Bulgaria’s Magnitsky Case

On Feb. 20, Moscow’s Tsverskoy District Court issued a new arrest warrant in absentia for William Browder, UK citizen and CEO of Hermitage Capital Management, a major investment firm he co-founded in Russia in 1996.

Since 2005, when he was first denied access to Russia, Browder has been implicated in two farcical trials, one of which was in absentia. He was targeted by another arrest warrant in absentia due to his vocal criticism of the stubborn corruption plaguing the Russian business environment in which he was heavily investing.

Browder’s defense lawyers have reportedly filed an appeal while awaiting for a hearing to be scheduled. Although he can count on the UK’s refusal to extradite him to Russia, the outcome of the new ruling is reasonably expected to be in line with his track record of damning verdicts.

Corporate raiding, Russian-Style

A Stanford-educated management consultant leading the largest investment fund in Russia in the late 1990s, Browder has a history of being targeted by “corporate raiding,” typically starting with fabricated criminal prosecutions meticulously arranged by the Russian government to push him out of the picture.

In Oct. 2007, unbeknownst to Browder, one of the companies managed by his Hermitage Investment Fund, Kameya LLC, had been accused of evading hundreds of million dollars in taxes. It was facing trial represented by lawyers fictitiously appointed by the Russian government.

Browder sought the help of Sergei Magnitsky, a Russian lawyer and auditor whose destiny became intertwined with Browder’s and the behemoth fraud scheme orchestrated and enacted by Russian authorities to the detriment of Hermitage, which Magnitsky uncovered and publicly denounced.

Magnitsky’s caustic testimony exposed the criminal liability of Russian high ranking police and tax officials, members of the Ministry of Interior, as well as judges, lawyers, and bankers. In an ironic turn of events only justifiable by the logic of a corrupt regime, he was accused of colluding with Hermitage in a tax refund fraud as soon as he submitted evidence of his discoveries to the Russian authorities.

A policeman Magnitsky had implicated in the fraud scandal arrested him, and he was imprisoned for more than a year. Systematically abused, tortured and beaten, he was denied medical treatment and died in Moscow’s bleak Butyrka prison on November 16, 2009.

Magnitsky’s exceptionally well-documented case of physical and legal abuses, advanced by Browder’s relentless activism, triggered a spillover effect that led to new investigations in the EU, the U.S., and eventually Russia. Ultimately, Magnitsky’s story of state-sanctioned violence and corruption may be uniquely emblematic, yet not exclusive to Russia.

Russian President Vladimir Putin’s autocratic approach resonates well with the reality of countries equally afflicted by systemic corruption, especially former Soviet satellite states with E.U. and NATO memberships that still fall under the Russian sphere of influence.

Tzvetan Vassilev: Bulgaria’s Magnitsky

In Bulgaria, the story of Tzvetan Vassilev is one of many that bear a striking resemblance to that of Magnitsky. It features systemic corruption at the highest levels of government and repression of internal dissent that has led to the relentless targeting of one of Bulgaria’s most prominent bankers and business owners.

Vassilev came into conflict with the political mafia ruling Bulgaria in April 2014, when he refused to transfer assets his bank controlled--for free--to the criminal circle of a prominent political party in Bulgaria, DPS.

Two months later, when Vassilev left Sofia for Austria on a routine business trip, he was unaware that his refusal to pay a bribe had triggered series of government-sanctioned actions that would destroy the bank he built from scratch and prevent him from returning home for nearly three years running.

CorpBank, or CCB, has since been brought to its knees, the control of the bank was taken by the government and its assets expropriated by the bribers.

Vassilev’s case, like Browder’s, was “corporate raiding,” driven by Bulgarian National Bank, the Government of Bulgaria’s Prosecutor’s Office, and local media controlled by businessman Deylan Peevski.

The hand of the Bulgarian mafia in the plan to push Vassilev out of the game and destabilize and secure control of the country’s financial system and government is there for all to see.

Groundless rumors in early June 2014, fueled by baseless news reports that Vassilev had commissioned Peevski’s murder and speculation that CCB management was unlawfully benefitting from its relationship with the Bulgarian National Bank (BNB) triggered a crisis of trust in CorpBank’s leadership that induced many depositors to hasten to withdraw their funds from CCB.

After CCB lost about one-fifth of its assets within six days. On June 20, 2014 CorpBank naturally turned to Bulgaria National Bank for liquidity assistance. Much to its surprise, CCB saw its request denied.
Instead, Bulgarian National Bank placed CCB under supervision, froze all CCB accounts except for loans repayments, and undertook measures to take control of its subsidiaries.

The central bank obtained valuations of CCB’s assets from three auditing companies – the central piece of evidence towards the BNB’s decision to revoke the bank’s license. Conveniently, CCB owned assets proved to be insufficient to repay the bank’s loans to its subsidiaries. BNB therefore dictated that the loans were to be written down to zero and the bank forced into insolvency.

BNB’s conduct and the true reasons behind its unorthodox decisions while dealing with provoked bank run on CCB has left observers undecided on whether it is guilty of plain negligence or willful misconduct.

To be sure, BNB made no efforts to placate panicking investors and sought no EU assistance while dealing with CCB’s liquidity crisis. The BNB’s behavior appears even more inexplicable – if not suspicious – in light of the timing of CCB’s acquisition of Crédit Agricole Bulgaria, which the central bank had expressly authorized only a week before the bank run. A typical procedure involves careful supervision and thorough auditing of the buyer. But this case was anything but typical.

Will Bulgarians stand up for Vassilev?

Today, Vassilev faces an arrest warrant from the European Court of Human Rights on charges of embezzlement for allegedly misappropriating 105.3 million euros from CorpBank from December 2011 to June 2014, using falsified documents and records with the help of several complicit employees.

Vassilev has also been flagged by Interpol upon request of the Bulgarian authorities, for alleged misappropriation of funds in public office.

Vassilev currently lives in Serbia, his assets frozen. He is facing an extradition trial.

As with Sergei Magnitsky, the case of Tzvetan Vassilev is today attracting investigation and inquiry from around the world.

In Bulgaria, as with Russia, corruption degrades democracy, as well as business. It leaves the country vulnerable to even broader financial and political manipulation by Russia, and increasingly exposed to the serious political and financial consequences that may follow from its enduring non compliance with strict but essential European Community standards.

Endemic corruption by its very nature is suffused throughout all Bulgarian public and economic life, leaving scant hope for a transparent investigation or a fair trial.

As an emblem of corruption in Bulgaria and other Balkan states under Russian influence, its outcome portends to say as much about the future of freedom and capitalism in Eastern Europe as it will about Vassilev’s own struggle.