They Killed My Lawyer

A story of Putin's Russia.

Sergei Magnitsky was our attorney, and friend, who died under excruciating circumstances in a Moscow pre-trial detention center on Nov. 16, 2009. His story is one of extraordinary bravery and heroism, and ultimately tragedy. It is also a story about how Stalinism and the gulags are alive and well in Russia today.

Ultimately Sergei died for a principle -- he died because believed in the rule of law in Russia. When he stumbled upon an enormous fraud against his clients and the Russian government, he thought he was simply doing the right thing by reporting it. He never imagined that he would die for his efforts.

The precise circumstances of his death are still unclear. We do know Sergei died suddenly at the age of 37, after an 11-month detention. At first, the detention center where he died said the cause of his death was a rupture to his abdominal membrane, but on the same day the prison officials changed their story, saying he had died of a heart attack. They refused his family's request to conduct an independent autopsy. His diaries are reported to be missing.

Because Sergei is no longer alive to tell his story, I feel it is my duty to tell it for him. I am not a writer or a journalist, but a fund manager at Hermitage Capital Management. I ran what was the largest investment fund in Russia. Sergei was our Moscow-based outside counsel who worked for the American law firm Firestone Duncan.

Sergei wasn't involved in politics, he wasn't an oligarch, and he wasn't a human rights activist. He was just a highly competent professional -- the kind of person one could call up as the workday was finishing at 7 p.m. with a legal question and he would cancel his dinner plans and stay in the office until midnight to figure out the answer. He was a smart and honest man working hard to better himself and to make a good life for his wife and two kids.

The tragic events that led to his death began on June 4, 2007. That day, 50 police officers from the Moscow Interior Ministry raided Hermitage's and Firestone Duncan's offices, under the pretense of a tax investigation into a Hermitage client company. There was no reason for the raid, as the company they were investigating was regularly audited by the tax authorities, and they never found any violations.

In the course of the raid, the police officers took away all the corporate seals, charters, and articles of association of all of the fund's investment companies -- none of which had anything to do with their search warrant. The significance of these seizures would only become apparent later.

In mid-October 2007, we got a telephone call from a bailiff at the St. Petersburg Arbitration Court inquiring about a judgment against one of the fund's Russian companies. It was a strange call because the company had never been to court and we knew nothing about any lawsuits or judgments in St. Petersburg.

We called Sergei right away and asked him to look into this call. After researching the situation, he came back to us with shocking news. He discovered that our investment companies had been sued by shell companies that we had never done any business with based on forged and backdated contracts. He also discovered that the fund's companies had been represented by lawyers that the fund had never hired, and who proceeded to plead guilty to all the liabilities in the forged contracts. As a result, the fund's companies were hit with court judgments for hundreds of millions of dollars. On top of that, the fund's companies had been fraudulently re-registered in the name of a company owned by a man convicted of manslaughter.

Most shockingly, when Sergei analyzed the forgeries and fraudulent re-registrations, he was able to prove that they could have only been executed with the documents seized from our offices by the Moscow Interior Ministry.

On the back of Sergei's discoveries, in early December 2007, we filed six 255-page complaints outlining all the details of the frauds and the names of the police officers involved. The complaints were filed with the heads of the three main law enforcement agencies in Russia. However, instead of investigating, they passed the complaints straight back to the specific police officers named as conspirators. Those officers then personally initiated retaliatory criminal cases against Hermitage employees.

At this point, Sergei was becoming visibly angry. Sergei wasn't a dispassionate lawyer like many we have encountered in the past. He was our advocate in the truest sense of the word.

By the summer of 2008 it still wasn't clear why the police would be involved in such a complicated scam against us. If the intention was to steal the fund's assets in Russia, they had failed because, by the time our companies were stolen, the assets had been safely moved outside the country.

To help us find the answer, Sergei sent out more than 50 letters to different tax authorities and registration offices requesting information on our stolen companies. Almost no one replied, but on June 5, 2008, Sergei received a letter that broke the case wide open.

According to the letter, which was from tax authorities in Khimki, a suburb of Moscow, our stolen companies had been re-registered in Khimki, and had opened bank accounts at two obscure Russian banks. Once we learned about the banks, everything started to make sense. At those banks, Sergei found a spike in deposits exactly equal to the taxes that the Hermitage Fund companies had paid in 2006. Apparently, the people who stole our companies did so to fraudulently obtain $230 million that the Hermitage Fund companies had paid in taxes in 2006 by claiming that the sham court judgments had wiped out their profits.

The refund of "overpaid taxes" -- the largest in Russian history -- had been granted by the Moscow tax authorities in two days on Dec. 24 2007. The date of the wire transfer showed that it was carried out in total disregard of the complaints the fund filed to the Russian authorities three weeks earlier.

Sergei didn't start out as an anticorruption crusader, but when corruption stared him in the face, he felt compelled to do something about it. In July 2008, Sergei helped us prepare a detailed criminal complaint about the stolen tax money, which was filed with seven different Russian government agencies.

After our complaints were filed, the Interior Ministry officers who were involved in the fraud retaliated by opening criminal cases targeting all the lawyers who represented the fund. The pressure became so intense that six of our lawyers from four different law firms were forced to either leave the country or to go into hiding.

The one lawyer who didn't leave Russia was Sergei. In spite of the clearly malicious activity by the police, he was sure that he was safe because he had never done anything wrong or illegal. He believed that the law of Russia would protect him.

His belief in justice was so strong that he went on to do something many people would be petrified to even consider. On Oct. 7, 2008, he went to the offices of the Russian State Investigative Committee (the Russian equivalent of the FBI) and testified against two officers of the Interior Ministry, Lt. Col. Artem Kuznetsov and Maj. Pavel Karpov, for their involvement in the theft of $230 million. It was an enormously brave move, and we feared for him that day. Amazingly, Sergei was the only person who wasn't worried.

Just over a month later, three officers who directly reported to Kuznetsov went to Sergei's apartment at 8 a.m. and arrested him. He was charged with being the director of two Hermitage Fund companies that allegedly underpaid taxes in 2001. He was arrested even though the companies had clean audits and Sergei had had no involvement with either of the companies in 2001. However, the law didn't matter. The investigators had other plans for Sergei.

Sergei was brought to Pre-Trial Detention Center No. 5 in Moscow, but within months he was transferred to a temporary detention facility with much harsher conditions, and then he was moved seven times between four more detention centers until he was moved to Matrosskaya Tishina prison.

Each move was progressively worse, and we started to get word that he was being kept in very harsh conditions. We heard about him being kept with eight other inmates in prison cells that only had four beds so they had to sleep in shifts. We heard about how the prison authorities never turned the lights off at night so even if he got a bed, it was almost impossible to sleep. Most disturbing of all, we got news that he was starting to lose weight precipitously. Since his arrest, he had lost 40 pounds.

On July 1, 2009, at Matrosskaya Tishina, Sergei was diagnosed with pancreatitis and gallstones. He was told that he should be monitored closely, and that he would need a repeat examination and surgery within a month. As he was preparing for a follow-up visit to the medical center, on July 25, 2009, he was abruptly transferred to Butyrka prison, a maximum security facility known to be one of the toughest in Russia.

At Butyrka, Sergei's condition deteriorated sharply, and he developed excruciating stomach pains. He repeatedly asked the prison authorities, prosecutors, investigators, and the courts for medical attention, and he was repeatedly denied it by all of them. At one point the pain became so intense that he couldn't even lie down. His cellmate banged on the door for hours screaming for a doctor. When one finally arrived, he refused to do anything for Sergei, telling him he should have obtained medical treatment before his arrest.

We did what we could do to help him. We testified in front of the U.S. Congress about Sergei; we asked the U.S. State Department and the British Foreign Office to bring his case up with the Russian Foreign Ministry; we reached out to the professional associations; and we constantly provided information to journalists to write about his situation. But none of it mattered within Russia. While we were lobbying from the outside, they were putting more and more pressure on Sergei from the inside.

His tormentors wanted to pressure him to withdraw his testimony against the police officers and make false statements against himself and his client, the Hermitage Fund. Most cynically, they specifically wanted him to take responsibility for the theft of $230 million that they had been stolen from the state. As a lawyer and someone who believed in justice, there was no way he would be pressured into perjuring himself no matter how much pain he had to endure. Instead, he wrote even more complaints documenting the horrific torture he was being subjected to.

The more Sergei complained, the more the pressure increased. He was moved to cells where sewage would spew up from the hole in the floor that served as the toilet. He was put in cells with no glass in the windows to protect the inmates from the frigid Russian weather. The prison authorities denied him any opportunity to shower, or simply access hot water. Worst of all they denied him any visits from his wife or mother, or even the possibility to speak to his two young children on the telephone for the 11 months he was in detention, which must have been truly heartbreaking for a man so committed to his family.

Despite all this and more, he was never broken. During his 358 days in detention, Sergei and his lawyers filed more than 450 complaints documenting all of the breaches of Russian law, and the violations of his human rights. He wrote on behalf of himself and on behalf of other detainees. Few people could have managed such a prodigious effort while being subjected to such physical torment. Sergei didn't have access to an office, library, or a computer. He managed to do all this without even a table to write on. Each time Sergei filed a complaint, it was rejected or simply ignored, but each defeat just served to make him more indignant and determined. He was always the consummate professional. There was never any emotion in his complaints, even after all the torture he endured. They were crisp and exact.

Throughout this ordeal, Sergei stood true to his principles -- refusing to perjure himself and make false statements against himself and his client -- no matter what new suffering was devised for him.

In the end, Sergei died suddenly in prison on Nov. 16, 2009. He entered prison a healthy 36-year-old man, and 11 months later he was dead. Many questions remain, but what is clear is that the abuses he suffered during his year in detention ultimately caused his death.

One can never judge the true character of a person until they are faced with extreme adversity. Most people, if faced with a far lesser challenge than Sergei, would have given in. But for Sergei, his integrity and honor were more important than any physical pain he was suffering. Sergei was an ordinary man who became an extraordinary hero. If we all could only show a fraction of the bravery and fortitude Sergei did, the world would be a much better place. Sergei, his heroic fight, and the ideals he stood for must never be forgotten.

God bless Sergei and his family.



The End of Influence

For as long as many can remember, the United States has been the country with money, influence, and power. But all that is changing, write Brad DeLong and Stephen Cohen in their new book, The End of Influence. FP excerpts exclusively here.

For more than a quarter century now the countries of the world have been dreaming the neoliberals' dream. They have been trying to shrink their states back to their core competencies to promote economic efficiency, global economic integration, and growth, and to slash through red tape, rent-seeking, and simple corruption. They have been actively privatizing state holdings. They have hugely reduced their ownership and their active involvement in "national champion" companies. They have cut back on interventions to affect market outcomes and on regulation to scrutinize and control market players.

But now they are waking up. And the neoliberals' dream is at an end.

To understand why, we need to journey back to the mid-20th century. The coming of World War II ensured that whatever money still remained in Britain left quickly. Franklin Delano Roosevelt ruled an isolationist country that he wished to cajole into engaging in the war with Hitler as early and as completely as he could. But part of Roosevelt's strategy (and a not-altogether unwelcome consequence, for many who worked in the State, War, and Navy Building-a Victorian-era structure just west of the White House that looked like a French brothel) was to make Britain broke before American taxpayers' money was committed in any way to the fight against Hitler. Only after Britain had sold off the family silver to pay for the nozzle would America "lend" Britain its garden hose to fight the Hitlerian fire.

America did come to the aid of its closest, cherished, and most important embattled overseas ally after Britain was broke. The Grand Alliance was the great moment in the grand story of the English-speaking nations. It does remain Churchillian in the inherited grandeur of its narrative. And America did come to the rescue of England, and together-with enormous although unloved assistance from the Red Army of the Soviet Union and Josef Stalin-America did save the world from the horrors of the Nazis. But while we were gearing up to come to the rescue, we squeezed the British, and when World War II was over, the United States, not Britain, had the money. When the British borrowed money from us, it had to be repaid in dollars, not in sterling. And imports into Britain had to be rationed well into the 1950s.

Will the United States be similarly squeezed? No. We are not engaged in a total war. We do not domestically produce only 1,200 calories of food per citizen per day. We are still by far the world's largest national economy. The United States is technologically powerful and resourceful and is still the center of world finance. World finance is still transacted in dollars. And the United States remains the world's only military superpower, whatever that may turn out to mean.

But the United States is losing the money. America is now massively in debt to foreigners and will be more in debt with each passing year as far into the future as forecasters can see. It will not be squeezed as it squeezed Britain, but it will be constrained.

Back when the United States had the money, it used it to pay attention to other governments only when it chose and to make certain that other governments paid attention to the United States even when they wished to not so choose. With the Marshall Plan, America made Western Europe an offer that all but forced Western Europe to adopt the mixed-economy social-democratic order of the post-World War II North Atlantic. It financed and arranged "regime change" in lesser countries to remove governments that seemed to be veering off into serious error. In all this, the United States used the leverage of having the money exclusively for the global greater good.

Who has the money now? What can they do with it? What are they holding? The smallest big batch of money held by other people is simply cash: greenbacks. Perhaps $450 billion, perhaps more, circulates abroad in cash, in hundred-dollar bills. Some countries, such as Panama and Ecuador, have formally gone over to a dollar economy. In other countries (such as Lebanon), cash dollars are widely used. Then, of course, many individuals and organizations prefer the anonymous convenience of hundred-dollar bills: drug dealers; arms merchants; Russian operators; Argentines and Eastern Europeans with doubts about their local currency; rich and not-so-rich Chinese, who live in a cash economy where the largest Chinese currency note in circulation is 100 yuan (about $15). Though not often discussed in polite company, seigniorage, that is, the ability to coin or print cash (the right held by a feudal seigneur) and have other folks hold it, is valuable: Those who hold the $100 bills have, for many, many years, been providing a substantial loan to the U.S. government -- and it's interest free!

The bigger big batches of dollar-denominated and U.S.-located assets -- and they are very big indeed -- are not cash but are rather investments. A great deal is held by private foreign individuals and organizations: Japanese housewives, German doctors, Scottish pension funds, Dutch companies, Colombian drug lords, Japanese insurance companies, sons of Gulf sheiks, and Russian "businessmen."

This money is private money. It belongs to market players -- people, companies, organizations, and institutions looking for the highest returns at the lowest risk. Much of the money is in the hands of the governments and rulers of oil-producing states (or in the hands of whatever or whoever holds their money). Truly great piles of U.S. obligations are in the hands of the governments of Asia. Japan holds about $1 trillion in reserves (which comes to almost $9,000 per U.S. household). Taiwan, Hong Kong, and Singapore together hold something like $500 billion. Korea sits on another $200 billion.

But it's China that is the biggest holder of U.S. obligations, with some $2.5 trillion in "reserves," the lion's share of it in U.S. debt obligations. America owes unimaginably large amounts of money to lenders (such as China), about $20,000 per American household, three-fourths of China's GDP, a fact worth repeating, a fact that makes rapid repayment impossible.

Proverbs 22:7 instructs us: "The borrower is servant to the lender." But the lesson requires some exegesis to fit smoothly into context. The burden of the U.S. foreign debt may be better explained by the oft-repeated Wall Street wisecrack, which we repeat: When you owe the bank $1 million, the bank has got you; when you owe the bank $1 billion, you've got the bank.

Neither side can walk away; we're locked. The debt binds China especially and other governments that have the money. Selling the debt would send the dollar way down and thereby destroy the value of their dollar holdings and severely damage their economies' massive export-based sectors. Worse yet, sell it for what? Their "reserves" are so huge that there is nothing else they can hold them in, not at that scale. From a Chinese viewpoint, it's exasperating.

The U.S.-China economic imbalance has forced the two powers into a very intimate and not very desired embrace, something Lawrence Summers once called a financial balance of terror. This is all to the good: The two powers must learn to work as partners, and not just in economic matters -- global warming and global order also need positive Sino-American cooperation, and they are much more important long-term issues. Sino-American partnership, in managing the complex mess of their imbalanced economic codependency, can constitute a good beginning for managing the utterly unhinged problems of world balance and order. We have no acceptable choice but to get good at it, and that will take some doing on both sides.

As money alters power relations, the United States is not simply becoming dependent -- but it is no longer independent, either. That is a major change. And China is no longer helpless and cowed in face of the superpower hegemon; it has got a grip on it. Indeed, while the world peeks in, the two countries are realizing that they have thrown themselves into an intimate economic embrace with, to say the least, very mixed feelings.

For the past 30 years, America rather successfully propagated to itself and others a worldview of unfettered markets and "re-fettered" states: Expand the realm of markets in society and roll back the reach of other institutions, especially government. They backed that worldview with money and, until it crashed, this American outlook was willingly adopted by more and more people and governments around the globe. Soft power -- not military might, not straight-out money, but the ability to inspire acceptance and imitation -- was a vital component of American international dominance. It soothed the abrasiveness of military and economic power and made the wielders of such power feel good.

Money, of course, is power. Because America had the money -- had it solidly, rightfully, self-assuredly, and durably -- for about 100 years, people all over the world wanted to be like Americans: successful, modern, loose-jointed, efficient, democratic, socially mobile, leggy, clean, powerful, and, of course, rich. Money brings a nation power, not just the power to command, or at least influence, the behavior of other nations. And when the money accumulates over time and as a result of real economic success, and not just windfalls from guano or oil deposits, it brings the power to propagate, consciously or not, the ideas, concerns, fashions, norms, interests, amusements, and ways of displaying and behaving that come out of its culture. These penetrate deep down into other cultures as well as its own; they become part of daily life. This is luxuriant power: It doesn't have to be exercised willfully or even consciously, and it doesn't even cost anything extra. It was clearly the way to be.

As the United States emerged in the aftermath of World War I as the top power and giant money master, American jazz swept through Europe, faster than Ford and Kodak. Later, especially after World War II, Europeans eagerly welcomed the onslaught of American movies. Most Europeans encountered America at the movies, but two generations of rather privileged Europeans traveled to America to see for themselves (many sponsored by the State Department), to behold the skyscrapers of New York, the George Washington and Golden Gate bridges, and the houses of rather ordinary people with huge shiny cars, washing machines, televisions, and the orthodontically enhanced smiles on tall, milk- and meat-fed women.

American cultural dominance has continued to grow. Teenagers around the globe now uniformly dress in styles pioneered by American teens and have even adopted the same body language. They eat on the street. The American-designed, Asian-manufactured iPods fill their heads with the same harsh music; they instant-message, blog, and Tweet. And the English language -- not altogether an American cultural invention -- is not merely the international language, but also the second language for a vast global population: Languages carry more than their words and grammar; they carry cultural form and content.

America will be less and less the origin of new cultural trends or global memes: First, because the others now have the money. But also, because while America remains especially modern, the modern is no longer especially American; it is rapidly becoming semiglobal and if not old, at least very mature. There is no need to leave China to see skyscrapers; there are more of them in Shanghai than in New York, and they are newer, taller and bolder. The energy -- that key element in New York 1920s literature (e.g., Dos Passos) has, with the money, shifted its residence. For the foreign traveler now arriving at New York's Kennedy airport, the ride into Manhattan is still eye-opening, but in a new way: litter and slums line the Van Wyck Expressway through Jamaica, Queens, where rust and graffiti festoon the old transit trains and bridges; the roads are poor; there is no proper train into town -- let alone something as sleek and fast as in Hong Kong or Shanghai. Hollywood no longer has an inherited, built-in meganarrative -- the presentation of life in modernity in all its weird and quotidian forms: How women walk and speak, houses, murder, seduction, sex, kitchens, raising children, "making it," excursions, courtrooms, shopping centers, schools, hospitals, universities, and office buildings -- the world, perhaps of your future.

The culture created by America and exported by its movies is not gone; it's not even going. It has simply gone universal and is now open to a vastly expanded range of contributors. This is very likely to be a good thing for American and world culture, an opening to new ideas, talents, and energies. And America's ambient culture is being enriched by foreign imports ranging from soccer to sushi, not to mention energetic Ph.D.'s in material and biological sciences.

America is sure to remain a leader in cultural power, but there is a difference between being a cultural leader and an easy, almost un-self-conscious cultural dominance. Our research universities are the envy -- and model -- for the world. So too are our high-tech, biotech, and nanotech genre Silicon Valley-type firms, with their multinational, multiracial, and monocultural workforces of the bright, ambitious, educated, and driven. And there is also a powerful emergent American cultural force best represented by Barack and Michelle Obama: America might yet develop new meganarratives to succeed the world of modernity that will seize the world's hearts, fears, longings, and energies. But no matter how creative its creative people become, as in the realms of economic and political power, America is unlikely to remain the cultural hegemon, the overwhelmingly dominant source of cultural memes.