Carlos Velásquez · Medium · 6 min read · Illustration by Thomas Levinson from thedailybeast
In 2003, Vladamir Putin ordered the arrest of Mikhail Khodorkovsky on suspicion of tax evasion and illegally acquiring a stake in a Russian state-owned company. What made this story noteworthy were not the charges (corruption is endemic in Russia) but the fact that Khodorkovsky was Russia’s wealthiest oligarch, an oil tycoon with a net worth of $15 billion. During the trial, Russian authorities humiliated Khodorkovsky by placing him in a cage for reporters to film — a conspicuous signal to Russian society that Vladamir Putin was in charge.
Despite the widespread international concern that Khodorkovsky’s arrest was politically motivated, the Russian courts found Khodorkovsky guilty of committing fraud and sentenced him to nearly a decade in prison.
“Imagine you’re the 17th richest oligarch in Russia. You’re on your yacht parked off the Côte d’Azur in France. You just finished up with your mistress in the bedroom; you go out to the living room, you click on CNN and you see a guy (Khodorkovsky) far smarter, far more powerful, far better than you, sitting in a cage. What’s your natural reaction going to be?
You don’t want to sit in that cage.
And so, one by one by one, these oligarchs went to Putin after Khodorkovsky was convicted and sentenced to 10 years, and they say to Putin — this is Summer of 2004 — ‘Vladimir, what do we have to do so we don’t sit in the cage?’ And Putin says ‘real simple, 50%’. Not 50% for the Russian government, or 50% for the Presidential Administration of Russia — 50% for Vladamir Putin. And that moment in time, 2004, Vladamir Putin becomes the richest man in the world.”
~ Bill Browder, Master In Business Podcast, at 32:25 to 33:24
Bill Browder: The Ex-Russsian Financier
Bill Browder’s investment career began in Eastern Europe in the early 1990s while working for the Boston Consulting Group, followed by a stint at Salomon Brothers. Lucrative investment opportunities emerged after the collapse of the Soviet Union, particularly in Russia, during that decade. Russia’s publicly listed companies had a combined market cap value of approximately $10 billion. Russia controlled 35% of the world’s natural gas reserves and 10% of its oil reserves and produced 10% of its steel, aluminium, and fertilizer. By contrast, a single midsized American oil company was valued at more than $10 billion in the 1990s.
Browder left Salomon Brothers in 1996 to raise $25 million and open up shop in Russia. He started the Hermitage Fund, an investment fund that allocated capital to the Russian stock market. Within a few years of investing in Russia, Browder grew the Hermitage Fund’s assets to over $1 Billion.
In 1998, however, Russia defaulted on its debt and devalued the Ruble. The Russian stock market plunged by 90%, causing the international investment community to lose interest in Russian securities. Without a critical mass of foreign investors to demand strong corporate governance practices, Russia’s oligarchs had an easier time embezzling money from publicly listed Russian companies, many of which were owned by Browder’s fund.
The Enemy of My Enemy (Was) My Friend
Having lost $900 million of his investors’ money, Browder felt a moral obligation to make his fund’s investors whole. His firm began documenting the stealing occurring in Russia’s publicly listed companies which Browder shared with the foreign press. By 2000, these corporate malfeasance reports started making international headlines.
From 1999 through 2000, Putin was the acting President of Russia but wasn’t as powerful as he is today. Putin, however, was keen on clawing back the power the country’s oligarchs had informally usurped from the Presidency; the international press’ malfeasance reports, citing Browder’s research, were a convenient way to accomplish this goal. Putin reprimanded Russian oligarchs whenever journalists shun light on their embezzlement, enabling Putin to consolidate his power while acquiring significant shares of many of Russia’s publicly listed companies, ultimately making Putin the world’s richest man.
“Putin is the wealthiest person in the world, by a huge amount. I haven’t done the calculations recently, but five or six years ago, I think he was worth more than $200 billion; that number has probably multiplied by now. ” ~ Bill Browder, Masters In Business Podcast, at 1:12:11 to 1:12:27
Browder never met Putin, but political observers initially thought Browder was in cahoots with Putin in going after the oligarchs due to the timing of the corporate malfeasance reports and Putin’s swift crackdowns. This notion did not take long to disabuse.
Russia’s National Security Threat
Browder’s naming and shaming campaign — along with Russia’s economic recovery post-1998 (aided by the devalued Ruble and increased oil income) — helped Browder’s fund recover its losses and grow to $4.5 billion in value, making Browder the largest foreign investor in Russia. And Putin’s next target.
By 2004, Putin’s 50% partnership with Russian oligarchs had made him the world’s wealthiest person. To Putin’s chagrin, Browder’s persistent naming and shaming campaign was now exposing Putin’s theft since Putin benefited from the oligarchs’ embezzlement. Putin resorted to naming Browder a national security threat which led to Browder’s deportation from Russia. Browder quickly sold his firm’s Russian holdings and moved money out of Russia.
But Browder’s lawyer, Sergei Magnitsky, wasn’t as fortunate. He was arrested, tortured, and killed as a proxy for Bill Browder.
Browder has dedicated himself to honouring Mr Magnitsky. He has successfully lobbied the U.S. Congress to pass the Magnitsky Act, which freezes the assets and revokes the passports of Russian government officials who are human rights offenders. Browder’s efforts led to the Global Magnitsky Act, which applies these sanctions to all foreign government officials that violate human rights. Other countries have adopted it.
Endgame Scenarios For Putin
In a 2020 interview, Browder explained the likelihood and underlying logic of three endgame scenarios in Russia.
- A 10% probability that Russians overthrow Putin: Putin’s 500,000 Presidential Guards, ready to fire on their fellow Russians, make this scenario the least likely.
- A 20% probability of a Presidential Coup: Putin is constantly looking to marginalize, imprison, or kill his opponents and traitors, which makes this scenario unlikely.
- A 70% probability that Putin stays in power until his death: Putin would run Russia’s economy into the ground, causing hyperinflation and loss of liberties.
In August 2022, Browder said the following about Putin and Russia’s invasion of Ukraine.
“His wealth I believe is the source of all the problems that we are facing today… The reason why Putin has started this war in Ukraine is that he was worried that people in Russia rising up against him, eventually, because they were so angry at the corruption and all the money that’s been stolen and he needed to create a foreign enemy. And that’s what this war is about; it’s not about the greater Russian Empire or NATO. It’s about Putin being a sick corrupt man who needed to create a major distraction so that the people in Russia didn’t rise up against him.”
~ Bill Browder, Master In Business Podcast, at 1:12:33 to 1:13:46
Hopefully, the probabilities of the first two scenarios Browder laid out in 2020 are now increasing.
In 2015, Browder released “Red Notice”, a book that details Browder’s career in Russia, the corruption he experienced, and the death of Browder’s attorney Sergei Magnitsky. In 2022, Browder authored a second book titled “Freezing Order”, which chronicles Putin’s campaign to launder hundreds of billions of dollars that has led to the Global Magnitsky Act.
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