Cyprus Mail
Cyprus

Magnitsky ghost still haunts Cyprus, despite raid on law firm for ‘other matters’

Accountant Sergei Magnitsky died in prison in 2009 after exposing massive tax fraud in Russia

By Elias Hazou

THE raid three weeks ago on a local law firm, which counts the Hermitage Fund among its clients, was unrelated to the Magnitsky case, according to police.

On November 30, Cypriot police officers of the Financial Crime Unit, along with two senior Russian interior ministry officials searched the Nicosia offices of a leading law firm. The action was carried out after a legal assistance request to Cyprus from Russia. Police interrogated the law firm’s employees and left a request for corporate documents.

At the time, the Hermitage Fund released a statement claiming the raid was part of new posthumous criminal proceedings by Russia’s interior ministry against Sergei Magnitsky and in absentia against William Browder, co-founder of the Hermitage Fund and leader of the ‘Justice for Sergei Magnitsky’ campaign.

Magnitsky, a 37-year-old Russian accountant, died in jail in 2009 after he exposed huge tax embezzlement by a criminal gang – the ‘Klyuev group’ – involving high ranking officials in the Russian interior ministry and its internal intelligence service, the FSB.

Under the new proceedings, Russian investigators are accusing Magnitsky and Browder of organising the $230m fraud that the two claim to have uncovered and reported.

This Russian claim was refuted by the Council of Europe’s two-year long dedicated investigation which was completed in January 2014. Cyprus is a member of the Council of Europe.

But police sources close to the Cypriot investigation said their search at the law firm was linked to a request by Russian authorities to investigate the purchase of equity in companies – including Gazprom – in which the Russian state has a stake.

In effect, the investigation concerns the alleged acquisition of shares by certain beneficiaries – more than one companies in Cyprus – said by the Russians to be linked to the law firm.

The transactions are dated to the 2005 to 2007 period.

“The specific investigation we are conducting has nothing to do with the Hermitage Fund or Magnitsky,” the same sources told the Cyprus Mail.

Asked why the Russians were now pursuing a case dating back to 2005, the sources withheld comment.

However, they did confirm that Russian authorities have in parallel made several requests for legal assistance that are in fact related to the Hermitage/Magnitsky affair.

In total, the Russians submitted five legal assistance requests. Of these, only one – linked to last month’s raid – was approved and executed. The other four are still being assessed by the justice ministry, the sources said, hinting that the Russians were not getting everything they wanted.

Cypriot police find themselves in the tricky position of investigating Hermitage’s allegations and the Russian authorities’ counter-allegations.

Earlier this month, government sources had likewise said that Russian authorities are investigating the purchase of Gazprom shares by entities registered in the Russian Federation but thought to be acting on behalf of companies registered outside Russia.

The suspicion was that in this way certain companies – the ultimate beneficiaries of the Gazprom stock – registered outside Russia, benefited by avoiding paying the higher rate for the shares required of offshore entities.

Asked at the time to comment on this, Hermitage told the Mail that the Gazprom connection was merely a smokescreen.

Representatives of the fund said that while they did acquire equity in Gazprom back in 1996, they did so through their subsidiaries in Russia.

The reason is that until January 2006, non-Russian companies could not buy Gazprom shares.

Also, Russian-based entities that obtained stock in Gazprom were required to pay a high rate of tax to the Russian government.

Conversely, Hermitage argued, companies registered in Cyprus that might want to do the same after 2006 would be subject to Cyprus taxation, which effectively came to zero on such transactions.

In June 2007, dozens of Russian police officers swooped down on the Moscow offices of Hermitage and its law firm, confiscating documents and computers. Three Hermitage holding companies were seized on what the company’s lawyers insist are bogus charges.

Hermitage says the owners and directors of the companies were subsequently changed, the courts were used to create fake debts allowing for the taxes to be refunded, and the money was laundered through banks.

Effectively, the Cypriot directors of these companies were defrauded when powers of attorney were forged.

In a statement provided to the Mail, Hermitage said the $230m fraud “was planned in Cyprus by Dmitry Klyuev and his associates, and then stolen funds were laundered in part with Cyprus.”

Some €30m is believed to have been laundered through the island, Hermitage said.

In response to a related editorial published by the Mail on December 4, the anti-money laundering unit MOKAS provided this newspaper with a brief statement.

“MOKAS has analysed the relevant information, has taken all the necessary actions and has disseminated to the police all the relevant material. The case is still open and cooperation is taking place with other European countries,” the statement read.

The sources speaking to the Mail likewise confirmed that the investigation is still ongoing and that it was now under the police. It was part of a broader probe conducted in association with other nations and Europol to track down the $230m.

 

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