How crooked officials pulled off a massive scam, spent millions on Dubai real estate, and killed my partner when he tried to expose them.

BY JAMISON FIRESTONE | APRIL 20, 2011

(snip This story is a must read)

The story begins in July 2007, when Russian Interior Ministry officers Artem Kuznetsov and Pavel Karpov raided my law offices in Moscow and seized without a warrant two vanloads of documents and corporate seals (imprints that go along with the signature on any signed document in Russia) from companies belonging to my firm's clients, including the Hermitage Fund, which had once been Russia's largest foreign investor. At the time, one of my junior lawyers protested that their search was illegal. He was taken into a conference room by the officers and beaten so severely that he was hospitalized for three weeks.

Pavel Karpov and Artem Kuznetsov

A few months later, we learned that the materials seized by the police had been handed over to a criminal group that used them to fraudulently re-register the companies under the name of a frontman, the convicted murderer, Viktor Markelov. Markelov had been recently released from pretrial detention on an unrelated kidnapping and extortion charge involving the same officers, Kuznetsov and Karpov. The seized documents were also used to create $1 billion of fake backdated contracts. Markelov and two other ex-convicts were made directors of the re-registered companies and, through their lawyers, pleaded guilty in several regional courts to $1 billion in these fake liabilities. We learned this from a bailiff in the St. Petersburg court who called our office looking for hundreds of millions of dollars of assets to satisfy those claims.

At this point, Sergei got involved. He started investigating the scheme and, after a few weeks, pieced the story together through court records, registration files, and bank statements. He prepared a number of very detailed criminal complaints against the police officers and perpetrators involved in the massive fraud. These complaints were filed with the most senior Russian law enforcement authorities on Dec. 3, 2007. The police did nothing.

Three weeks later, on Christmas Eve 2007, the stolen firms under Markelov's name applied for a refund of $230 million in taxes that the Hermitage Fund companies had paid one year earlier. It was the largest tax refund in Russian history -- and it was granted in one day by Olga Stepanova, head of Moscow's Tax Office 28, and her colleague in Moscow Tax Office 25, Elena Khimina. The money was then wired to a small Russian bank, Universal Savings Bank, owned by another convicted criminal, Dmitry Kluyev. The money then left Russia through the Austria-based Raiffeisen bank and was later funneled through Citibank and JPMorgan Chase.

We were shocked by the theft of the Hermitage companies and the fake court judgments, but when we discovered the $230 million refund, we knew something was spectacularly wrong. It wasn't just a crime against Hermitage -- it was also a massive crime against the Russian state. Something had to be done. Sergei, in particular, was adamant that criminal complaints be filed with every single law enforcement agency in Russia. His logic: Even if there were a few bad apples in the system, surely once the Russian leadership realized that hundreds of millions of dollars had been stolen from state coffers, then the "big guns" would be rolled out to arrest the corrupt officials and criminals involved. Sergei volunteered to give a sworn testimony to the Russian State Investigative Committee about the collaboration of Russian police and tax officials with organized criminals in stealing millions from taxpayers.

Sergei testified against officers Kuznetsov and Karpov on Oct. 7, 2008. The next month, on Nov. 24, he was arrested by three subordinates of Kuznetsov under a case opened by Karpov. He was thrown behind bars at the Interior Ministry's detention center on Petrovka Street in Moscow, where they tortured him to force him to withdraw his testimony and sign a false confession saying he was the one who stole the $230 million.

The case against Sergei was assigned to Maj. Oleg Silchenko of the Interior Ministry. Silchenko transferred Sergei between detention centers in secrecy; refused to allow Sergei contact with his wife, mother, and children; denied all his legal requests; and put emotional and psychological pressure on him to retract his testimony against officers Kuznetsov and Karpov. Sergei, however, continued while in detention to insist on his testimony while in detention -- evidence that exposed the partnership between government officials and organized crime. But Silchenko did not investigate Sergei's evidence. Silchenko was working together with Kuznetsov -- who had been assigned to this investigation by senior Russian Interior Ministry brass -- to cover up the theft of the $230 million

Oleg Silchenko

The more Sergei insisted on his testimony in sworn statements and in court, the more pressure Silchenko applied to him. He was put in a cell with eight inmates and only four beds so the detainees had to sleep in shifts. In December 2008, he was put in a cell with no heat and no windowpanes -- he nearly froze to death. Later, he was moved to another cell with no toilet, just a hole in the floor where the sewage overflowed.

After six months of this treatment, Sergei -- who went into detention a healthy 36-year-old man -- had lost 40 pounds. He developed pancreatitis and gallstones and needed medical attention. In July 2009, Sergei was moved to Butyrka, a maximum-security facility that had no medical facilities. At Butyrka, Silchenko repeatedly denied medical care to Sergei, hoping that it would break him. Sergei remained defiant and continued to write complaints about his innocence and the pressure applied to him. But nearly one year after his arrest, on the night of Nov. 16, 2009, he became gravely ill. He was transferred to the intensive-care wing of Matrosskaya Tishina detention center, but instead of receiving medical attention, he was put in a straitjacket, chained to a bed, and left by himself in an isolation cell for one hour and 18 minutes while doctors waited right outside the door until they were certain he was dead.

On the eve of the one-year anniversary of Sergei's death, the Interior Ministry called a news conference to announce the findings of Silchenko's investigation. The entire highly sophisticated $230 million tax fraud conspiracy was pinned on two minor criminal participants, Markelov and one other frontman who turned themselves in and "confessed" to the crime, and who in turn named three dead men as their accomplices. The two confessors were tried in secret hearings and were given the minimum sentence of five years. They were not asked about the stolen money or their connections with officers Kuznetsov and Karpov.

In the news conference, the Interior Ministry announced that Sergei had masterminded the fraud. He was accused of organizing the very conspiracy to which he had alerted the government. The government's sole evidence of Sergei's guilt was the hearsay of the two convicts who "confessed" to their role in the crime and who Sergei had asked authorities to arrest in early December of 2007 before any money was stolen.