A Conversation With Bill Browder
Financier, author, and political activist
Bill Browder is the founder and CEO at Hermitage Capital Management,
which was at one time the investment advisor to the largest foreign investment fund in Russia.
Browder saw corruption in Russia and exposed it. Because of this, he was refused entry into Russia and declared a “threat to Russian national security.”
Following his expulsion, Russian authorities raided his offices, seized Hermitage Funds’ 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.
Today, Bill works as a political activist working with governments in nations all over the world fighting kleptocracy in an effort to bring the men who killed Sergei Magnitsky to justice. Here, Bill talks with Investor Hour host and financial analyst Dan Ferris about those events and his path to seek justice…
I was trying to figure out the best way of rebelling from this family of communists… which was to put on a suit and tie and become a capitalist.
Dan Ferris: I read your book, Red Notice… It was an excellent, thrilling –
in all the wrong ways – story. But before you got to all the events in the book, how old were you when you first realized that finance was going to be your career direction?
Bill Browder: I was pretty young. And my ambitions came about from a very unusual set of circumstances. I come from a family of American communists. My grandfather, Earl Browder, was the head of the Communist Party of the United States of America from 1932 to 1945. He ran for president against Roosevelt as a communist in 1936 and 1940. He was imprisoned in 1941, pardoned in 1942, expelled from the Community Party in 1945, and then ultimately persecuted very viciously during the McCarthy era of the 1950s. So when I was going through my teenage rebellion, I was trying to figure out the best way of rebelling from this family of communists, and I came up with this great idea, which was to put on a suit and tie and become a capitalist. And I became a capitalist at the age of 17.
I eventually found my way to Stanford business school in 1987, graduating in 1989, which was the year that the Berlin Wall came down. And as I was trying to figure out what to do post-business school, I had this epiphany, which was that if my grandfather was the biggest communist in America, I was going to try to become the biggest capitalist in Eastern Europe. And that led me to London, and it ultimately lead me to Salomon Brothers, which doesn’t exist anymore but was a very famous Wall Street firm, probably the most famous Wall Street firm, immortalized in a book called Liar’s Poker, which I recommend everyone read if you haven’t read it already.
And that’s when I became a financier. That’s when I became a financier focused on Eastern Europe. And that led me to all the other dramas of my life.
Dan Ferris: Yeah. And those dramas are really quite substantial. Let’s talk about the time just before you were expelled from Russia in 2005. In retrospect, when I look back at that, it really took you by surprise, and I suppose it took lots of other people by surprise.
Against all expectation, at least as far as a provincial guy like me is concerned – put it that way – you staged successful activist campaigns against corporate corruption not in the United States but in Russia of all places. I would’ve guessed that you wouldn’t have survived that and then gotten as far as you did.
Bill Browder: Well, it was an odd set of circumstances, again. So what happened was: After I left Salomon Brothers, I moved to Moscow in 1996 and I set up an investment fund called the Hermitage Fund. I started with almost no assets under management. But it eventually became the largest investment fund in the country, with $4.5 billion under management. And in the process of doing my investments, I discovered that every single company that I was investing in was basically being robbed blind by the management and the oligarchs who controlled the companies.
And so let’s say I owned 1% of a company. I didn’t really have 1% of anything because the oligarch who owned 51% of the company was literally siphoning 100% of the profits out the back door for his own benefit. And so I decided to try to challenge that corruption, to fight the corruption. And I didn’t have a lot of tools at my disposal. It wasn’t like you could go to the Russian SEC and say, “Look at these terrible things. You need to prosecute somebody,” because the Russian SEC was neither prosecuting anybody or even had the ability to. And I couldn’t go to the police. I couldn’t go to the parliament. I couldn’t go to anywhere.
But the one interesting lever that I had was that I was good at doing research. I had a good team of investment analysts, and I knew a lot of journalists in Moscow. And so we would research how they went about stealing the money. It wasn’t as opaque as you might think. Russia’s an incredibly bureaucratic country, and all the bureaucracy gathers information and keeps it somewhere…
So we were able to figure out who was doing the stealing, how they were doing the stealing, when they were doing the stealing, and where it was going to. And then, we’d take that information and I’d share it with the journalists that I had met and knew. And of course the journalists loved me because I saved them three months of their own work by doing this analysis for them. And they would publish these stories.
And it turned out that when we started publishing these stories and exposing the oligarchs, we were doing it at a really weird and opportune moment, which was the moment that Vladimir Putin had come to power. He was fighting with the same guys that we were fighting with. The oligarchs were stealing power from him at the same time they were stealing money from us. And I should point out: I’ve never met Vladimir Putin. I’ve never spoken to him in my life… neither then, nor now, or any time in between. But this was one of these situations where your enemy’s enemy is your friend. So Vladimir Putin was busy fighting with the oligarchs because they were stealing power from him. I was fighting with the oligarchs because they were stealing money from me. And so every time I would come up with one of these scandals, he would step in – in some kind of very heavy-handed way – and stop them from doing what they were doing.
For a period of time, I had the most golden life you could ever imagine because I was cleaning up Russia, I was making money for my clients and myself hand over fist…
For a period of time, I had the most golden life you could ever imagine because I was cleaning up Russia, I was making money for my clients and myself hand over fist, and I was doing it in a much more powerful way than anyone could’ve ever envisaged because why would some guy from the South Side of Chicago have all this ability to get Putin to do stuff? Well, it just turned out to be this weird confluence of interests.
But the problem was that Putin wasn’t doing this because he wanted to make Russia a better place. Putin was doing this because he wanted to defeat the oligarchs. And so he decided to go for broke at the end of 2003. In October 2003, the richest man in Russia, a man named Mikhail Khodorkovsky, who owned the oil company Yukos, was on his private jet and had just landed in Siberia on his way to some business meetings for his oil company. His jet was surrounded by a bunch of secret policemen from Russia’s FSB, which is the successor organization to the KGB. They arrested him. They brought him back to Moscow. They put him on trial. And they allowed the television cameras to come into the courtroom and film the richest guy in Russia on trial sitting in a cage.
And this had a profound impact on the other oligarchs of Russia, who thought to themselves, “Wait a second, I don’t want to go sitting in that cage.” And so they went to Putin in the summer of 2004, after Khodorkovsky was convicted and sentenced to 10 years in prison, and they said to Vladimir Putin, “Vladimir, what do we have to do so we don’t have to sit in a cage?” And Putin said, real simply, “50%.” Not 50% for the Russian government, not 50% for the presidential administration of Russia, but 50% for Vladimir Putin.
At that moment, Putin became the richest man in the world. And at that moment, all of my interests were no longer in confluence with his but were directly in opposition. And as I continued to expose corruption, instead of going after his enemies, I was going after his own personal financial interest. And that was the lead-up to November 5, 2005. As I was flying back to Russia, I was stopped at the border. I was detained in the airport detention center, arrested and put in the airport detention center, kept there for 15 hours, and then deported the next day, 15 hours later, and declared a threat to national security.
Dan Ferris: You spent 15 hours just in a cell at the airport?
Bill Browder: So, they put me in the cell, the airport detention center, and I didn’t know at that point whether I was being arrested or deported. Nobody told me what had happened. They weren’t communicating with me. I was just a detainee as far as they were concerned. And I thought, “Wow, maybe I’ve been pushing things too hard here in Russia. God, I sure hope that they don’t send me to Siberia.” And so my thinking at the time was: If they were going to be deporting me, they would deport me back to London, and the flight back to London the next day was at 11:00 a.m., the first flight back to London.
And so I thought to myself, at about 9:30 in the morning, after sort of sitting up there all night, “If they’re going to deport me, they’re going to come and get me at 9:30 for an 11:00 flight because surely they’re going to have to process my papers” or do whatever one does in one of these deportation situations. And so I started banging on the bars at 9:30 a.m. trying to get their attention to take me to process me or whatever they’re going to do. And the officers beyond the cell just ignored me. And I thought, “That’s not good.”
So at about 10:00 a.m., I decided to sort of make similar noise and they continued to ignore me. And I’m starting to get really nervous. I think, “OK, I’m not going to be deported. I’m going to be going to Siberia.” And 10:15 a.m. comes around, still nothing, 10:30 a.m. And at this point, with adrenaline starting to really pump through my veins, I’m thinking, “Oh my god. I could be locked up for the next 10 or 15 years.” 10:40 a.m., still nothing. And it’s like 10:45 a.m. or so, they come into the cell, they grab me, and at this point, I think they’re grabbing me to take me for the paddy wagon down to the courthouse to then charge me and send me off to Siberia.
‘Whatever’s going to happen next, at least it’s not going to be happening to me in a Siberian prison.’
But instead, they grabbed me, frog-marched me to the airplane. There was no data processing or paper processing at all. They just threw me onto the airplane. They found a middle seat that was empty. They threw me into the seat. And I didn’t have my passport at this point, but I wasn’t going to complain. I figured that when I got to London, I would figure out what to do. But I just wanted to get out of there. And when the plane took off… I don’t know if you’ve ever watched the movie Argo. There’s this great scene at the end of Argo where a bunch of Canadian diplomats are trying to get out of Iran. And when we took off, I had the same feeling of just absolute and total relief, which was: “Whatever’s going to happen next, at least it’s not going to be happening to me in a Siberian prison.”
Dan Ferris: And your lawyer, Sergei Magnitsky, he seems to have been blindsided, too. Rarely have I seen in my life a story of someone who stood on principle literally to the moment of his death and endured such horror and never recanted. Did you see any of this coming? That ability to stand on principle – it’s kind of one thing in a typical Western country, but it’s another in a place like Russia, isn’t it?
Bill Browder: Well, I haven’t seen a lot of principle in the West either. It’s very unusual in any situation. So Sergei Magnitsky was my lawyer. After I was expelled from the country, the first thing we did was I evacuated my staff, which didn’t include my lawyer because he worked for a foreign law firm. And we liquidated our portfolio, which we were able to successfully do strangely without any trouble. So we got our people out, got our money out, and I thought that was the end of the story. However, it wasn’t.
Eighteen months after I was expelled, on June 5, 2007, 25 police officers raided my office in Moscow, and 25 more police officers raided the office of the American law firm that I used in Moscow. And they were specifically looking for the stamps, seals, and certificates for our investment holding companies that at this point were empty, but the authorities didn’t know that. They found them at the law firm, they seized them from the law firm, and the next thing we know, we no longer own our investment holding companies. They’ve been fraudulently reregistered using the documents seized by the police… and reregistered into the name of a man who had been convicted of manslaughter and let out of jail early – they put his name on the documents.
At this point, I’m not worried about money because our money is safe in the West. But I’m worried that if the police are using killers and stealing companies, someday I’m going to be flying through some airport somewhere and be arrested on a Russian warrant, and I needed to find a way to untangle this mess, figure out what they were trying to do, who was doing it, and stop it so I didn’t find myself in some world of legal trouble in the future.
And so I go out and hire the smartest lawyer I knew in Russia, a young man named Sergei Magnitsky. And Sergei worked for the American law firm that was raided. And he was one of these incredible people who could do like 10 things in the time it took others to do one. And I asked him to investigate, figure out what they were doing and why they were doing it, and then stop it. And so Sergei goes out, figures it all out, and he comes back to me and says, “There were two parts of the scam. The first part was they wanted to steal all of your assets, but you successfully got your money out before they could do that.”
However, the second part of the scam was that when we sold everything, we had $1 billion of profit and we paid $230 million of capital gains tax to the Russian government. And what Sergei had figured out was that the people who stole our companies went to the tax authorities on December 23, 2007, two days before Christmas, and they said to the tax authorities, “There was a mistake made in the previous year’s tax filing, and these companies didn’t make $1 billion. They made zero.” And they came up with a complicated way of explaining that. “Therefore,” they said, “the $230 million of taxes that was paid in the previous year was paid in error.” And they said, “We want the $230 million to be refunded.”
So they applied for a $230 million illegal tax refund using our stolen companies on December 23, two days before Christmas, and it was approved and paid out the next day. It was the largest tax refund in the history of Russia paid out in one day on a fraud.
Now, Sergei and I had seen a lot of corruption in Russia. It’s hard not to see it if you live there. But for us to imagine that Vladimir Putin would’ve been OK with his own people stealing nearly a quarter of a billion dollars of money from the Russian government – because that’s what it was. It wasn’t money stolen from us. We paid the taxes to the Russian government, and these crooks stole it from the Russian government. But we figured Putin would’ve never allowed that because he’s a patriot and a nationalist and a tough guy. And so we thought if we just publicized this and highlight it and bring it out into the open, then the good guys would get the bad guys, and that would be the end of the story.
And then we waited for the good guys to get the bad guys…It turns out that in Putin’s Russia, there are no good guys.
And so we wrote criminal complaints to every law enforcement agency in Russia. I went to the media, newspaper, television, TV. Sergei went to the Russian state investigative committee, their version of the FBI, and gave sworn testimony against the crooked police officers and various others. And then we waited for the good guys to get the bad guys.
It turns out that in Putin’s Russia, there are no good guys. And about five weeks after Sergei testified, instead of arresting the people who stole the money, the people who he testified against – the police officers he testified against – came to his home on November 24, 2008, and arrested Sergei Magnitsky and put him in pretrial detention, where he was then tortured to get him to withdraw his testimony. They put him in cells with 14 inmates and 8 beds and left the lights on 24 hours a day to impose sleep deprivation. They put him in cells with no heat and no windowpanes in December in Moscow, so he nearly froze to death. And they put him in cells with no toilet, just a hole in the floor where the sewage would bubble up. They’d move him from cell to cell to cell in the middle of the night.
And the purpose of all this was to get him to withdraw his testimony against the corrupt police officers and then to get him to sign a false confession to say that he stole the $230 million and he did so on my instruction.
They figured: Here’s a guy who wears a blue suit and a red tie and a white shirt, buys coffee at Starbucks in the morning, goes to a fancy Western law firm. They throw him in one of these horrible hell-hole prisons, and within a week, he’ll sign whatever they want him to sign. But it turned out that they had totally misjudged Sergei Magnitsky.
Sergei Magnitsky might not have looked like a tough character, but he was a man of absolute integrity. For him, the idea of perjuring himself and bearing false witness was more of a torture than the physical torture they were subjecting him to, and so he just refused. And in retaliation they just kept on upping and upping the torture and the pressure until the point when he started to get sick. He ended up getting terrible pains in his stomach, he lost 40 pounds, and he was diagnosed as having pancreatitis and gallstones and needing an operation, an urgent operation which was scheduled for August 1, 2009.
And about a week before the operation, they came to him again and they said, “Please sign this false confession,” and again he said no. And so in response to that, they abruptly moved him from the prison that had a medical wing to a maximum-security prison called Butyrka, which is considered to be one of the most horrific prisons in Russia. And most significantly for Sergei, they had no proper medical wing there. They put him in Butyrka. His health goes into a terrible downward spiral. He goes into constant, agonizing, ear-piercing pain, untreated. He and his lawyers write 20 different desperate requests for medical attention to every different branch of the criminal justice system. Every branch either ignores their requests or denies them in writing.
And on the night of November 16, 2009, Sergei Magnitsky goes into critical condition. On that night, the Butyrka authorities don’t want to have responsibility for him anymore, and so they put him in an ambulance, send him to a different prison that had a medical wing. But when he arrives at the different prison, instead of putting him in the emergency room, they put him in an isolation cell, they chain him to a bed, and eight riot guards with rubber batons beat Sergei Magnitsky until he died. That was November 16, 2009. Sergei Magnitsky was 37 years old. He left a wife and two children.
It was by far the most horrible, life-changing, traumatic, soul-destroying news I could’ve ever gotten.
Dan Ferris: Absolute horror. And after that moment, what was your initial reaction, Bill? Did you just swing into action right away? I can’t imagine that you weren’t absolutely overcome at that point.
Bill Browder: It was by far the most horrible, life-changing, traumatic, soul-destroying news I could’ve ever gotten. Sergei Magnitsky was killed as my proxy. They killed him because they couldn’t get to me. And he lost his life in my service, and he would be still alive today if he hadn’t been working for me. And he lost his life trying to do the right thing. And so when I was finally able to sort of cut through the fog and hysteria of heartbreak enough to think clearly, it was obvious to me what I needed to do, which was to put aside everything else I was doing in my life and to devote all of my time, all of my resources, and all of my energy to go after the people who killed Sergei Magnitsky and make them face justice. And that’s what I’ve been doing for the last 10 years.
And at first, it didn’t seem like we were going to get any justice. The Russian government completely and absolutely circled the wagons. Vladimir Putin got involved personally in the cover-up. They gave promotions and state honors to the people who were most complicit. In the most shocking miscarriage of justice, they put Sergei Magnitsky on trial three years after they killed him, in the first-ever trial against a dead man in the history of Russia. They found him guilty. I was put on trial as his co-defendant in absentia. I was also found guilty. It was clear that we needed to get justice outside of Russia.
And that’s when I came up with this idea, which is that the people who killed him didn’t kill him for religion or ideology – they killed him for money. They killed him for $230 million of money. And I know that the people who stole that money don’t keep that money in Russia. They keep that money in dollars in the West. They keep it in New York banks and British banks and Swiss banks. They buy properties on the Côte d’Azur in France, Belgrave Square in London, and South Beach in Miami. They send their kids to boarding school in Switzerland and their girlfriends on shopping trips to Milan. And I came up with this idea that if we could take that away from them, if we could freeze their assets and ban their visas, that may not be true justice for torture and murder, but it would hit them where it counts and it would be a lot better than the total impunity that they were enjoying up until now.
In Washington, there are very few things that people agree on. There’s a partisan divide on almost anything. But the one thing they could agree on was that Russian torturers and murderers shouldn’t be able to come to the United States.
And that idea of freezing the assets and banning the visas became known as the Magnitsky Act. And I first took this idea to Washington. And I took it to two senators, Senator Benjamin Cardin of Maryland, Democrat, and Senator John McCain of Arizona, Republican. I told them the story that I’ve just shared with you today, and I said, “Can we freeze their assets and ban their visas?” And they said yes. And that became known as the Magnitsky Act. And in Washington, there are very few things that people agree on. There’s a partisan divide on almost anything. But the one thing they could agree on was that Russian torturers and murderers shouldn’t be able to come to the United States.
And in November of 2012, the Magnitsky Act passed the Senate, 92 to 4. It passed the House of Representatives with 89%. And on December 14, 2012, the Magnitsky Act became a federal law.
Dan Ferris: Wow. You can’t bring a guy back from the dead, but you sure had a big impact. So, where does it stand now, Bill? Are you still working on this? Or will this ever be behind you, do you think?
Bill Browder: So, yeah, I’m working on it big-time. The most immediate impact of the passage of the Magnitsky Act was that Putin went out of his mind. He got so angry because this is the first time that anyone has sort of stuck it back at him. Everybody just cowers in fear with this guy. And all of a sudden, we hit him back hard. And he’s definitely a tough guy, but he’s not nearly as tough as he tries to make himself out to be. And all of a sudden, we showed his weakness.
And he retaliated by banning the adoption of Russian orphans by American families right after the Magnitsky Act was passed, which is the most heinous thing he could possibly do because orphans were often the sick orphans that were being adopted and cared for in America and who would often die in Russian orphanages. So he was effectively sentencing his own orphans to death to protect his own corrupt officials. And he made repealing the Magnitsky Act and stopping it from spreading to be his single largest foreign policy priority.
And you may remember a famous meeting where a Russian female lawyer went to the Trump Tower on June 9, 2016, to meet with Donald Trump Jr., Jared Kushner, and Paul Manafort. At that meeting was a representative of Putin, Natalia Veselnitskaya, that was going to meet with Donald Trump Jr. to ask that if his father becomes president – because this is before he was elected – could they repeal the Magnitsky Act?
Now, I’m happy to say that the meeting didn’t bear fruit, nor have any of their other efforts. The Magnitsky Act has now been passed in Canada, in the United Kingdom, in Estonia, Latvia, Lithuania, and in Kosovo. But the biggest prize is coming up in the European Union, which we’re working on right now and would get us 27 countries in one go. And then the other big prize is Australia. And so this is a lifelong mission.
The Magnitsky Act has morphed into a piece of legislation not just for Sergei Magnitsky, not just for Russia, but for bad guys everywhere in the world. And so the Magnitsky Act is now applied all over the world, to death squads in Nicaragua, to generals in Myanmar that are doing the persecution and genocide of the Rohingya. It’s being applied to bad guys in all sorts of places all over the world.
And every country is now starting to pick this thing up, and it’s really becoming probably the single most powerful new technology for dealing with human rights abuse and kleptocracy in the world. And it’s named after Sergei Magnitsky. We’ll never be able to give Sergei his life back, but his legacy is an enormous one, where his sacrifice and his death has led to this incredible tool which really upsets, scares, and deters dictators and kleptocrats and oligarchs from doing bad things. And for that his life wasn’t a meaningless life… it was a meaningful life.
Dan Ferris: I know some value investors who every now and then get a little bit excited about buying something in Russia. I’m going to guess that you have a message for them…
Bill Browder: The message is obvious, which is that it’s a totally uninvestable country. You’re not buying value if there’s no way that you can sort of have access to your assets if they’re going to steal them from you at any point arbitrarily. And moreover – and I was a value investor, and I still am a value investor – when I started investing in Russia, and it was trading at a 99.7% discount, the idea was that it was at such a steep discount that you could make money if there’s any kind of positive trajectory. If it goes from horrible to bad, you can make a lot of money. Well, now we’re nowhere near a 99% discount. We’re probably at like a 60% discount. And it’s deteriorating. And you never make money buying cheap stuff in a negative catalyst situation.
And so there’s no logical reason as a value investor to invest in Russia unless you’re just totally speculating on a short-term move in the market. As an investor – and trading and investing are two different things – but as an investor, you’re looking for some type of rerating that’s going to happen over some period of time. And what I would predict is that there’s going to be a derating that happens in Russia as the rule of law continues to deteriorate, your property rights are no longer there, and it doesn’t matter how cheap stuff is.
Bill Browder’s book, Red Notice: A True Story of High Finance, Murder, and One Man’s Fight for Justice, is a page-turner that you won’t be able to put down. The story is real and gut-wrenching. Get your copy on Amazon here.