, because it’s not going to affect your salary one way or another, but naming people could negatively impact you in all sorts of terrible ways. The only time it really makes sense is if you’re a principal, if it’s your money being stolen. In my case, we had a 20 percent profit share, so 20 percent of our money was being stolen when they did this type of stuff. It’s very rare to see corporate executives doing this type of activism, because the upside was relatively limited for them because of their compensation. The downside was relatively unlimited because they could be arrested or other terrible things and end up in jail.
TL: Of course, rather than taking such public steps, multinational companies have really stepped up their private, quieter ability to screen companies. There are anti-money laundering tactics and ways of doing due diligence on the people they do business with that have gotten much more sophisticated in recent years. But of course, there’s work to be done. What do you say is the next wave of innovation for companies who want to fight corruption, fight money laundering, even as they continue to operate in these fraught developing markets? What role might new technologies play, for example?
BB: Well I think we’re probably 10 years away from total transparency of everything. As they say, “Sunlight is the best disinfectant.” The more transparent things are, the more likely it is that people don’t do bad things, and the easier it is to make a responsible business decision in emerging markets.
Having said that, there seems to be a terrible naivete among many Western business executives about the conduct of people in emerging markets. People have this strange sense that they take their own values and they project it onto people who may look like them but come from a completely different moral landscape.
TL: You say we’re 10 years away from total transparency. What do you mean by that?
BB: Well, I believe that eventually all ownership of offshore companies will no longer be hidden, and there will be public registers that all law enforcement will have immediate access to, as well as bank data shared among many, many different countries. It will just be much harder to do a lot of the dirty business. It used to be that you could show up with a bag of $100 bills at one bank and deposit it, and then withdraw it from another bank. Now you can’t take out more than $10,000. Now, what the money launderers do is that instead of moving cash around, they just create so many different steps along the money laundering trail that no reasonable person can track it down, with so many steps in so many different countries. In the future, it will just be one stroke of the keyboard and you’ll be able to see the full picture. Therefore, that method of money laundering will evaporate.
TL: Of course, in theory, what you’re hoping will emerge solves one of the major challenges to companies trying to operate ethically and do due diligence on any potential business partner, which is determining ultimate beneficial ownership of any company that they may open up a relationship with.
BB: Yep. The more information everybody has, the more responsible they can be, and the more responsible they can be, the more likely it is that they’ll avoid these pitfalls.
TL: Is there anything else that you want to say to our audience?
BB: In addition to the bad guys doing bad business, there is a huge population of what I call “Western enablers.” Dictators and kleptocrats can only steal money from their countries if they have the assistance of Western lawyers, PR firms, and other types of enablers. In a certain way, these Western enablers are the worst of all.
When it comes to Western bankers, lawyers, and others, they all grew up in polite society and their mothers took good care of them when they were babies, they went to nice schools, and worshipped at good churches. All of a sudden, they made conscious decisions to work with these extremely bad guys. They’re doing it with much more consciousness of evil. Those are the people who deserve the most disdain for their actions.
Sergei Magnitsky, Russian citizen and whistleblower
A Primer on the Global Magnitsky Human Rights Accountability Act
What does the Global Magnitsky Act allow the President to do?
The President of the United States, in conjunction with the U.S. Department of State, may issue an executive order levying sanctions against any individual determined to be “responsible for or complicit in, or to have directly or indirectly engaged in, certain human rights abuses or corrupt acts anywhere in the world,” according to the United States Department of the Treasury Office of Foreign Assets Control (OFAC), which maintains a list of sanctioned individuals. OFAC may also designate individuals complicit in the actions of the sanctions’ target, whose dealings may also be sanctioned.
How does the Global Magnitsky Act passed in 2016 differ from the original Magnitsky Act passed in 2012?
The original Magnitsky Act passed in 2012 specifically targeted individuals in Russia related to the case of lawyer Sergei Magnitsky, who was arrested and tortured in custody by officials in the Russian Ministry of the Interior. The Global Magnitsky Act expanded the ability of the President to sanction individuals involved in corruption or human rights violations anywhere in the world.
What do the sanctions prohibit?
“All property and interests in property” within the U.S. by sanctioned individuals are blocked. For the purposes of the sanctions, an individual has an interest in any entity which they own a 50 percent or greater stake. U.S. persons are forbidden from engaging in any business or transactions with sanctioned individuals or entities in which they have an interest. Sanctioned individuals are also forbidden from entering the United States.
What is the U.S. Congress’ role in the Magnitsky sanctions regime?
The chairperson and ranking member of several committees of either the U.S. House of Representatives or the U.S. Senate may submit a request to determine if an individual has engaged in behavior that may trigger Magnitsky sanctions. Upon receiving such a request, the President and Department of State have 120 days to submit a report detailing whether or not the President will sanction that individual.
About the Expert:
Bill Browder is the founder and CEO of Hermitage Capital Management, which was the investment adviser to the largest foreign investment fund in Russia until 2005, when Bill was denied entry to the country and declared a “threat to national security” as a result of his battle against corporate corruption. Following his expulsion, the Russian authorities raided his offices, seized Hermitage Fund’s investment companies, and used them to steal $230 million of taxes that the companies had previously paid. When Browder’s lawyer, Sergei Magnitsky, investigated the crime, he was arrested by the same officers he implicated, tortured for 358 days, and killed in custody at the age of 37 in November 2009.
Since then, Browder has been fighting for justice for Mr. Magnitsky. Browder’s campaigning led to the US Congress adopting the Sergei Magnitsky Rule of Law Accountability Act in 2012, which imposed visa sanctions and asset freezes on those involved in the detention, ill treatment, and death of Sergei Magnitsky, as well as other human rights abuses. Browder is currently working to have similar legislation passed in Magnitsky’s name across the European Union.