This article was written Anthony Lipmann. All views and opinions expressed are strictly his own.
On 11th November 2012, a Russian banker, by the name of Alexander Perepilichnyy, went out jogging in St George’s Hill. It was not an unusual evening for November but Perepilichnyy as a product of the Soviet communist system may not have noted the irony that the ground on which he was running was the site of England’s earliest commune – the Diggers.
The Diggers had in 1649 chosen this particular spot to cultivate common land, demonstrate the value of communal labour and put into practice the idea of sharing its fruits. The problem was that the soil on St George’s Hill is so grey, sandy and poor that little would grow. The commune failed both because of harassment from land-owning enemies and starvation.
Today, that which takes root best on St George’s Hill, is monstrously high, water-sucking, laurel hedges, forbidding electronically operated gates, and billionaires. Kettled now on this inauspicious ground, are as many millionaires and billionaires per square metre as anywhere in the world. Perepilichnyy perhaps had reason to think himself safe here, in leafy Surrey, not a stone’s throw from the Tennis Club (a place that we, as children, living nearby, would ride to on our bikes with our rackets if the fancy took us).
That evening, Perepilichnyy collapsed and died not far from his house as early commuters were returning from the City. Although most UK citizens that I know, would consider the death of a relatively healthy Russian national on the streets of a private estate in Weybridge as suspicious, Surrey Police apparently did not, and took 21 days before carrying out a full toxicology test. Five years later, they have still not been able to ascertain for certain the causes.
However, one means by which they might get nearer the truth would be to read ‘Red Notice’, the book written by Bill Browder, owner of Hermitage Capital Management, and once the largest and most successful Western investor in Russia following the collapse of the Soviet Union. Published in 2015, the title is taken from the name of the arrest warrant issued by Interpol on Browder at the instigation of the Russians.
I was chatting to some fellow metal traders during LME week about the vicissitudes of trading in an entirely different part of the world – Congo – bemoaning how mining licences bought and sold off-shore and the value of exported goods rarely benefit the citizens of the country in question. The next day my interlocutor had sent me Red Notice via Amazon with a note to say, ‘You will not be able to put this down’.
The book tells the story of the rise and fall of Hermitage Capital, its investments in Russia, and the murder of Browder’s brave lawyer, Sergei Magnitsky, at the hands of the Russian police. According to the book, Perepilichnyy was about to hand over proof of the Swiss bank accounts linking bent Russian tax collectors to the corrupt Police officials responsible for Magnitsky’s death.
To metal people who spent time in Russia in the early 1990s, (the period at which Browder’s story begins), the milieu will be all too familiar. Filling the void following the fall of communism came every form of huckster from the West. The new Russia was perfect terrain upon which to create a fictional back story and make a new start in the East. All any Russian seller of metal was interested in, was whether you could pay; and, obviously, in wads of cash dollar bills. The lobbies of the few functioning hotels were full of traders moving goods, about which buyer and seller were often generally ignorant. In a country hungry for anything better than centrally planned deliveries of Angolan pilchards, some of those first deliveries to the East were a rude awakening to the recipients; of how capitalism works – cargoes of stuff that was unsaleable in the West, large consignments of left shoes, socks with more hole than sock, past sell-by-date chocolate and meat, and dodgy electronics.
Meantime, at the high end of the metal trade, AIOC and Transworld Commodities fought it out over the conversion of alumina into aluminium at Bratsk, Krasnoyarsk and Irkutsk, taking in alumina on rail-waggons, sending it thousands of miles into Siberia, paying for rail transport and energy in non-transferable roubles, while ultimately receiving revenue on the exports in U.S. dollars. Other Russians sent old stockpiled nickel cathodes into the West and asked in return for top of the range Mercedes. What everyone was converging on was the greatest arbitrage of the 20th Century – a once-in-a-trading-life opportunity to seek out valuations that could be wrong not just by 10-15% but perhaps a thousand times – and trade for what it was worth until the music stopped.
This book is really about how that music stopped. Browder’s field was investment. He had been drawn to the East by the magnetic ancestral pull of his grandfather, Earl Browder, who was head of the Communist Party in America and twice stood for U.S. President gaining about 80,000 votes on each occasion. When few were brave or interested enough to put money into the collapsing ex-Soviet Union, Browder saw his opportunity. By careful analysis he found oil and gas companies with reserves as big as Exxon but valued in mere millions. Browder explains how the Yeltsin privatisations deprived ordinary Russians of their communal assets. The certificates offered to citizens brought up under the idea of state collective ownership, instead of being held and cherished for the reward of future capital growth or dividends (as Sid was strongly advised during the British Gas privatisation in the Thatcher era), were often sold for a bottle of vodka, then amassed into blocks, which were in turn traded and finally sold on. Those who ended up with the bulk of the certificates once amassed obtained very real stakes in the key companies of the Former Soviet Union becoming the Oligarchs we have come to know so well. Berezovsky, Abramovich, Khodorkovski, Deripaska, Potanin, etc, etc. Uniquely, Browder was one of the few overseas investors who did the same on behalf of his clients and wanted to build long term stakes in a host of under-valued assets.
Although this book recounts Browder’s early post-Soviet days in which he is a lone voice trying to persuade investors of the opportunities in the East, the book is ultimately only readable because it is about one man’s fifteen-year Russian journey from hubris to tragedy and, ultimately, to some measure of catharsis. Hubris – the idea that a foreign investor could possibly get away with carting off major value and not pay a big price. Tragedy – how the walls of Russian brutality close in, and how a principled lawyer – Sergei Magnitsky – is not prepared to allow the kleptocracy to get away with it. His astonishing bravery results in months of mistreatment in a series of Russian detention centres and his ultimate death by beating, weakened, defenceless and alone in gaol. And catharsis – how Browder’s further crusade has now resulted in the passing of the Magnitsky Rule of Law Accountability Act, preventing named Russians responsible for Magnitsky’s death from travel and spending their ill-gotten gains in the West.
Some will read this book as a thriller in the mode of Eric Ambler or John Le Carré – a battle between good and evil set in the world of espionage, high finance, double-dealing and deaths that are all too real and shocking.
However, another reading is to see in this story an incredible exposure of the failings of both communism as it once existed and capitalism too. By this reading you could look at Browder’s investment chutzpah as naïve. You could look at the short period of chaotic transition from Yeltsin’s to Putin’s Russia as inevitable. Browder’s capitalism in its most brutal form ultimately meets the immovable object of Putin’s violent self-serving FSB. Both AIOC and Transworld’s aluminium conversions in the early 1990s, as we in the metal trade know, gave way to Rusal. The naivety of Browder’s position was perhaps not to understand the true brutality of what Russians could do to fellow Russians, not what Russians could do to American investors. As a traveller in the East, it has always been plain to me that there is nothing that the Russians have ever done to the West that is worse than what they have done to each other.
The true conclusion of this book is that with the end of communism now almost 20 years past, the act that has been signed into law in the USA, the Magnitsky Act, that bans those involved with his death from enjoying the financial benefits of their frauds, is part of a slow civilising process. Browder himself no longer describes himself as an investor but as a fighter for human rights. The book is dedicated ‘To Sergei Magnitsky, the bravest man I’ve ever known’, not without a sense of guilt.
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