Sergei the Magnificent

It could be the name of a tzar, perhaps a lesser known successor of Catherine the Great, but it’s not. It is nevertheless history, a tale of how the Soviet Union was privatized and plundered at the time when the Russian oligarchs came to power.

The story is told in a recent book by William Felix Browder called Red Notice. The title refers to the equivalent of the American APB, or All Points Bulletin, as dispensed by Interpol, and a good part of the book is devoted to Sergei Magnitsky, a Russian accountant who was tortured to death in 2009.

I hope you’ll enjoy the book as much as I did, so I’ll try not be a ‘spoiler.’ I remember years ago watching The Sting with a friend who kept whispering in my ear what happened next—spoilers are a pain.

The events that led to the death of Magnitsky can be separated into two groups. The first, the direct application of torture, including severe beatings, were obviously what killed him—they are shocking in their brutality, and to those who believe the passage of time somehow changes human nature.

We are feral, a fact that becomes obvious when hardship emerges. Wars, hunger, hatred, envy, greed—these all bring out our dark side in a New York Minute. Only regulations, and the education of children to abide by societal values, mitigate this side of our nature.

More worrying, our genetic mechanisms are predisposed to a wild rather than a docile life; this means every child has to be taught, always; in other words, civilized life will always be governed by nurture, rather than nature—it is by definition a losing battle—we will never breed good citizens.

Stalin and the Soviets (sounds like a sinister nineteen-fifties doo-wop band) were experts at institutional torture and repression—if you saw my article on the Gulags it becomes obvious they did far worse then to many more. Read Kolyma Tales if you’re upset because the sun isn’t shining on this first day of spring—it’ll put things in perspective.

Torture is everywhere, and innocent human beings are enduring it, dying from it, right now, while you relax and read this. So in that sense Sergei’s story is tragic but unremarkable—perhaps that’s the real tragedy.

The second group are the factors that led to Magnitsky’s arrest, in other words the true cause of his death. Those are described by Browder, an American who ran the very successful Hermitage Capital hedge fund in Russia.

It’s an amazing story of fraud and corruption, which fascinated me because the perpetrators, a classic association of cops and robbers, combined ingenuity, abuse of power, high-level corruption, and implacable retribution to great effect. At the time, Magnitsky was the main spanner in the works, so they killed him.

I won’t spoil the book for you, because you’ll enjoy the plot. If you’re stuck for time, Bill Browder tells it well in a speech delivered at his Alma Mater, Stanford University, which you can find on YouTube.

Like everyone else, I was shocked a couple of years ago when I heard that Moscow (read Putin) had banned adoption of Russian orphans by Americans. It was a news item that passed like ships in the night, somewhere between Greek austerity and the latest achievements of the Arab Spring—itself pretty underwhelming as we greet the first day of spring in the Year of the Ram.

Europeans often don’t realize Americans are a big-hearted people, and one of the primary groups of orphaned kids taken in for adoption were disabled children. Because health care in Russia is poor in that sector, the ruling effectively condemned the weak and disenfranchised to an early death—not exactly a stunning novelty.

I didn’t appreciate that the adoption ruling was a direct reaction to the Magnitsky Act passed by the US Congress and signed into law by Obama. I further didn’t realize that the US administration was anything but supportive of the idea.

The bill was the brainchild of a group working on behalf of Magnitsky, led by Browder, and hit criminals at the plexus of most pain—the wallet. Like time and space, power and money are interchangeable—Russia doesn’t exactly hold the monopoly on this.

The 2012 Magnitsky Act allowed the US to impose financial sanctions on the people who committed the fraud and who killed Sergei. Assets were seized in Switzerland, the US, the European Union… everywhere oligarchs go to play.

And the Magnitsky Act has been put to good use in the case of the Ukraine, allowing high-profile (which in Russia also means high net worth) individuals to be targeted—clearly the law of unintended consequences at work, in a situation the Obama administration latched on to quickly.

The EU, which likes to play follow the leader without admitting it, is now considering similar action. Russia is of course hard at work in its efforts to block the initiative. The Parliamentary Assembly for the Council of Europe, PACE, has been instrumental in driving this forward, despite the strong opposition of Russian delegates.

The early part of this story is equally fascinating, i.e. what drove Browder to Russia, and his capacity to identify investment opportunities. He tells of how he went to the Arctic port of Murmansk in the 1990s, when privatization was just getting started.

And he explains that the fishing company he visited had a fleet of one hundred trawlers, valued at ten million dollars apiece. Fifty-one percent of the one billion dollar assets were being privatized for two and a half million dollars—a multiple of two hundred.

What Browder did next was spectacular—instead of going back to London he went to Moscow, to see whether he’d found an outlier. There he realized the whole country was an outlier: the government privatization program was selling one third of Russian companies to the proletariat, at twenty bucks a crack.

Browder worked out that the one hundred-fifty million population, times twenty dollars, placed the total value of the Russian economy at ten billion dollars. Even with my limited knowledge of such matters, I would multiply the population by  a SWAG (Scientific Wild Ass Guess) two thousand dollar per capita GDP and come up with an economy worth three hundred billion in 1990’s (the actual GDP appears to have been around five hundred billion).

To quote the man himself:

So the entire market capitalization of Russia was $10 billion, which was smaller than a midsize U.S. oil company. A country with about 10% of the world’s oil, 24% of the world’s natural gas, 10% of the world’s aluminum, and many, many other resources—all for $10 billion.

Nowadays, Bill Browder is primarily a human rights activist, and a very brave one at that. He lives in London, and from Putney Bridge to Polonium, the UK is awash with Russian dirty pool—Putin neither forgives not forgets.

Atmos Fear and The India Road. Quick links for smartphones and tablets.

Atmos Fear and The India Road. Quick links for smartphones and tablets.


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