Next Magnitsky: Who is behind the poisoning of another VAT fraud whistle-blower?

French investigative authorities have recently joined their British colleagues in their inquiry into the death of Alexander Perepilichny, who was not only a witness in the Magnitsky Case but a whistle-blower himself, actively exposing how criminals were laundering money illegally obtained from the federal budget as VAT refunds. The autopsy revealed a dose of lethal poison — gelsemium — in Perepilichny's stomach. Anastasia Kirilenko has studied the Perepilichny Case and has found out who could have had a motive to kill him and why VAT fraud is still rampant in Russia.

On June 26, a pre-investigation probe was initiated in Paris with regard to Magnitsky Case informer Alexander Perepilichny's death in the UK. The investigators are compiling the list of persons Perepilichny could have met on the eve of his death on November 10, 2012: he had arrived in Paris three days prior and stayed at the Bristol Hotel. In the meantime, investigative magistrate Renaud van Ruymbeke, known for high-profile anti-corruption cases, is working on a recently initiated French money-laundering case. The money in question is believed to have been embezzled from the Russian budget through the scheme exposed by Magnitsky.

Another victim takes the fall

To remind you, Sergei Magnitsky filed a statement to the Investigative Committee in 2008 concerning the hostile takeover of several companies belonging to the Hermitage Fund and subsequent depositing of public funds obtained through VAT fraud on their accounts. However, Magnitsky was soon arrested on charges of tax evasion, only to be found dead in the cell with traces of torture on his body. (An independent inquiry revealed the complicity of his investigators, Federal Penitentiary Service officers, and even the appointed judge in his death.)

In 2010, two years after Magnitsky's death, finance analyst Alexander Perepilichny approached the Hermitage Fund with insider documents implicating Vladlen Stepanov in the embezzlement of public funds with the assistance of his wife, tax official Olga Stepanova. Once this discovery had been made public, Stepanov's Swiss accounts were arrested. Switzerland is continuing to investigate the case against «persons unknown» initiated in March 2011 — as has been officially confirmed by Jeanette Balmer, spokeswoman for the Swiss prosecutor's office. Denying the fact of embezzlement, Stepanov accused Perepilichny of treason.

On November 17, 2012, Perepilichny was found dead on the grounds of his gated estate in Weybridge (Surrey). He was 44 and had not suffered from any health conditions. His death resulted from a cardiac arrest during his morning run; it is unclear what had triggered the arrest. The police did not discover anything suspicious, and sudden natural deaths are not unheard of. However, Hermitage Capital Management insisted on an investigation.

Tests performed by Monique Simmonds, a leading expert in botanical poisons, revealed traces of gelsemium in his stomach — a poisonous plant that is sometimes used for assassinations because it is hard to identify and the resulting symptoms resemble natural death. The first paper on the properties of gelsemium was published in a medical journal by none other than Arthur Conan Doyle, back when he was a student of medicine. A number of media commented that this plant is also used in homeopathic drugs, but, as we learned from Yaroslav Ashikhmin, Candidate of Medical Sciences, the concentration used in homeopathy is so low that it is impossible to trace, let alone to poison someone with it. At present, British investigators are carrying out extended tests to determine the cause of death with certitude.

In 2007–2008, three more people implicated in VAT fraud died under mysterious circumstances.

Incidentally, in 2007–2008, three more people implicated in VAT fraud died under mysterious circumstances. Valery Kurochkin (CEO of Rilenda, a company involved in the scheme, died from food poisoning in Borispol in 2008), Oktai Gasanov (presumably the mastermind behind the entire fraud scheme, died in Moscow in 2007 from a heart attack), and Semen Korobeynikov (head of Universal Savings Bank, fell out of the window of a residential building under construction in Moscow in 2008).

Following Perepilichny’s death, an anonymous source of the Interfax Agency at the Russian MIA shared that «Mr. Perepilichny was not involved in the investigation of the so-called Sergei Magnitsky Case of public money embezzlement.» Quoting a source at the MIA, Kommersant countered that Perepilichny, on the opposite, «was one of the defendants»; however, this was not followed by any official updates of his status.

According to Rosbalt (known for its connections with security agencies), not long before his death, Alexander Perepilichny had approached the Russian law enforcement agencies about a possible attempt on his life. The Insider found out who had been threatening him; more on that below.

Perepilichny and the Stepanovs

Perepilichny's business contacts and associates deserve close scrutiny. Alexander Perepilichny's biography available in open sources is rather meager. The general public first learned his name from none other than businessman Vladlen Stepanov, the former husband of Olga Stepanova, head of Moscow Tax Office 28 (their divorce was finalized in 2010). According to the Hermitage Fund's investigation, on December 24, 2007, Olga Stepanova approved VAT refunds to the amount of $153 million. Illegitimate tax refunds to the amount of 5.4 billion rubles by two tax offices to the accounts of companies seized from the Hermitage Fund was reported by Sergei Magnitsky. In Russia, he was convicted posthumously for tax evasion — while Transparency International issued him an Integrity Award.

Stepanov's connection to Perepilichny was the Financial Bridge Investment Company (FinBridge), which the latter founded in 2000. In 2011, the Federal Service for Financial Markets suspended FinBridge for three months on suspicions of laundering money and withdrawing it overseas. On August 27, 2013, the Bank of Russia Service for Financial Markets ceased the company's operation.

No one could have predicted such an inglorious end. FinBridge's analysts had been regularly quoted in leading media, and in October 2012, the company purchased a five-percent stake in Promsberbank, getting an in with Putin: his cousin, Igor Putin, joined the bank's board of directors after the change of ownership.

Vladlen Stepanov admits that he was a client of FinBridge: "Here is a statement for fiscal year 2004. The total amount of tax levied at the rate of 13 percent is 225 million [rubles]. This revenue was paid by the Financial Bridge Investment Company. With Perepilichny’s assistance, the company served as a platform for stock trading."

Vladlen Stepanov publicly mentioned his former business associate Perepilichny in 2011, after the Russian Untouchables website released a description of multi-million estates in Dubai, Montenegro, Moscow Region, followed by Credit Suisse documents in Stepanov's name that he had used to pay for the estates. The report and the documents could lead one to believe that some of the embezzled money was invested in these villas.

Vladlen Stepanov appealed to Lyublino District Court in Moscow for compensation; however, instead of suing the authors of the video, he sued Alexey Navalny, who had reposted the video. His claim was partially satisfied.

In his court claim of June 29, 2011, Stepanov asserts that the person responsible for his reputational damage is none other than Alexander Perepilichny: "The money transferred to my companies' accounts has nothing to do with the embezzlement of public funds. I received this money from my former business associate Alexander Vladimirovich Perepilichny, who deceived me and many other creditors and is now hiding in the United Kingdom, according to my information..."

In May 2011, Stepanov told Vedomosti that Perepilichny is guilty of the very crimes of which he had accused Stepanov. On the one hand, Stepanov admits that Perepilichny managed his money, for instance, buying shares; on the other hand, "he owned this money too."

"In Baikonur (a company co-owned by Perepilichny, through which Vladlen Stepanov and two Olga Stepanova's deputies transferred money for their real estate deals), Perepilichny was in charge of all financial assets. Not a single bank transfer order could have been issued without his approval."

Stepanov repeated his accusations against Perepilichny in a blog at Echo of Moscow on October 27, 2011: "The entire Swiss case is based on information supplied by a man I used to trust — Alexander Perepilichny. Either Perepilichny or his employees leaked all the papers to Browder."

Perepilichny had taken out a huge life insurance policy not long before he died.

Hermitage Fund employees know little about threats issued to Perepilichny. However, they believe the threats were real: «Apparently, Perepilichny feared for his life, taking out a huge life insurance policy not long before he died. We learned it at a court hearing concerning the cause of his death, in no small part thanks to the active involvement of his insurance company's lawyers, who continued the investigation even after the police had dropped it,» Ivan Cherkasov, the Fund's spokesman, told The Insider.

Vladlen Stepanov, the «victim» of Perepilichny's information attack, has since stopped giving public statements, and we have not been able to reach him either. Early in 2013, Stepanov's attorney Alexei Mamontov said in a phone conversation that he was working on unblocking his client's Swiss accounts and kept in touch with him. Now Mamontov says differently, denying any contact with Stepanov.

«After the lawsuit against Navalny had been settled in the winter of 2012, we said our goodbyes and this was the last I heard of him,» he explained to The Insider. "I advised him to prepare a letter to the Swiss bank to have his accounts unblocked; otherwise, he could be looking at a legal claim for compensation of damages and lost profits. I don't know whether he took my advice. We don't keep in touch, and I even removed his number from my contacts. He prized his and his associates' reputation, so I took his case to defend his good name, even though I was not sure he was squeaky clean. However, the court did not convict him, so you should keep your allegations to yourself."

A genius physicist and mathematician

Stepanov called Perepilichny «a genius physicist and mathematician» — for a good reason. An MIPT graduate, Perepilichny managed Stepanov's financial assets — legitimate earnings from construction and telecommunications projects, according to Stepanov's interview to Vedomosti.

According to an acquaintance of Perepilichny's who prefers to remain anonymous, Perepilichny was an expert in «specific banking services» and, being threatened by his business associates, moved abroad.

«Specific banking services are fly-by-night companies, tiny banks, and fictitious consultancy firms used for money laundering. This market is dominated by alumni of MIPT, MEPhI, and Faculty of Mathematics of Moscow State University. An MIPT graduate, Perepilichny blended in just perfectly. He happened to acquire a few companies as debt settlement, for instance, Erkonproduct, but did not give the impression of a serious businessman. He often visited Switzerland on finance-related business trips,» says Perepilichny's acquaintance. Based on Perepilichny's occupation, his acquaintance presumes he «could have been involved in the cashing-in of illegitimate VAT refunds.» He characterizes this fraudulent scheme as a «malignant tumor on the body of Russia's economy, which everyone is aware of.» «It had not ceased to exist, regardless of Perepilichny's disclosures and Magnitsky's complaints. Curb this scheme, and the Russian economy will simply collapse,» says Perepilichny's acquaintance sarcastically.

With his fellow MIPT alumni Grigory Bubnov and Alexander Semenov, he participated in a number of financial projects, in particular, East Bridge Bank, the Pushkino Bank, and Financial Bridge (FinBridge). Late in 2008, Alexander Perepilichny presumably suffered losses due to the financial crisis. He owed money to his partners (if unofficially). According to his words, a group of armed men ambushed him at the airport upon his return to Russia from a business trip to Ukraine, pushed him into a car and forced him to sign formal debt instruments. Be it as it may, Perepilichny was sued for default on his debts, first in Smolensk Region, where the dairy plant of Perepilichny's company Erkonproduct was located, and then in Moscow.

In 2009, he was taken to court by Alfa-Florin (a company registered in 2001 with an account at East Bridge Bank «to facilitate the forging and development of new economic relations in Russia»), Jirsa, and Region-Collector. Perepilichny allegedly owed these companies dozens of millions of rubles. Evgeny Khametshin, the attorney of Alfa-Florin and Jirsa, demanded Perepilichny's personal presence in court, but the latter had already left Russia. The court eventually ruled in Perepilichny's favor, and his Moscow apartment and car were released in October 2012. The plaintiffs' 37-million-ruble claim was dismissed. The final judgment on the release of Perepilichny's property came into force after his death in 2012. Attorney Evgeny Khametshin, who represented the plaintiffs, refrained from comment.

By the time of Perepilichny's comprehensive victory in court, he had long moved to the UK. Perepilichny left for London and approached William Browder early in 2010. According to Browder, upon submitting Vladlen Stepanov's account statements to the Hermitage Fund, Perepilichny first refused to specify how he had come by these papers but then explained that he had worked as a financial advisor to several affluent Russian families, including the Stepanovs.

Apparently, Perepilichny hoped to solve his own problems by securing protection of the Hermitage Fund. That said, the submission of sensational evidence exposing corrupt Russian officials to the Fund was «a mysterious and powerful act that no one ever fully understood,» says Perepilichny's acquaintance.

Who threatened Perepilichny?

Although Russia is not internationally known as an exporter of technology-intensive products (they account for a negligent share of the country's export), Russian companies seem to be exporting such goods by the ton, judging by their VAT refund claims. They equip biology school labs in Kazakhstan, export chemical dyes from Tyumen, and supply press molds for automatic molding machines to the USA. A distilling plant in Tobolsk happened to ship some optical glass, of all things, to the UK through the customs in the Republic of Karelia. These examples are only a handful of cases mentioned in court judgments concerning East Bridge Bank and the Pushkino Bank.

East Bridge Bank's VAT refund litigations were only partially successful. In a number of cases, the court discovered fraud and ruled against compensation. However, in 2005, the Federal Commercial Court for the Moscow Circuit ruled to refund VAT to OOO MK VART to the amount of 1.8 billion rubles. MK VART claimed to have exported school equipment to Kazakhstan, presenting shipping papers in confirmation. The transactions had been performed through East Bridge Bank.

Specialized financial media name the Pushkino Bank as one of its owners' main assets and often mention the two organizations together. (The Pushkino Bank was later sold to filmmaker Fedor Bondarchuk and other co-owners, but to no avail — on September 30, 2013, the Bank's license was revoked.)

Until June 2010, the Pushkino Bank had been owned primarily by the board of directors, including Grigory Bubnov and Alexander Semenov. It was Semenov and Bubnov who threatened Perepilichny, according to a close acquaintance of Perepilichny's who chose to remain anonymous. However, our source admits that the threats could have been a "less significant episode than doing business with Stepanov."

There is little we know about Bubnov and Semenov. Semenov is not a public persona, and Bubnov is known only for his infamous «career» in academia. He was born in 1970, graduated from MIPT, and in 2002 defended his doctor's thesis on «Entrepreneurship and Its Role in Russia's Economic Renaissance.» According to Dissernet analysis, his thesis was almost completely plagiarized. He is also a member of the Russian Academy of Natural Sciences (an NGO that unites dissipate researchers with doubtful credentials; not to be confused with the Russian Academy of Sciences). Today Bubnov is a pro forma rector of Moscow Technological Institute (former World Technological University), founder of the «system engineering school» under the auspices of MIPT, and a Skolkovo lecturer on robotics. He refrained from any comment to The Insider.

As could have been expected, Bubnov and Semenov were not happier than Stepanov about Perepilichny suddenly blowing the whistle on their VAT refund misdoings. The possibility that they could have resolved the issue «by the codes of the underworld» checks out with other details of their biography.

The conversation took a drastic turn, suddenly brimming with gangster slang. Think twice, they told me; you know who's behind us.

In 2004, Semenov and Bubnov became notorious in Yoshkar-Ola, capital of the Mari El Republic, Russia, where East Bridge Bank had a branch, for their love of «gangster slang» and throwing their weight around. Head of the Mari El Sberbank Branch Valentin Tsivilsky told Mariyskaya Pravda: "Yermolaev (East Bridge Bank representative), Semenov, Bubnov (Bridge Group owners)... a total of five men invited me for a talk and tried to persuade me to buy a former hotel and use it for Sberbank office. I told them right away that the hotel building did not meet the requirements. The conversation took a drastic turn, suddenly brimming with gangster slang. Think twice, they told me; you know who's behind us. We have an in with your superiors, so we'll just force your hand through Sberbank."

It looks like the two had connections not only in Sberbank. According to the entries from the Cyprus register of legal entities published by Georgy Alburov, Alexander Semenov and Grigory Bubnov co-owned a Cypriot company called Dream Yacht Club with State Duma deputy Sergei Zheleznyak — at least from 2008 to 2012. The company's assets were elite plots of land in Moscow Region; as a result, the financiers became neighbors with Zheleznyak. The list of Dream Yacht Club's co-owners also includes Maxim Tkachev, Managing Director at Russ Outdoor, who inherited the company from Zheleznyak after the latter became a civil servant, and Sergei Polonsky.

We might learn more about Bubnov's, Semenov's, and Stepanov's possible implication in Perepilichny's death in the near future — from the British and the French investigators of the case.

VAT refund fraud still rampant

Even after Magnitsky and Perepilichny exposed certain schemes of VAT refund fraud, no crackdown followed — in spite of all the publicity.

The infamous 5.4-billion-ruble VAT refund, perpetrated in 2007 and exposed by Magnitsky, was eventually deemed illegitimate even by the Russian courts (the tax officials involved claimed that they had been manipulated). However, suspicions that the VAT refund scheme is still being used by fictitious exporters to illegally obtain public money had arisen much earlier — in fact, right after the value-added tax was introduced. Thus, in the early 2000s, Gennady Bukaev, the then minister for tax and revenue, slammed «fictitious export,» which had led to a surge of VAT refund claims based on falsified documents.

According to the Accounts Chamber of Russia, the growth of VAT refunds significantly exceeded that of actual export. While in 1999 Russian companies received a total of 39.7 billion rubles in VAT refunds (18.3 percent of the year's VAT revenue), in 2001, this amount reached 211.9 billion rubles (44.4 percent of VAT revenue). What had precipitated such growth? Unsurprisingly, according to the Accounts Chamber, almost half of the companies (2800 out of 6300) claimed the refund illegitimately. In 2002 and 2003, the state also refunded over one-third of its VAT revenue. Ten years later, the situation was the same. The Accounts Chamber continuously detects cases of illegitimate VAT refunds all over the country, and some of them are nothing short of ridiculous. Thus, in 2011 in Dagestan, the Chamber found 20 taxpayers who had received 1.9 billion rubles in VAT refunds for Q1 — having only paid 84 million rubles in tax over the same period.

Major corporations are culpable too: in 2013, the Accounts Chamber found evidence of a multi-billion «ungrounded VAT refund» to OOO USS, which is controlled by Rusnano. In May 2013, its CEO Anatoly Chubais recognized the validity of most of the Chamber's claims against Rusnano. "Admittedly, we made quite a few mistakes, some of them grave... A considerable part of what the Accounts Chamber unearthed corresponds with actual missteps on our part."

It is hard to estimate the share of fraudulent VAT refunds, but we may be looking at dozens, maybe over a hundred billion rubles annually. Everyone knows that VAT refund fraud is impossible without corruption; however, the government is yet to take any steps to curb it.