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Diggers and Gold Diggers

The inevitable fate of all Diggers

On 11th November 2012, a Russian banker, Alexander Perepilichnyy, went jogging in St George’s Hill. It was November and Perepilichnyy, as a product of the Soviet communist system, may not have known, that the ground on which he was running was the site of England’s earliest commune – the Diggers.

The Diggers in 1649 chose this spot to cultivate common land for the common good. The problem was that the soil on St George’s Hill was grey, sandy and poor, so that little would grow. The commune failed because of harassment from land-owning enemies and starvation.

Today, what grows best on St George’s Hill, is high, water-sucking, laurel hedges, forbidding electronically operated gates, and billionaires. Kettled here now, are numerous millionaires and billionaires. Perepilichnyy perhaps thought  himself safe here, not a stone’s throw from the Tennis Club (a place that we would ride to on bikes with our rackets when I was a child).

That evening, Perepilichnyy collapsed and died near his house as early commuters returned from the City. Although the majority of UK citizens would consider the death of a 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 still do not have the truth.

One course of action for them could be to read ‘Red Notice’, which might assist. This is a book written by Bill Browder, owner of Hermitage Capital Management, and once the most successful Western investor in Russia following the collapse of the Soviet Union. Published in 2015, its title is taken from 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 troubles of trading in a different part of the world – Congo – bemoaning how mining licences bought and sold off-shore and the value of exported goods rarely benefits the citizens of the country in question. The next day the person I was speaking to sent me Red Notice via Amazon with a note to say, ‘You will not be able to put this down’. And he was right.

The book tells the story of the rise and fall of Hermitage Capital, its investments in Russia, and the murder of Browder’s lawyer, Sergei Magnitsky, at the hands of the Russian police. According to Browder, Perepilichnyy was about to hand over proof of the Swiss bank accounts linking Russian tax collectors to 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 familiar. Filling the void following the fall of communism those who booked their trip first were not always the nicest or most competent. The new Russia was a blank canvas upon which to create a fictional back story and make a new start in the East. The main interest of most Russian sellers of metal was whether you could pay – ideally in wads of cash dollars. The lobbies of the few functioning hotels were rammed with traders moving goods, about which buyer and seller were often ignorant. In a country hungry for something better than centrally planned deliveries of pilchards, early deliveries East were a rude awakening about how capitalism works – cargoes of stuff that was unsaleable in the West, 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 over aluminium conversions 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, and receiving revenue on the exports in U.S. dollars. Going the other way, Russians sent out nickel-cadmium battery plates ripped from their housings, germanium gun-sights, T42 tanks caterpillar treads and gun barrels, ancient lots of redundant stockpiled nickel cathodes for long forgotten programs, or palladium bearing air filter catalyst decanted from submarines – all in return for top of the range Mercedes’. It was the greatest arbitrage of the 20th Century – a once-in-a-trading-life opportunity with valuations that could be wrong not just by 10-15% but more like a thousand percent. We all traded it for what it was worth until the music stopped.

This book is really about how that music stopped. Browder’s field was investment, not metal. He was drawn to the East by the ancestral pull of his grandfather, Earl Browder, who had been head of the Communist Party in America and twice stood for U.S. President gaining about 80,000 votes each time. When few wanted to put money into the collapsing Soviet Union, Browder saw his chance. By careful analysis he found oil and gas companies with reserves as big as Exxon but valued in mere millions. Browder tells how the Yeltsin privatisations deprived ordinary Russians of their communal assets. Certificates, offered to citizens raised under the idea of state collective ownership, instead of being held for the reward of future capital growth or dividends (as Sid was instructed during the British Gas privatisation under Thatcher), were sold for a bottle of vodka, then amassed into blocks, which were in turn traded and finally sold on. Those who ended up with them 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 also bought up certificates on behalf of investors with object of building long term stakes in a host of under-valued assets.

Although this book recounts Browder’s early post-Soviet days when he is a lone voice trying to persuade investors of the opportunities in the East, the book is only readable because of his fifteen-year Russian journey from hubris to tragedy and, ultimately, to some measure of catharsis. Hubris – the idea that a foreign investor could get away with carting off big value and not pay a price. Tragedy – how the walls of Russian brutality close in, and the principled lawyer – Sergei Magnitsky – takes his fight to the heart of the kleptocracy. The result is months of mistreatment in Russian detention centres and death by beating when weakened, ill, and alone in his cell. And catharsis – how Browder’s crusade has resulted in the passing of the Magnitsky Rule of Law Accountability Act, to prevent named Russians responsible for Magnitsky’s death from travel and the disposal of their ill-gotten gains in the West.

This a book that can be read as John Le Carré fiction if desired or documentary if not – an exposure of the failings of both communism as it once existed and capitalism too. Was Browder’s investment chutzpah naïve? Probably, yes. Was it not inevitable that Yeltsin’s chaos would lead to Putin’s iron fist? Likewise. Both AIOC and Transworld’s aluminium conversions in the early 1990s, as we in the metal trade know, gave way to Rusal. The great naivety of Browder’s position was perhaps not to understand the truth 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, banning those involved with his death from enjoying the financial benefit 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. Perhaps Browder just dug too deep..

Published December 13th 2017 on