On October 1, 1939, Winston Churchill made a famous speech in which he discussed Russia’s prospect of joining the Second World War: «I cannot forecast to you the action of Russia. It is a riddle wrapped in a mystery inside an enigma; but perhaps there is a key. That key is Russian national interest».
Fast-forward to 2008. Churchill’s observations about Russia were still correct, with one big proviso. Instead of the national interest guiding Russia’s actions, they were now guided by money, specifically the criminal acquisition of money by government officials.
Everything about our situation was a riddle. Why would Karpov and three of his colleagues jump on a plane and fly hundreds of miles to Kalmykia to open a criminal case against me just for revenge? Why would they pursue the case against Ivan if it accomplished nothing for them? Why go through the trouble of raiding all those banks if the Hermitage assets weren’t in Russia?
I couldn’t figure it out.
The more I thought about it, the more convinced I was that the answer to this riddle lay in the remains of our former investment companies that had been fraudulently reregistered. They didn’t have much economic value, but if we could somehow regain ownership of them, we would have the right to request all the relevant information from the government. From that, we could piece together exactly who — for this clearly went beyond Kuznetsov and Karpov — was behind the fraud.
To do this, we took legal action in the Moscow arbitration court to have our companies returned to us. This must have come as a surprise to the people behind the fraud because they immediately countersued us in the Kazan arbitration court, forcing the case to be relocated to Tatarstan. Presumably, they thought that the Kazan court would be friendlier to them.
I wasn’t sure about our chances in a provincial Russian court, but I was happy to see our opponents reacting so quickly and defensively. We’d obviously touched a nerve. Eduard and one junior lawyer immediately got on a plane to Kazan. They arrived there on a cold day in March and went to the courthouse, an elegant building inside the «Kremlin» of the Republic of Tatarstan. Eduard was used to spending his time in grimy criminal courts where people were aggressive and tension permeated the air, but this was a civil court. The surroundings were nicer and the people were, well, much more civil.
On the day before the hearing, Eduard went to the clerk to request the case file. She typed the names of our companies into her database and helpfully said, «There are two lawsuits involving these companies. Would you like both of them?»
This was the first time Eduard had heard of a second lawsuit, but he deliberately showed no reaction to her question and only smiled. «Yes. I’d like both, please».
She went into the file room and returned with a box full of documents, suggesting that Eduard might find it easier to study them at a table down the hall. He thanked her, walked to the table, and went through the case files. The first case was the countersuit for which Eduard was there. But the second case was one he had never seen. A $581 million judgment against Parfenion, another of our stolen investment companies.
He rifled through the paperwork completely mesmerized. The judgment was a carbon copy of the Saint Petersburg one. They’d used the same bogus lawyer and the same forged contracts containing the same information seized by the police.
The moment I heard about the additional $581 million judgment, I wondered how many other Russian courts had similar fraudulent judgments against our stolen companies. I shared my concerns with everyone on the team, and Sergei began searching the court databases throughout Russia. Within a week he discovered one more — a $232 million judgment in the Moscow arbitration court.
In total, roughly $1 billion of judgments had been awarded against our stolen companies using the same exact scheme.
These discoveries only made the riddle that much more complicated. It still wasn’t clear how the criminals would make any money out of these claims. Just because they were «owed» this money didn’t mean it would magically appear in their bank accounts. There was no money to pay them! I was convinced that they had another agenda. But what was it?
It wasn’t obvious, and I realized that I needed to take a step back and have another look at everything to see if I could spot any patterns or connections that we might have missed.
On a Saturday morning at the end of May 2008, I asked Ivan to come to the office and bring all of our new legal documents, the bank statements, and the warrants to our big boardroom. We unloaded the box with all the documents on the long wooden table and made a number of piles. One for each judgment, one for each bank raid, and one for each criminal case. When it was all laid out, we started constructing a timeline of what had happened.
«When was the last Kuznetsov raid on our banks?» I asked.
Ivan shuffled through the stack of papers. «August seventeenth».
«O'kay. What were the dates of the fake court judgments?»
«Saint Petersburg was September third, Kazan was November thirteenth, and Moscow was December eleventh».
«So let me get this straight — the bad guys went to all the courts and spent all sorts of money to get these judgments, even after they knew there were no assets or money left in our companies?»
«Apparently so», Ivan said, noticing this inconsistency for the first time.
«Why would they do that?»
«Maybe they wanted to use the judgments as collateral to borrow money», Ivan suggested.
«That’s ridiculous. No bank would lend money off the back of one of these amateurish judgments».
«What about them trying to seize your personal assets abroad?»
The thought was horrifying, but I knew it was impossible. I’d confirmed this with my British lawyers as soon as we learned about the claims in Saint Petersburg.
We sat in silence for several moments, then a lightbulb went on over my head. «How much were the Hermitage profits in 2006?»
«Just a sec». Ivan opened his laptop and retrieved a file. «Nine hundred and seventy-three million dollars».
«And how much did we pay in taxes that year?»
He consulted his laptop again. «Two hundred and thirty million dollars».
«This may sound crazy. But do you think… do you think they’re going to try to get that two hundred and thirty million dollars refunded to them?»
«That is crazy, Bill. The tax authorities would never do that».
«I don’t know. I think we should ask Sergei».
That Monday, Ivan called Sergei to test this theory. But like Ivan, Sergei was completely dismissive. «Impossible», he said without even thinking about it. «The idea that someone could steal past taxes is preposterous».
But an hour later, Sergei called back. «Perhaps I was too hasty. I’ve looked at the tax code, and what you’re describing is theoretically possible. Although in practice, I can’t imagine it ever happening».
During those weeks, while I was sitting in my office dreaming up theories, Sergei was in the trenches conducting his own investigation. More than anything else, he wanted to know about everyone who was involved with this crime. He’d written to the government office in Moscow where our stolen companies were registered, demanding all the information it had. While he got no response, the perpetrators did something telling. They immediately moved the stolen companies to an obscure town in southern Russia called Novocherkassk. Sergei’s letter had obviously spooked them. He then wrote to the registration office in Novocherkassk, requesting the same information. While the officials there were just as silent as they were in Moscow, the criminals moved the companies again. This time to Khimki, a suburb of Moscow. This game of cat and mouse was clearly getting to the bad guys, so Sergei kept it up and wrote to the Khimki registrar too.