MOSCOW, February 8- RAPSI. The Supreme Commercial Court has registered an appeal against the court ruling denying the Hermitage Capital investment fund's subsidiaries ownership of three companies that were allegedly used to drain $178.6 million from the state budget, the court told the Russian Legal Information Agency (RAPSI/rapsinews.com).
Cypriot Glendora Holdings Limited, a Hermitage Capital subsidiary, appealed to overturn the lower-court’s judgment under a supervisory procedure.
The Moscow District Federal Commercial Court upheld on October 13 the ruling not to recognize the subsidiaries’ ownership of the companies in question.
Cause of action
Glendora Holdings Limited and Kone Holdings Limited had sought to retain full ownership of three firms – Riland, Parfenion and Makhaon – which were allegedly confiscated from them against the law in 2007.
The disputed companies were sold to Pluton on July 31, 2007, according to the court materials. Their constituent documents were confiscated during a government search of Hermitage Capital's offices on July 4, 2007. Later, the ownership of the companies was transferred to Boily Systems Limited.
Boily Systems Limited and Moscow's Inter-District Tax Inspectorate No. 13 were the defendants in the first claim filed by Glendora and Kone with the Moscow Regional Commercial Court.
Hermitage Capital was one of the largest investment funds in Russia. In December 2009, the fund reported that law enforcement agents had seized the three companies' constituent documents in June 2007. Soon after their seizure, a criminal group registered a sham company as the owner of the three Hermitage subsidiaries, which enabled the group to steal 5.4 billion rubles ($178.6 million) in budget funds. In the fund’s opinion, the companies could only be re-registered using the foundation documents taken by the police who had them on registration day.
The fund’s head, William Browder, alleged that the subsidiaries were taken over by raiders who later orchestrated lawsuits to create the appearance that losses had been incurred during periods when profits had in fact been reported. They then proceeded to submit revised tax returns to claim a refund of the taxes paid in excess, he said.
The fund maintains that the companies’ takeover and the subsequent 5.4 billion ruble theft were uncovered by its legal consultant Sergei Magnisky, who testified to the role of law enforcement officials in the crime. Magnitsky was arrested a month after testifying and died in the Butyrka pretrial detention center on November 16, 2009.
As the managing partner of the Firestone Duncan auditing firm, Magnitsky was charged with “large-scale corporate tax evasion.” Investigators maintain that Magnitsky and Browder devised a criminal tax mitigation scheme for the Kalmyk-based and Hermitage-controlled companies Dalnaya Step and Saturn Investments, which deprived the state budget of over 500 million rubles ($16.5 million).
Browder was charged in absentia as he has been out of Russia since 2005. He was placed on the international wanted list.
Browder stated on several occasions that he would not pay tax arrears amounting to 500 million rubles because he received no tax claims.
The fund reported in March that a Moscow district court has also heard the criminal case of Vyacheslav Khlebnikov, whom Magnistky allegedly caught stealing the 5.4 billion rubles aided and abetted by Interior Ministry officers. According to Hermitage Capital, Khlebnikov was given five years in prison. However, his property was not confiscated and he was not ordered to pay damages – the lightest punishment possible despite his preceding criminal record and the gravity of his crime.
So far, no one knows the whereabouts of the stolen money.
Where's the dough?
Barron's Magazine reported in May that the Swiss authorities decided to freeze the bank accounts of Russian officials who may have been involved in the unlawful multi-million dollar tax refund from the budget. The order also applied to their family members.
Hermitage Capital’s lawyers also asked Swiss prosecutors to begin probing the tax refund uncovered by Magnitsky. The fund emphasized that he testified to the role of Interior Ministry and tax services officials in the theft in 2008. A month later, he was arrested and died in an isolation ward. The journalist said the individuals suspected of money laundering kept the money in Credit Suisse.
Barron's Magazine also mentioned the husband of Olga Stepanova, the former head of Moscow's Tax Inspectorate No. 28.
The tax service responded to the publication, stating that “these people are no longer tax service employees,” noting that Stepanova was reprimanded as a follow-up to the tax inspectorate’s unscheduled VAT refund audit last year.
In the fund’s estimate, the officials who decided to effect the unlawful tax refund gained $39 million.
Two other public servants purchased luxury apartments in the United Arab Emirates for $4 million each. The property was paid for from Swiss bank accounts now frozen by the Swiss investigators, according to Hermitage Capital.