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Introduction
Our next few posts at Citizen Scholar will sample memoirs of fascinating lives. For our first feature in this mini-series, we revisited the 2015 best-selling memoir Red Notice. This page-turner chronicles prolific investor-turned-human rights activist Bill Browder’s experiences in post-Soviet Russia. At the time of writing, we’re waiting to see if the Russian government will move to escalate conflict in Ukraine so we figured it may be a fitting time to cover the well-known book.
Anyone paying attention to the current news flow about Russia and Ukraine faces a barrage of mixed signals. The US administration continues to warn us about Russian plans for further aggression, including false flag operations and a massive invasion by conventional ground forces. The Ukrainian government has pushed back, perhaps because it is equally worried by capital flight and material deprivation that panic could hasten. In a remarkable throwback to pre-World War II diplomacy, Russia isn’t trying to invent a moral narrative publicly – it is clearly demanding, among other things, written assurance that NATO will not expand to Ukraine. Russia is making a security-based demand to a weaker country; that it abrogate its own sovereign right to join NATO to serve Russia’s historical geopolitical need for ‘strategic depth’.
The resulting dialogue in the US has also been fragmented. Notable threads include the one that deemphasizes Putin himself and blames the arrogant Washington establishment for expanding NATO up to the borders of Russia since 1991. Another thread caricatures Putin as a ruthless dictator and puppet master hiding behind many things we may not like about our own country. Thus, we’ve been interested in better understanding the real post-Cold War Russia. Bill Browder’s story is a compelling first step; it is one man’s story, but it at least humanizes Russians and documents relevant facts that happened in a country Westerners often know very little about.
Rise and Fall in Russia
Bill Browder doesn’t speak Russian, but he does have familial roots there. His grandfather had spent time in the Soviet Union and married a Russian woman before returning to the US to lead the Communist Party USA in the late 1930’s and early 1940’s. Despite his grandfather’s allegiance to the Communist Party, Bill followed a radically different path and became a strategy consultant for Boston Consulting Group (BCG). Browder’s interest in Eastern Europe was eventually rewarded with an assignment in Poland which marked the start of his career interests in the region.
While his mission to help the Polish company failed, Browder discovered an asset class that would define the money-making stage of his career. Across former Warsaw Pact countries, Browder noticed former state-owned enterprises being privatized, which led to him first buy shares in a Polish privatization while working there as a consultant. He continued to build expertise in this area by investing money into these companies on behalf of media mogul Robert Maxwell’s company and by popularizing the idea of investment in the former USSR at the investment and merchant bank, Salomon Brothers.
Others began to arrive at similar conclusions about the attractiveness of these ridiculously undervalued assets in the 1990’s. When they did, some decided to delegate the management of those investments to Bill. Browder left Salomon Brothers and started his Hermitage fund in Moscow. Hermitage eventually became the best-performing fund in the world in 1997 with a staggering +238% return to investors. Prior to the fund’s success, the Russian economy was in turmoil following the collapse of the Soviet Union in 1991; conventional wisdom dictated that it needed market-based reorganization and stabilizing foreign capital. Bill achieved rapid success as an early investor with Wall Street experience located on the ground in Moscow, where he could better research potential investments. This worked well for a few years until the 1998 Russian currency and fiscal crisis necessitated a strategy change.
According to Browder, foreign investors got burned in Russian equity markets and largely fled. Without the carrot of foreign “free money”, the oligarchs – twenty-two individuals who Browder says controlled most of the publicly traded companies in Russia – had less incentive to practice sound corporate governance. They began to loot companies in a variety of ways, such as selling themselves valuable assets from the companies at low prices or by issuing shares to dilute the stakes of minority shareholders. Thus, Browder had to change his approach to a sort of activist investing. He named and shamed in response to these incidents to ensure better governance and better performance for the companies he invested in. His most notable successful activist investment was in Gazprom, the Russian oil & gas behemoth.
This is when Browder’s situation started to deteriorate. In 2005, he was detained at the Moscow airport and deported back to the UK on the grounds of being a national security threat. Browder asserts the involvement of the FSB’s Department K – responsible for economic counterintelligence. Thus began a dramatic four-year saga of fighting first for his company and then for his personnel who were targeted by the Russian state. The sordid details are worth exploring in the book itself but contain too many twists and turns to elaborate on here.
Basically, Browder appealed to Putin’s stand-in President Dmitry Medvedev for help in re-establishing his visa to enter Russia. This led to a call from responsible officials in the Russian interior ministry, who the book strongly implies were looking for a bribe. When this alleged extortion attempt was rejected, corrupt officials appear to have decided to use the law to loot Browder’s companies. The officials obtained fraudulent judgements against Browder’s companies in court, but realized they couldn’t collect any money as Browder had moved it all out of the country. Browder alleges they then managed to count these uncollected judgments as losses for the companies they’d stolen from him and collected a $230M tax refund, which they spread amongst the various crooked officials involved.
Browder and most of his legal advisors fled the country before this crackdown. Tax advisor Sergei Magnitsky refused to leave Russia. He was confident that since he had done nothing wrong, he would be fine. Instead, Magnitsky was jailed under inhumane conditions and died in a detention facility in November 2009 under suspicious circumstances. Browder has dedicated his career since then to passing ‘Magnitsky Acts’ across the world. These laws generally allow governments to deny visas and freeze the assets of corrupt Russian officials responsible for human rights abuses. The US successfully passed one in 2012 and has been followed by the UK, Canada and a few European nations.
Implications Today
The link between Browder (a) being banned from Russia and (b) having his companies stolen on the one hand and Vladimir Putin on the other isn’t made completely clear. Innuendo in the book and subsequent public appearances by Browder suggest that Putin secretly controls a large portion of the Russian oligarchs’ wealth. This is traced back to the 2003 arrest and conviction of Russia’s wealthiest man, Mikhail Khodorkovsky. Having neutered the wealthiest man in the country on television, the story goes that Putin was able to move in and take pieces of the oligarchs’ wealth. It follows that Browder’s shareholder activism and accusations against oligarch-owned companies had become a threat that Putin or one of his oligarch-trustees needed gone.
There are many reasons to believe Browder’s telling of events, and a few reasons to doubt it. Der Spiegel poked some holes in Browder’s story in 2019, most notably alleging that (a) the Russian authorities may have opened a legitimate tax investigation before Browder claims to have known about it, (b) that he may have exaggerated the roles of certain corrupt officials and (c) that while the Russian government bears responsibility for inhumane conditions leading to Magnitsky’s death, there is insufficient evidence to rule it a murder. Der Spiegel stood by most of their claims even after Browder complained and vehemently pushed back.
Browder doesn’t drip with humility in the hero’s tale he tells in Red Notice, so it wouldn’t shock us if he decided to overdramatize certain elements. Either way, the key takeaways for understanding certain aspects of Russia would not change. Control of Russian enterprise is in exceedingly few hands. There is widespread belief in the West that Vladimir Putin and his clique have expropriated a large portion of this wealth for themselves. People who step out of line or whose wealth is coveted by Putin or an oligarch do not just have their wealth stolen. If they don’t initially cooperate, they will often be made an example of and pursued around the world. The need for a symbolic victory has been a persistent feature of business expropriations as well as political assassinations involving the Russian elite since at least the takedown of Khodorkovsky. The public assassination of opposition member Boris Nemtsov near the Kremlin in 2015 is another emblematic case, along with the 2020 poisoning of opposition member Alexei Navalny.
This apparent emphasis on achieving not only functional goals, but symbolic victory over an enemy, is an important element to keep in mind during the current Ukraine standoff. At the time of writing, French President Emmanuel Macron – up for re-election in France and eager to appear as a strong peacemaking statesman - is meeting with President Putin and claims to be close to brokering a peace agreement. If such a deal is successfully struck, it will be unlikely to resemble the Cuban missile crisis, when Khrushchev accepted a secret withdrawal of US missiles from Turkey. Today’s Russian leadership understandably feels the need to reassert itself as a great power. Bill Browder has recently been advocating for using Magnitsky sanctions against Russia to stop war in Ukraine. Perhaps the threat of using them can deter war, but preemptively using them to slap Russia’s wrist could backfire by giving Putin less of an off ramp that allows him to save face. In a situation like this, we’d rather see the threat used to deter violence. Ultimately, we continue to hope for a peaceful resolution in Ukraine; in the meantime, we’ll continue to try to understand the participants’ points of view.
All the best,
The Citizen Scholar Team
P.S. VisualPolitik EN recently published a balanced and informative video on the Russo-Ukrainian crisis. Link can be found here.
Discussion #27: Red Notice: A True Story of Corruption, Murder and One Man’s Fight for Justice, by Bill Browder