FT profile and review

In: Daniel In The News

20 Sep 2013

Today’s Financial Times includes two articles by me in its FT Wealth section. My profile of Bill Browder, an anti-Kremlin campaigner, is pasted below and I will upload my latest book review over the weekend.

Bill Browder has a stark warning for western investors eyeing opportunities in Russia. “They are not only taking a financial risk – they are taking a very serious personal risk of being arrested or dying,” he says. The same applies to educated Russians: “Even Russians who have the ability and language skills should get out of Russia, because it is only going one way and that is in a very horrible direction.”

Browder should know: his experience over the past two decades provides a spectacular example. During that time, the head of Hermitage Capital Management – at one point one of the largest foreign investors into the country – has gone from staunchly rejecting what he once called western myths about Russia to being a crusader against President Vladimir Putin’s regime.

In return, the Russian authorities have branded him a criminal. In July, a Moscow court found Browder guilty of tax evasion in his absence, a charge he denies. Russia has also twice requested that Interpol provide it with information on his whereabouts. The second time around, it was with a view to extradition in relation to a charge of “qualified swindling”. Both times, the international police organisation rejected the requests on the grounds that they were predominantly politically motivated.

Browder’s story is as convoluted as a classic Russian novel. However, there are broadly two ways to read it. His critics point out he avidly supported Putin until the regime turned against him. Browder accepts he once backed the Russian leader, who he saw as bringing necessary order, but argues it was Putin who did the U-turn. In Browder’s view, Putin moved from campaigning against the oligarchs to becoming the biggest oligarch of all.

Whichever interpretation is preferred, Browder has taken on a dual life as a hedge fund manager and campaigner against Russian corruption. He has taken British citizenship and runs Hermitage from London. The firm long ago became a general emerging markets specialist rather than having a particular focus on Russia.

The story begins with Browder’s grandfather. Earl Browder, born in Kansas, was the head of the Communist Party USA in the 1930s and early 1940s, and twice ran for president. Earl Browder spent several years in the Soviet Union, where he met and married Raisa Berkman, a Russian Jewish intellectual. Together they had three sons, including Bill Browder’s father Felix, all of whom became top-flight mathematicians.

Bill Browder says his interest in eastern Europe emerged as a belated response to his grandparents’ experience – he does not recall discussing the region with his grandfather, who died when Bill was nine. Bill did a degree in economics at the University of Chicago, a bastion of free market thinking. He says his choice of course was partly a reaction against his leftwing family background.

Browder’s interest in eastern Europe emerged suddenly in 1989 – the year of his graduation from Stanford with an MBA and the fall of the Berlin Wall. “I had this epiphany that if my grandfather was the largest communist in America, I was going to be the largest capitalist in eastern Europe,” he says.

His first step was to get a job at Boston Consulting Group, where he worked on reviving failing Polish enterprises. After a stint as an analyst on an eastern European investment fund for Robert Maxwell, the British media mogul and MP, he joined the Russian team at Salomon Brothers, a Wall Street investment bank. It was 1992 and Russia had just begun its mammoth privatisation programme.

After leaving Salomons, in 1996 he teamed up with Edmond Safra, a Lebanese-Brazilian banker who died in a fire in 1999, to set up what became the Hermitage Fund. Browder became one of the largest foreign investors in Russia after achieving spectacular returns for 18 months. During that time he says Russian businesses were relatively honest in their dealings with western minority shareholders. Any temptation to misbehave was kept in check by their desire to raise funds from Wall Street. Then, in 1998, Russia defaulted on its debt. Hermitage made substantial losses and Wall Street lost interest in the country.

Next came what is in retrospect perhaps the most controversial time of Browder’s career. He sided with Putin, who first became prime minister in 1999, against the emerging oligarchs. Browder says: “All the oligarchs went on an orgy of stealing, which was unprecedented in the history of business.”

When in 2003 the Russian authorities arrested Mikhail Khodorkovsky, one of the richest oligarchs, Browder welcomed the move. However, he says when it became apparent Khodorkovsky, who is still in prison, was incarcerated simply for standing up to the Russian leader, he changed his stance. “When it became clear he wasn’t in jail because he was an oligarch but because he challenged the president, my view started to change,” he says. “Whatever he may have done in the 1990s he has long ago paid his debt to society and fully cleansed his soul.”

Until the middle of the last decade Browder says there was a coincidence of interests between himself and Putin. The Hermitage Fund head became a shareholder activist intent on cleaning up Russia’s corporate governance, while Putin embarked on an anti-corruption drive.

It became clear the Russian authorities had turned against Browder when he was barred from entering the country at Moscow’s Sheremetyevo airport in November 2005. This led to him withdrawing his assets from Russia, and unleashed a chain of events that has made Browder a scourge of the Putin regime.

He was particularly angered by the death of Sergei Magnitsky, a lawyer representing his interests in Russia, in a Moscow prison in 2009. Browder is in no doubt Magnitsky was tortured to death, and last year persuaded the US Congress to pass a bill that bars those allegedly responsible for the lawyer’s death from entry to the US or use of its banking system. In response, the Russian government has denied Americans the right to adopt Russian children and banned those on a named list of US officials from entering Russia.

Browder’s next goal is to persuade the British, Dutch, German and Swedish governments, as well as the EU, to pass their own versions of the Magnitsky law. For him such laws have not become ends in themselves but a way of putting pressure on the Putin regime. “It is my expectation that the Magnitsky Act, by freezing assets and banning visas, will become the new policy tool that the west uses not just in this case but in all terrible cases coming out of Russia.”

Browder views those western leaders who refuse to take a harsh line on Russia with disdain. This is particularly true of the British government for its failure to order a public inquiry into the death by radiation poisoning of Alexander Litvinenko, a former Russian intelligence officer who had taken refuge in the UK.

In Browder’s view, the Litvinenko case represented “state-sanctioned murder on British soil”. He goes on to argue: “That the British government is trying to cover up the involvement of the Russian state by not allowing a proper inquest is a terrible, politically motivated decision.”

Given Browder’s determination and the entrenchment of the Putin regime, it is hard to see an end to their dispute soon. The broader climate of tensions between Russia and the west is also, if anything, likely to fuel the conflict.

Under such circumstances it is easy to see Browder getting substantial support for what has become an open-ended mission against the Putin regime. It is also hard to imagine him giving up until the Russian leader leaves office.