IN 2014 SWITZERLAND’S then attorney-general and two colleagues posed for a photo with several other people on a boat on Lake Baikal in Siberia. The picture shows the men relaxing together on the deck. But their host was no ordinary sailor. He was one of Russia’s top prosecutors, later implicated in efforts to stymie a major international money-laundering case that his very guests were investigating.
The story behind the photograph involves an intriguing cast. It includes the Russian lawyer who met President Donald Trump’s campaign team in 2016, an encounter that featured in the Mueller report into Russian interference in that year’s election. Another starring character has been linked to corruption investigations at FIFA, world football’s governing body. The money-laundering case, and allegations of cosy relations between Swiss law enforcers and Russian counterparts, threaten to make a mockery of the Alpine country’s efforts to shed its global reputation as the home for shady people’s cash.
At the heart of it all is the loot from the so-called Magnitsky case. In 2009 Sergei Magnitsky, a lawyer, died in a Russian prison after trying to investigate a fraud in which Russian officials and police officers, with the connivance of the courts, purloined a $230m tax refund for an investment firm, Hermitage Capital Management. Bill Browder, the firm’s founder and Magnitsky’s employer, has worked since to expose the scam. His lobbying has led several countries, including America and Britain, to pass “Magnitsky laws” that sanction foreign officials who commit human-rights abuses or steal money. An EU-wide version was adopted on December 7th.
Mr Browder’s team has tracked the money from the fraud to 26 countries, including Switzerland. Around $11m in Credit Suisse has been tied to Vladlen Stepanov, the husband of the official who approved the bogus tax refund. The couple have been hit with American sanctions. An undisclosed sum in UBS, another bank, was linked to Dmitry Klyuev, a Russian businessman also subject to sanctions. And over $7m in UBS was held by Denis Katsyv, another business figure, and firms linked to him. In 2017 one of the firms, Prevezon, agreed to pay $5.9m, without admitting guilt, to settle a US government asset-forfeiture suit over the case.
The Russians have all said the money in their accounts is unrelated to the alleged fraud and deny wrongdoing. But Mr Browder disagreed. In 2011 Hermitage filed a criminal complaint over the $230m theft with Swiss prosecutors. They launched a probe and froze the accounts. But despite progress in related probes elsewhere and plenty of evidence joining the dots, there have been no indictments or seizures. In November the Swiss prosecutor’s office said it planned to close the investigation and release most of the money in the accounts to their Russian owners. It also signalled that it may remove Hermitage as a plaintiff following a legal challenge, which The Economist understands to be from Prevezon. That would leave Hermitage unable to appeal the decision to drop the probe.
The Swiss have “capitulated” in the face of Russian efforts to sabotage the case, complains Mr Browder. He is not alone. Several Swiss politicians have raised the issue in parliament. A group of 20 lawmakers from several European countries signed a declaration bemoaning the reported closeness of Swiss investigators to Russia in the Magnitsky case. In December an American senator, Roger Wicker, wrote to Mike Pompeo to urge the secretary of state “to ensure that mutual legal assistance work with Switzerland does not inadvertently become a vector for Russian influence”.
The Swiss officials in the case all deny any bias. The attorney-general’s office says that the link between sums suspected of being laundered in Switzerland and an offence committed abroad “must be established with a sufficient degree of certainty”, and that it was “justified” in closing the case after conducting a thorough investigation. However, documents seen by The Economist, including court records, raise disturbing questions about the integrity of the Swiss probe.
By 2013 there were three Swiss officials involved in the investigation. Patrick Lamon had just taken over as lead prosecutor. At around the same time, a police officer with expertise in Russia, “Viktor K”, was seconded to the prosecutor’s office to assist with the case. (The Economist cannot publish his real name without falling foul of Swiss law, which shields individuals who are not publicly known figures, including those convicted of crimes, from having their identities revealed.) Michael Lauber, Switzerland’s attorney-general, oversaw their work. What followed was not exactly an arm’s length investigation.
Boars, bears and choppers
In 2014 Viktor K went on a boar-hunting trip with a Russian prosecutor, Saak Karapetyan. According to court documents, they stayed at a lodge in the Yaroslavl region, 320km from Moscow, and the tab was picked up by an oligarch involved in energy and property. That summer all three Swiss men schmoozed with Mr Karapetyan on Lake Baikal. The Russians paid for the boat trip. In September 2015 Mr Lamon and K travelled from Zurich to Moscow on a plane owned by the Russian state, at the invitation of the prosecutor-general. Some of the expenses were paid by the Russians. K stayed on for another hunting trip with Mr Karapetyan. (K did not respond to questions from The Economist.)
Who was this hospitable Russian prosecutor? Evidence has emerged that Mr Karapetyan may have played a key role in covering up the $230m fraud. In 2014 he sent a letter to America’s Department of Justice refusing help in the Prevezon case and insisting that the company and its owner were innocent. Mr Karapetyan, who died in a helicopter crash in 2018, had accused Mr Browder of being behind the heist.
Intriguingly, a DoJ investigation concluded that the letter had been drafted with help from a lawyer advising Prevezon, Natalia Veselnitskaya. The DoJ has charged her with obstruction of justice in connection with its case against Prevezon. She is also known for meeting senior figures from Donald Trump’s presidential campaign, at Trump Tower in June 2016. Team Trump had been led to believe it might get hold of dirt on Hillary Clinton. Instead, according to several participants, Ms Veselnitskaya turned the conversation to the Magnitsky Act, which she had been lobbying to have repealed.
In that same year Hermitage filed a request to indict Mr Stepanov, who, it argued, could not adequately explain the lawful origin of the funds in his Swiss account. Four months later Mr Lamon turned down the request, citing insufficient grounds for indictment. (Hermitage later tried to have him recused for bias, but a court rejected the request.) In August 2016 K saw Mr Karapetyan again. This time they went bear-hunting in far-eastern Russia, where they were taken by helicopter to a lodge owned by another oligarch. The two men discussed the Magnitsky case for several hours, according to K’s statement.
On his return to Switzerland the policeman requested a meeting with Andreas Gross, a Swiss politician who had written a report on the Magnitsky case for the Council of Europe, accusing Russia of “a massive cover-up”. Later, K told a court: “My task was to show that the report does not constitute the absolute truth, that nothing has been verified, and that it is just Browder’s version…I told Lamon that we must discontinue the investigation immediately.” Mr Gross says of his meeting with K: “I agreed to go because I thought he wanted my help. But it turned into an interrogation that lasted all day. It felt like he was a Russian investigator, not a Swiss one.” Mr Browder claims that K wanted to discredit the report in order to close the Swiss case.
Soon afterwards, Mr Karapetyan asked K to come to Moscow to discuss a “confidential” matter. K asked his supervisor in the police if he could make the trip. The request was denied—but he went anyway. According to court documents, he used his diplomatic passport without permission. He paid for his flights, but the cost of his stay in Moscow was covered by the Russians. While there, “he was invited to discuss some problems in the jointly processed cases,” according to a Swiss court ruling from 2018. It describes his Russian host organising a meeting with the female lawyer of a defendant in the Magnitsky case, “without him [K] knowing anything beforehand”. The lawyer is believed to have been Ms Veselnitskaya, the anti-Magnitsky lobbyist in the Trump Tower meeting.
The hunter is hunted
Back in Switzerland K’s bosses were reportedly livid about his trip. On his return, the police filed a criminal complaint against him for four offences, including the abuse of office and bribery. But in January 2019 Mr Lauber’s office dropped the charges for a lighter one, “acceptance of advantage”. This carried a maximum three-year sentence.
Viktor K lost his job, in part because of the unauthorised trip, and was convicted over his bear-hunting excursion. Yet there was no jail time. He did not even have to pay a fine: a SFr9,000 ($8,950) penalty was quashed on appeal—a ruling which, according to the court, was aimed at “facilitating his…reinsertion” back into his profession. That was not the only thing about the courts’ treatment of the policeman that struck some as unduly lenient. His conviction was expunged from the criminal record. Three-quarters of his lawyer’s fees were reimbursed by the state. He was acquitted over the two other trips on the grounds that any bribery would have taken place in Russia, not Switzerland—even though Swiss law covers offences that affect an official’s work in his own country, which this appeared to do. The attorney-general’s office did not appeal this ruling.
At the same time, according to the transcript of a hearing in June 2019, Russian officials singled out K for praise. The prosecutor-general said his “activity…has significantly contributed to the collaboration of the Russian and Swiss authorities”.
Mr Lauber stirred further controversy last year. The Financial Times, citing letters sent by his office to Swiss lawyers, reported that he planned to share sensitive testimony relating to the Magnitsky case with Russian counterparts. His office declined to confirm this. Mr Browder says the letters are authentic. The decision to transfer the information angered many politicians in Europe and America, since it contravenes guidance from Interpol and the Council of Europe, of which Switzerland is a member.
As things stand, most of the frozen money in UBS and Credit Suisse will go back to the account-holders. The remainder—as little as $1.1m—covers the amount deemed to be provably illicit. But how the Swiss attorney-general’s office calculated this has raised yet more eyebrows. It chose to use a “proportional” method, under which the share of money counted as tainted is heavily diluted if—as happened in this case—it is commingled with other funds while being moved around.
This approach runs counter to a UN convention on organised crime, which allows far more money to be seized, even if it is mixed with other funds. It also goes against common practice, including that in Switzerland, says Mark Pieth, an expert who helped write the country’s anti-money-laundering laws. “The theory they applied is just wrong,” he says. “It’s an argument you’d expect a desperate defence lawyer to use, rather than a prosecutor obliged to follow the money. To my eyes it looks like they were working against their own interests. It’s weird.” The attorney-general’s office says the stingy methodology reflects the “link [that] can be established between the assets seized in Switzerland and the predicate offence committed in Russia”.
Mr Browder has threatened to sue the two Swiss banks for breaching American sanctions if they unfreeze the accounts. (Both banks say they do not comment on existing or potential client relationships but are committed to complying with all applicable laws and regulations.) He is expected to mount a legal challenge in the next few weeks.
Mr Lauber is no longer overseeing the case. He stepped down as attorney-general in August, after a court found he had covered up a meeting with Gianni Infantino, head of FIFA, and lied to supervisors while his office probed corruption at the organisation. The Swiss parliament has waived his immunity in the case, paving the way for criminal proceedings against him. Mr Lauber has denied wrongdoing. He declined to answer questions from The Economist, citing the fact that he was no longer attorney-general. The FIFA and Magnitsky cases suggest that the Swiss federal criminal-law system is “in deep trouble”, says Mr Pieth. In both, he says, prosecutors were unprofessionally close to third parties. Crucially, key meetings went unrecorded.
The tale of Russian money and cosy official links does not paint a flattering portrait of Switzerland, home to two big financial centres, Geneva and Zurich, and the largest market for offshore private wealth. There is no doubt the country has become less welcoming to dirty money over the past decade, including national wealth looted by kleptocrats. It is also more willing to help other Western governments pursue tax-dodgers, even handing over account data once deemed sacrosanct under its secrecy law. Yet the Magnitsky case undermines this tentative progress. Mr Browder goes further. The public evidence, he argues, points to conduct by Swiss officials that “strongly suggests something untoward is going on”. “This is not something anyone should expect from the Swiss. It makes them look like a banana republic.” ■
This article appeared in the Finance & economics section of the print edition under the headline “Tilting the scales”
Source: Finance - economist.com
