On March 7 Russian police brought criminal charges against Bill Brauder, the head of Hermitage Capital, once the largest investor on the Russian stock market. The American-born investor is accused in illegal operations with Gazprom shares. Before 2004 only Russian residents were allowed to buy stock of the Russia’s natural gas giant.
The ban for non-residents on transactions with Gazprom shares created plenty of opportunities for arbitrage. Bill Brauder successfully exploited them. Back then, selling Gazprom shares to international investors generated easy money for many leading financial companies on the Russian market. The Russian government never seriously tried to stop this semi-legal trading, though schemes to outmaneuver the formal ban and operators of these schemes were well-known.
Ten years ago Mr. Brauder championed Vladimir Putin’s economic policy. Later, when Mr. Brauder switched to criticizing Gazprom for its non-transparent corporate governance, he suddenly found himself with cancelled visa in Moscow’s airport. Soon after that his shells were stolen and his lawyer, Sergei Magnitsky, died in Moscow’s police custody after he refused to cooperate with investigators. Now, as a revenge for the advancement of the Magnitsky Act in US and Europe, Russian authorities initiated investigation against Brauder himself. Even more important, major TV channels, controlled by Putin’s clan, accused the financier not only in unlawful operations with Gazprom shares, but also in tax evasion typical for all Russian companies before the YUKOS case.
The criminal prosecution of Mr. Brauder is just one more vivid example of selective and politically motivated justice that prevails in Russian courts. The timing for the investigation of the case, well-known for more than ten years, is self-explanatory. Bill Brauder, who no longer praises Mr. Putin’s wise policies, still remains his sparring partner. This time Russia’s authoritarian leader doesn’t try to lure international financial markets. Russia’s new course is self-isolation and tight control over the national elite. Mr. Brauder, an international speculator with controversial reputation, suits perfectly for anti-western propaganda. Russian authorities won’t really try to arrest him, but Russian state-controlled TV-channels will make movies about Magnitsky’s boss in order to popularize Putin’s new political and economic course. Russian businesses and citizens will bare all the costs of self-isolation. Meanwhile, international investors will find other places with risky assets to gamble on.
