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Diggers and Gold Diggers

On 11th November 2012, a Russian banker named Alexander Perepilichnyy went out for his usual jog along the private roads of St George’s Hill, in Weybridge, Surrey. 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 only problem was that the soil on St George’s Hill was grey, sandy, and poor, so that very 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-depleting laurel hedges, forbidding electronically operated gates, and billionaires. Kettled here now, are numerous millionaires and billionaires nursing their fortunes. Perepilichnyy perhaps thought  himself safe amongst this community, not a stone’s throw from the Tennis Club (a place that I and my young friends used to ride to on bikes carrying our rackets).

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 quite different part of the world – Congo – and bemoaning how neither mining licences bought and sold off-shore nor the value of exported goods appeared ever to benefit the citizens of the countries 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 out 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 consideration for most Russian sellers of metal was whether and how the buyer would pay – ideally in cash dollar notes. The lobbies of the few functioning hotels were chocked up with traders moving goods, about which both buyers and sellers 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 goods that were unsaleable in the West, consignments of left shoes, socks with holes, 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, filling up rail-wagons with alumina, sending them thousands of miles on 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, whole T42 tanks or just their 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 often a thousand percent. We all traded it for what it was worth until the music stopped.

Red Notice 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 issued 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 joined the jamboree, and bought up certificates on behalf of overseas 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, when weakened, ill, and alone in his cell, death by beating. 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, if you like, be read as John Le Carré fiction; or documentary if not – an exposure of the failings of both communism as it once existed, and capitalism too. Was Browder’s investment naïve chutzpah? 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 have done to fellow Russians through the centuries – 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


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