Capitalisn’t: The failure of Russian capitalism

Jan 02, 2020

Sections Economics

On this episode of the Capitalisn’t podcast, hosts Kate Waldock and Luigi Zingales turn their attention to failures of capitalism outside of the United States—specifically, in Russia. To do so, they chat with Russian president Vladimir Putin’s so-called number one enemy, financier and activist Bill Browder.

Luigi: In our podcast, we mostly talk about what isn’t working in American capitalism. Today, we’re going to take a break to look at how much worse capitalism can go wrong in other countries, particularly Russia. We’re going to do that with a very, very special guest, Bill Browder.

Kate: Fun fact about Bill Browder is that he’s the grandson of the head of the American Communist Party, and he ran against Roosevelt in 1936. And also, now, he has an international warrant issued against him.

Luigi: Yes. By Putin. You’re very knowledgeable. I don’t know whether of American history or Communist history, but at any rate, you’re very knowledgeable.

Kate: I also just happened to read biographies, Luigi.

Luigi: I see. At any rate, we’re very excited to have Bill here, and this is Luigi Zingales from the University of Chicago.

Kate: And this is Kate Waldock from Georgetown University.

You’re listening to Capitalisn’t, a podcast about what’s working in capitalism today.

Luigi: And, most importantly, what isn’t.

Kate: So, Bill, welcome to the show.

Bill Browder: Great to be here.

Kate: Now, tell us more about your instrumental role in changing Russian corporate governance in the early 2000s.

Bill Browder: When I showed up to Russia, all the stocks in the stock market were dirt cheap to the comparable Western values. So, for example, Gazprom, which is the largest gas company in the world, traded at a 99.7 percent discount per barrel of hydrocarbon reserves to companies like BP and Exxon. And the reason that it was trading at such a big discount was that everybody thought that every last cubic meter of gas and gas reserves had been stolen out of Gazprom. 

One of the things which we did was a stealing analysis of Gazprom to figure out how much was stolen, and people often think of Russia as being a very un-transparent, opaque place, and it is in certain respects, but Russia is also a country with incredible bureaucracy, and all the bureaucrats collect information on everything, and all those bureaucrats were effectively making that information available. We took that information and we analyzed it, and we figured out, instead of 99.7 percent of assets being stolen, we discovered that only about 9 percent of the assets had been stolen.

Now 9 percent of the assets was like the size of Kuwait in terms of oil reserves, which is enormous, but perception was so different than reality, where the world thought everything was being stolen. And we figured out that almost everything wasn’t being stolen, and we figured the best way of trying to inform the world and correct the situation at the same time was to expose how they went about doing that stealing. 

We took our analysis and we put together a dossier, and we broke it into seven chapters, and we shared the first chapter with The Wall Street Journaland the second chapter with the Financial Timesand the third one with the Washington Post. And by them writing the stories about the stealing, it created a public scandal, and they then had parliamentary hearings and more stories got written. And then, the management tried to defend themselves, and they actually hired an American accounting firm, PricewaterhouseCoopers, to write a report to say that it was actually good that these assets had been stripped off the balance sheet, and more stories. 

And in the end, it created such a public scandal that Putin stepped in and fired the CEO who was doing all the stealing and replaced him with a new guy whose job it was not to steal assets. He could steal other things, just not assets, and then, the day after the new guy came on, the share price went up 138 percent.

Luigi: I know it sounds funny now, but in the early 2000s, the rumor was that you are an ally of Putin. Everybody would say, “If this guy is serious and he’s as effective as you describe, why is he still alive?” And that’s the reason why there was this rumor that he was an ally of Putin. So, what’s the story?

Bill Browder: Well, everybody in Russia was saying to themselves, “There’s absolutely no way that some guy from the South Side of Chicago would show up to Russia and do this on his own volition,” and they thought, “OK, if he’s not doing it on his own volition, who is he doing it for?” And then they looked at the fact pattern of the story, and they said, “Well, look, here’s this guy. He did all this stuff and then all of a sudden Putin steps in and fires the guy. Ah, maybe it’s Putin. This is a Putin project. I mean, how clever of Putin to—” 

So, instead of doing some KGB operation, he gets some guy from the South Side of Chicago to do it. And from my perspective, I didn’t want to disabuse anyone of that thought, because if they thought it was a Putin project, they weren’t going to kill me. And so, I didn’t tell anyone it wasn’t a Putin project and let them think what they wanted to think. Now, of course, my subsequent years have proven that I’m not a guy of Putin, but I certainly wasn’t going to disabuse anyone of that notion at the time.

Kate: Sure. So, what went wrong in what you call the subsequent years? What was the turning point in your relationship with Putin?

Bill Browder: Well, so, I was doing this naming and shaming, not just at Gazprom. I did it at the national electricity company, at the national savings bank of Russia, at several oil companies, and for a while it worked, and it worked because Putin basically had the same problem I had. You had these oligarchs stealing power from him, and these were the same oligarchs who were stealing money from me. And so, it was going well for a while, and every time I would publicize a scandal involving one of his enemies, he would come down like a ton of bricks on his enemies, and it all worked well.

The trouble was that Vladimir Putin wasn’t doing this because he wanted to clean up Russia. He was doing this because he wanted to destroy the oligarchs, and he finally had his moment in October of 2003. In October of 2003, he arrested the richest oligarch in Russia, a man named Mikhail Khodorkovsky. He was the owner of an oil company called Yukos. He arrested him off his private jet that landed in Siberia.

He was brought back to Moscow. He was put on trial, and in Russia, when you go on trial, you sit in a cage. And they allowed the television cameras to film Mikhail Khodorkovsky, the richest man in Russia, sitting in a cage. 

Now, imagine you’re the 17th-richest person in Russia, and you see a guy far better, far richer, far more powerful than you sitting in a cage. What’s your natural reaction? You don’t want to sit in that cage yourself. And so, in June of 2004, after Khodorkovsky was found guilty and sentenced to 10 years in prison, these other oligarchs went to Putin one by one and said, “Vladimir, what do we have to do so we don’t sit in a cage?” And Putin said, “It’s real simple. Fifty percent.” 

And this is not 50 percent for the Russian government or 50 percent for the presidential administration of Russia. This was 50 percent for Vladimir Putin. At that moment in time, he became the richest man in the world. And I was carrying on with all of my naming and shaming campaigns, but I wasn’t naming and shaming his enemies anymore. I was naming and shaming his own personal financial interests. And in November of 2005, as I was flying back into the country, I was stopped at the border. I was detained for 15 hours, and then I was deported and declared a threat to national security.

Kate: Yikes.

Luigi: So, this story is quite shocking, but it’s also exemplary, from the euphoria of the late ’90s. Now we are in the fear of the 2010s. This period we’re celebrating the 30th anniversary of the fall of the Berlin Wall, and when that happened, there was a lot of inspiration, a lot of hope that we’re going to build a democracy in Eastern Europe, but particularly in Russia. 

So, in your view, what mistakes did we make as Western nations to cause what we see is now developing in Russia?

Bill Browder: Well, I would argue that most of the problem of what happened in Russia has nothing to do with the West. It has to do with the decisions that were made in Russia. Though in the West, we had a little bit to do with some of those decisions, but the original sin and the thing that has created this whole problem was the decision which was made by the Russian government, with the support of a team of economists from Harvard, to do what they called mass privatization. 

The theory was, in order to go from communism to capitalism, Russia wanted to create capitalists, and the way in which they wanted to create capitalists was to give everybody all the state property for free. While that may sound good in theory, in practice what happened was they gave all the state property away, but they didn’t give it away to the people of Russia. They gave it away to 22 oligarchs, and those 22 oligarchs then lived like kings in ways that nobody could even imagine.

There were yachts and planes and villas all over the world and money was burning up. They were having champagne wars in the South of France, $500 a bottle, and at the same time the average Russian, and every Russian, pretty much, was living in destitute poverty. And so, by creating these oligarchs, they created a base of anger, which was palpable, and that base of anger eventually was the base of anger that brought Putin to power. 

Putin was brought into power to “restore order,” to strip the oligarchs of their power, to bring the power back to the state. But instead of Putin doing that, Putin just took the whole concept, and instead of having 22 oligarchs, he created a state where he was the oligarch, and everyone else continued to live in destitute poverty. But instead of running it as sort of a chaotic criminal state, which was how it was run under Yeltsin, Putin centralized all the power, and it became a criminal state where he was the crime boss, and in fact, that made things immensely worse for the average Russian.

Kate: But I thought the original impetus for the privatization program was this idea that markets lead to efficiency, they’re better at determining prices and wages than, say, a centralized government, and that laissez-faire is actually good for an economy. So, how did this then lead to this oligarch system so quickly?

Bill Browder: Well, all those things sound good when we’re discussing them inside the University of Chicago or Georgetown University—

Kate: Oh, burn.

Bill Browder: These are all great concepts, but the way I would describe it is, it was kind of like building a house, a beautiful house. It all looked really good from the outside, and the mass privatization, and everyone owning things, and efficiency, and so on. 

But the problem with this house was when they built it, they forgot to put in the plumbing and electricity. And in this case, the plumbing and electricity were rule of law and property rights. And so Russia did all this without having a proper system to adjudicate conflicts, to enforce the law, to make sure that people were entitled to what they agreed to, and so on and so forth. And so, as a result, it became the law of the jungle, and you had these 22 individuals, some of whom who were ready to kill in order to become rich, and the people that they killed quit wouldn’t stand in their way and everyone else was afraid of being killed, and so you ended up in a situation where courts didn’t work, the police didn’t work, governments didn’t regulate.

And so, in theory, all this could have worked if they had done it in the proper stages. And the proper stages would have been, first, to create an independent court system; second, create a regulatory framework and regulators that were honest and ready to regulate; and, third, have some kind of culture of independent property. But they didn’t do any of that, and so they just let a free-for-all happen, and the free-for-all without rules ended up in a situation where policemen were working for the oligarchs, arresting their enemies. Nurses had to prostitute themselves to support their families. Art museums were selling art off the walls to keep the place heated. Professors were driving around as taxi drivers. And that was the Russia that was created by these 22 oligarchs and by this system of chaos.

Luigi: Let me disagree on these lightly here. It’s not that they didn’t think about creating the rule of law. They hired Bernie Black, at the time he was at Columbia, to write the Russian court as actually, almost verbatim, the Delaware court. So, the law on the book was as beautiful as it can get. 

There was a little detail that they forgot, that the structure of ownership impacts enforcement. It’s only in a more equal society that you can have a real rule of law. When you have somebody extremely rich, it’s very difficult to have independent courts. In the United States in the 1910s and ’20s, we invented regulation, in part because the courts were completely bought and paid for, or influenced by, the rich oligarchs of the United States.

Bill Browder: You’re absolutely right. I mean, if you look at the law books, they don’t look bad. But it’s the enforcement of the laws that’s a real disaster. I think the real problem comes down to the courts, and it comes down to the fact that the judges weren’t independent, and judges felt at risk. And maybe there was no way that this could have ever worked in reality, because nothing worked as it was intended to work, that everything was corrupt. 

Whatever the reason, by giving it all away, you ended up in a situation where a few people got very rich and everyone else was poor, and when you have the type of disparity of wealth that you have in Russia, that creates a toxic formula.

Kate: Yeah, I would add another addendum to that as well. They seem to have gotten the disclosure part pretty wrong, or at least there weren’t enough practices in place to force companies to disclose who the beneficial or the majority shareholders were. 

My understanding is that in the ’90s there was some effort to catch up with corporate governance rules, to let minority shareholders overrule votes that they didn’t like. For example, if the majority shareholders got dividends that the minority shareholders didn’t approve of, they would be able to sue. But the burden of proof was on them to show that this happened, and if there was no disclosure about who the majority shareholders were, then they didn’t know who they were suing. And this whole issue of the opaqueness of ownership seems to be what really held up a lot of the enforcement issues.

Bill Browder: Well, we were exactly in those situations, where the majority shareholder was squeezing out and doing terrible things to the minority shareholders, but we always knew who the majority shareholders were. The issue was, and we went to court many, many times, and we always lost in court, because the court would always rule in favor of the person who was paying the bribe, and we didn’t pay the bribes.

Luigi: At this point, what can we do as a Western nation to minimize this cancer?

Bill Browder: Well, the first thing I would say is that as Westerners, we shouldn’t be investing in Russian companies. It’s not investible. The lack of information, the lack of transparency, the lack of property rights, make it a situation where normal financial analysis of companies doesn’t apply, because it doesn’t matter whether these companies grow, or shrink, or the markets are good or bad. If you have no idea if you’re going to get the economic benefits of the company because it’s going to be stolen from you, you shouldn’t have anything to do with it, and so I would say, first and foremost, we shouldn’t invest. 

And particularly, public pension funds and college endowments, and people with responsibilities like that should absolutely not invest. And, ultimately, if there is no capital flowing to these companies, at some point they either have to say they don’t need the capital, or if they need the capital, then they have to improve. But with the current situation, where capital to some extent still flows, there’s no incentive for them in any way to fix these problems.

Luigi: One other thing that I take from the Russian story is, to some extent, how dangerous it is to have the wrong economic theories applied to policymaking. When the Western economists went to Russia to try to fix it, I think they had the best intentions, but they were driven by a view that institutions are given, and then the only thing you have to do is fix the incentives for managers to work hard. And so, if you concentrate more ownership, then you have more incentives and the company will be more valuable, and completely missing the macroeconomic impact of what an ownership structure creates from the point of view of institutional enforcement, political decisions, and so on and so forth. 

By ignoring that, they contributed to the deterioration of the situation. In Russia, of course, it is not the only reason, but I think that if they had had a broader view of the institutions, I think that maybe we would not be in this situation today.

Bill Browder: Well, I think you’re giving way too much credit to your academic peers in this whole thing. I mean, the Russians used this as a fig leaf for their own intentions. It was a cooked-up plot from the very beginning with a bunch of guys who wanted to steal the assets of the state, and it’s great to have a little veneer of endorsement from famous academics who come in and write some laws and talk about some theories, et cetera, but at the end of the day, we can neither be blamed for it nor take responsibility for it. 

This was the Russians’ fault. They created this mess for themselves. They did nothing at any step of the way to try to fix this mess, and while they might have used some of these theories as justification, it’s their fault. It’s the fault of Vladimir Putin, and it’s the fault of people around him, that they benefit so much from this thing, that the last thing they want to do is create any kind of normalcy which would allow the system to work.

Kate: OK. So far, we’ve talked about the Russian oligarchs, but do you see any similarities in the United States?

Bill Browder: The difference between the United States and Russia is that in the United States you have rich people, and then you have different people who have political power, and it’s pretty much one or the other. I mean, I guess Mayor Bloomberg has just announced his candidacy, and so he would be both. I’ve never believed that Donald Trump was worth $10 billion or even $2 billion. I think that he’s just a showman, and so not really an oligarch. But in Russia, you can’t have political power without wealth and you can’t have wealth without political power, and that’s the big difference.

In America, we’re seeing a lot of challenges to the system right now, but the institutions, the individuals are still, for the most part, not greater than the institutions. And a rich person who tries to overcome the institutions generally finds the institutions are stronger here, and that’s what makes America, so far, a strong, functioning place where the system works.

Luigi: I feel you’ve lived a bit too long abroad, because I think America is drifting in that situation. Part of the reason why Mayor Bloomberg decided to run is because many of the billionaires are afraid of Elizabeth Warren. They started looking at the proposal of the wealth tax, and they’re saying how much it costs me, and I don’t think it’s past them to say, we need to do something to stop her.

Bill Browder: Well, that might be a reason. I could also imagine that Bloomberg might be running to say that if Elizabeth Warren was the nominee, she would lose to Trump. The main selling proposition that the Republican Party continues to have is that we don’t want to be a socialist country, and so, I mean, we could argue there’s a . . . the moment you get into politics, every argument is a good argument, and there’s no way to disprove one versus the other. But I think that, of course, people also look after their own interests, but America tends to be a country or always has been a country of aspirational people, of people saying, “If I succeed in business, I don’t want someone to take it away from me, even if I’m poor, and so I’ll vote for the guy who is a good business president.” And so, I think that there’s a lot of different ways to skin this cat, but I don’t think that the oligarchy is as powerful here by any means as they are in a place like Russia.

Luigi: Of course, it’s not as powerful. I don’t want to go to that extreme, but I think that we’re drifting slowly in a bad direction. When your grandfather was running for president against Roosevelt, there was another guy who tried to run for president but was shot. It was Huey Long. He looked very much like Donald Trump on the left, it was very much like Donald Trump. In part he was getting his support by saying, we want to tax the rich people. We want to go after Standard Oil. We want to redistribute wealth, and he was very popular. It’s not past me that he was not killed by accident. 

So, I think that when there is extreme inequality, I think the temptation of redistribution through the democratic process is present, and if you are on the rich side, what do you do? You’re going to try to capture the process so that this doesn’t happen, and then it becomes a vicious circle in which you need to defend yourself as a rich person by controlling power, but that defense creates more resentment that will lead to more temptation to expropriation, and you don’t get out of that very easily.

Bill Browder: Well, I mean this is exactly what’s happened in many Latin American countries, where they go from hardcore corrupt capitalism to socialism, and back and forth, and populism, and ending up having crisis after crisis after crisis. 

And why did fascism happen in Europe in the 1930s? It was because there was a huge economic crisis, which led to hyperinflation, and so on and so forth, which led to the Nazi Party and various other terrible things.

And one could argue that the reason why we have a lot of populism in the world right now is because of the global financial crisis in 2008 and the fact that a lot of people ended up being economically worse off, and disparity of wealth, and so on and so forth. 

And surely, if you have a system where all rich people are going to benefit and a big part of the population gets worse off, and you live in a democratic country, then the pendulum’s going to swing the other way. And perhaps that’s why Elizabeth Warren is popular right now, but I don’t believe that American oligarchs have that much influence over the process. I think they do to a certain extent, but this still is a democracy here.

Kate: I think I have a slightly more cynical view, which is that American oligarchs or billionaires have just figured out a way to run the system from behind the scenes, making it seem like they don’t run the system. I think the Koch brothers are a good example of this, so just because they’re not as prevalent or as obvious political figures as they might be in other countries, I don’t think that’s a sign that they’re not running things.

Bill Browder: Yeah, but George Soros and Tom Steyer and various others are on the other side of this thing. I mean, it’s people with money arguing all sorts of different things from different corners. I think that it’s easy to create conspiracies and to talk about these evil people behind the scenes, but this is a very robust place.

Kate: Right. I think that that supports my point, though, which is that, OK, there might be people on different sides of the political spectrum running things, but they’re still running things. I mean, maybe what’s better about the system here is that our oligarchs are more . . . they have more diverse opinions, and so they’re not all working in unison to entrench themselves.

Bill Browder: There’s a fractious democracy among oligarchs here.

Kate: Yeah, maybe that’s how our system works.

Luigi: Yeah, but I think that much of the disagreement is on abortion rights or gay rights, so things that don’t have a huge amount of economic impact. When it comes to the particular exemption of the carried interest in private equity, this is not something that excites people, but it’s still there on the books and has been there for 20 years, and that favors just one particular group of people. I think that when it comes to economic interests, I think that there is pretty much a consensus on certain things.

Bill Browder: Well, I mean, it’s kind of irrational why private-equity fund managers would pay much lower taxes than average wage earners, and that’s something that probably would get ironed out in some administration at some point in the future. 

Just to give you an example, I’ve been living in London for 30 years, and they had a special rule called the non-domiciled rule, and the non-domiciled rule said that if you’re a foreigner and you live in the country, you don’t have to pay the same tax as regular British people pay. And the Conservative government basically took a chopping block to the non-domiciled rule, just because it seemed to be unfair by the average person. It wasn’t the Labor government, it was the Conservative government that did that, and so the carried-interest rule could easily be gotten rid of by a Republican administration in the right circumstances. I don’t think that it’s as corrupt and as terrible as what a person who’s not benefiting from the carried-interest rule might think.

Luigi: I think this is the difference between the British democracy and the American democracy, the fact that this rule has not been changed for, what, 25 years under Republican and Democratic administrations. The fact that many times it was promised to be removed, including by Donald Trump, but then when they run the country, they don’t do it.

Bill Browder: Well, I think what you’re describing is the quicksand and molasses of the legislative process. I mean, I’ve been through the legislative process to get the Magnitsky Law passed between 2010 and 2012, and this was probably one of the easiest things to argue, of all things, which is, should we or should we not allow Russian torturers and murderers coming into America? And this is one where very few people were arguing against it. But even with that, it still took us two years and a lot of fumbling, and it was only because the planets lined up perfectly that we were able to get the law passed.

Luigi: Yeah. I’d like to talk about that, in particular, I’d like to talk about how you succeeded in passing this, because I know that you’re very effective. I saw you in action in Russia. You’re very effective, but you have a relatively small operation, and you succeeded in passing a form of the Magnitsky Act in many countries in the world. How many?

Bill Browder: Six countries so far.

Luigi: Wow.

Kate: That’s impressive.

Bill Browder: We got the Magnitsky Act in Canada . . . first in the United States and then in Canada, Great Britain, Estonia, Latvia, and Lithuania.

Kate: Can you tell us a little about the origins of this act and what you’ve been doing in order to get it passed?

Bill Browder: So, the Magnitsky Act is named after my Russian lawyer, Sergei Magnitsky. Sergei Magnitsky was murdered in Russian police custody in November of 2009 after uncovering a massive government corruption scheme, in which government officials stole $230 million of taxes that my firm paid to the Russian government from the Russian government. He exposed it, he was arrested, and he was tortured for 358 days and he was killed. And I’ve made it my life’s work for the last 10 years to go after the people who killed him and make sure they face justice. 

I tried originally to get justice in Russia, but Vladimir Putin circled the wagons and exonerated every person involved, gave a bunch of them state honors and promotions, and so I had to look outside of Russia where I could get justice. I said to myself, the people who killed him, killed him for $230 million, and they don’t keep that money in Russia, they keep it in the West.

I went to Washington after Sergei was murdered, and I told the story of Sergei and what they did to him to a Democratic senator from Maryland named Benjamin Carden and a Republican senator from Arizona, John McCain, and I said, “Can we freeze their assets and ban their visas?” And they said, “Yes, we can,” and that became known as the Magnitsky Act. 

At first, it started out just as a piece of legislation for Sergei Magnitsky, but as soon as it was launched, other victims started coming forward from Russia and saying, “My God, you found the Achilles heel of the Putin regime. This is what they care about, their money abroad. Can you possibly sanction the people who killed my husband, my brother, my sister, my aunt?” And they added 65 words to the law, which would sanction all Russian human-rights abusers. And in a world where everybody disagrees on everything, and we’ve just talked about how impossible it is to get stuff done in Washington, there wasn’t a pro-Russian-torturer and murderer lobby in Washington.

Luigi: But tell us precisely why they’re so effective against these oligarchs.

Bill Browder: Well, this is what makes it so interesting, is that the Magnitsky Act has been globalized. It doesn’t just apply to Russians anymore. It applies to Chinese, and Venezuelans, and anywhere people are doing bad stuff, and so if you’re one of these bad people doing bad things, and the United States government wants to sanction you, and they’ve sanctioned now, I think, 150 people, you get put on something called the OFAC sanctions list. 

When you get put on the OFAC sanctions list, every bank in the world subscribes to a database which has all the sanctions list people. And the moment that you get added to the sanctions list, every bank in the world closes your account. Why do they close your account? It doesn’t even matter if it’s an American bank or a Chilean bank or a Dubai bank or a Korean bank, the moment that you get put on a sanctions list, that bank doesn’t want to be in trouble with the US Treasury, and they get in big trouble.

If they do business for somebody on the sanctions list, they get fined by the Treasury three times the amount of business. And so, let’s say that you have $1 million in a bank account in Europe, and you’re a sanctioned individual, and your bank moves that money to another bank account. Let’s say it’s going from a Swiss bank to a Russian bank. If the Treasury finds out, they fine the bank $3 million, and what does the bank make off that wire transfer? $150. And so, the moment you’re on the sanctions list, you become a financial non-person in the world, a financial leper, a financial pariah, and you can’t do business anywhere, and it ruins the business of any person on the sanctions list, and so everybody hates it more than anything.

Kate: What about banks like in the Seychelles or the Cayman Islands or Panama? Aren’t there ways for them to shield your assets without having to report to the US government?

Bill Browder: No. It doesn’t matter where the bank is. Every bank of the world, in order to be a bank, has to transact in US dollars. And so, if you’re a bank in the Seychelles, and let’s say that you’ve moved $1 billion to a bank from the Seychelles to the BVI on behalf of a sanctioned individual, and the US Treasury finds out about that, which they will find out about, because all wire transfers in dollars go through the US Fedwire system for a second, and so there’s a record of it. When they find out about it, they’re going to charge the Seychelles bank $3 billion.

And then the Seychelles bank, in theory, could say, “Well, we’re in the Seychelles. You have no jurisdiction over us. We’re not going to pay the $3 billion,” and then the US government says, “OK, fair enough. You’re now banned from using US dollars,” and all of a sudden, that bank in the Seychelles is not a bank anymore, because there’s no such thing as a bank that can’t move dollars, and that’s why nobody wants to defy the US Treasury.

Kate: Pretty cool.

Bill Browder: It’s devastating. This is the new technology for going after bad guys, and you can’t imagine . . . and it’s not just the people who are sanctioned, it’s actually much better for the people aren’t sanctioned. There are 150 people, roughly, who are sanctioned right now on either the global or Russian Magnitsky list, but the number of people who are absolutely living in terror right now about possibly being sanctioned is in the tens of thousands. The worst people on the planet are all absolutely terrified that they’re going to get caught and sanctioned by the US government, and some of these people may say to themselves, “I’m not sure if Putin is going to last that long, and do I want to be a financial non-person for the rest of my life to do Putin’s bidding for the next three years or next five years,” or whatever they handicap his political survival at, and some people may say, “You know what, I’m just going to call in sick that day when I’m asked to go and torture that guy.”

Luigi: So, why do we not sanction Putin? He’s the richest man on Earth. So, why is he not on the Magnitsky list?

Bill Browder: Well, I’ll tell you something. Vladimir Putin is absolutely terrified that one day he will be on the Magnitsky list, and he’s also terrified because Putin doesn’t hold his own wealth. His wealth is not held by him. He has trustees or other oligarchs who hold his wealth for him, and there’s open season to sanction them. And so Putin, who is a guy who has so little respect for human life, who values money more than anything, and all of a sudden, his offshore fortune is put at risk. One way or the other, he’s affected by this, and he made it his single largest foreign-policy priority to repeal the Magnitsky Act because of his absolute fear of what could happen to his money.

Luigi: So, is there lobbying in the United States to repeal it?

Bill Browder: There’s intense lobbying. If you remember, there was a famous meeting in which a Russian lawyer named Natalia Veselnitskaya went to Trump Tower on June 9, 2016, and she went to meet with Donald Trump, Jr., Jared Kushner, and Paul Manafort, and she went with a specific request on behalf of Vladimir Putin to repeal the Magnitsky Act. They’ve spent millions of dollars on anti-Magnitsky campaigning in Washington. 

They even had the one Putin-loving member of Congress. He’s no longer there. His name is Dana Rohrabacher. He was a Republican Congressman from Orange County who tried to take Sergei Magnitsky’s name off of the global Magnitsky Act, and was doing various things to try to disrupt and persuade people to repeal the Magnitsky Act. It’s really unrepealable, and it’s not going to happen.

Kate: It was nice to meet you, Bill.

Bill Browder: Nice to meet you, too. Good talking to you.

Kate: Thanks for being on the show.

Bill Browder: It’s all very interesting and different than what I normally do. So, it’s good, because there’s been a lot of podcasts where I say the same thing over and over again.

Luigi: I know, I know. We try to be a little bit different.