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Browder Barred as a Security Threat

William Browder, the outspoken CEO of Hermitage Capital Management, Russia's biggest foreign portfolio investor, has been denied entry to Russia under a rule that bars foreigners considered to pose a threat to national security, according to a Foreign Ministry letter obtained by The Moscow Times.

Browder has crusaded against corporate governance abuses, most notably at Gazprom and Surgutneftegaz, and the news that he has been barred since November is stirring up worries in the foreign business community that the state is extending its efforts to silence critics to foreign investors.

"This looks like some kind of retaliation against active shareholders," said Mattias Westman, CEO of Prosperity Capital Management, Russia's second-biggest foreign portfolio investor and a partner with Browder's Hermitage in challenging the murky ownership structure of Kremlin-friendly Surgutneftegaz in court.

"It is an entirely stupid thing to do," Westman said. "We are trying to improve what needs to be improved, especially at state-controlled companies. That's in the interest of both the state and shareholders."

Browder's problems are also prompting bewilderment because he has in recent years become one of the most vocal supporters of President Vladimir Putin's Kremlin. Even as he has fought abuses at individual companies, he has defended in published articles and at major international conferences the crackdown on the oligarchs via the legal assault on Yukos owner Mikhail Khodorkovsky.

When border officials refused Browder entry as he arrived at Sheremetyevo Airport from London on Nov. 13, the decision was initially believed to be a mistake, people involved in the matter said. Browder's visa had been valid until the end of March.

Just two days later, British human rights lawyer Bill Bowring, who had been representing Chechen clients, was also denied entry, prompting speculation that Browder, who tried to enter with a British passport, could have been mistaken for him.

It turned out, however, not to be a mistake. According to a letter dated Jan. 16 from the Foreign Ministry to Hermitage deputy CEO Vadim Kleiner, Browder had been denied entry in accordance with the federal immigration law's Article 27, which bars entry to foreigners considered to be a threat to the security of the state, public order or public health.

Foreign Ministry and Kremlin officials could not be reached for comment Sunday.

Britain's Foreign Office is protesting the decision, with Foreign Secretary Jack Straw recently raising the issue with Foreign Minister Sergei Lavrov, The Associated Press quoted an unidentified British Embassy spokesman as saying Friday, when the news first broke.

"There are a number of senior government officials in Russia who have been working very hard to help us to get this problem resolved," Browder said by telephone Sunday from London, where he has been living for the last four months. "Given the positive impact we've had in Russia in the last decade, it is hard to imagine it wouldn't be fixed."

Browder said that his absence from the Hermitage's Moscow office had not affected operations. "It hasn't created any problems. I'm running the business from London and it works because we have an extremely experienced team in place in Moscow."

The fund is up 43 percent since November, in line with growth on the RTS.

Browder, now 41, left for Russia in 1996 from a Wall Street position at Salomon Smith Barney. The grandson of U.S. communist leader Earl Browder has since been preaching the benefits of capitalism and free markets for Russia. Along the way, his fund has climbed to a value of $4 billion this year. While many other funds went out of business in the August 1998 crash, Browder stayed on to fight for transparency in Russia's biggest blue chips, helping their market cap and the value of his fund's holdings grow in the process.

In 2000, Browder kicked off a campaign to make the restructuring of electricity monopoly Unified Energy Systems more accountable to minority shareholders. With the help of other shareholders, he won. Then in 2003, he battled state-owned savings bank Sberbank over corporate waste and lack of transparency. Sberbank sued him for libel over the publication of his findings, but he won the lawsuit.

His most high-profile target has been state-controlled gas mammoth Gazprom, where he has attacked corporate waste and the misappropriation of billions of dollars in assets in a bid to raise corporate transparency and also win a seat on the board. Even though Gazprom has made steps toward greater corporate accountability, Browder has yet to win a seat.

Browder has made enemies along the way. In 1998, he hired 15 bodyguards after receiving threats of violence.

But he has also won awards for his shareholder rights activism and plaudits from his colleagues.

"Few if any investors have done more to attract money into Russia and to improve corporate governance than Bill. He should be given a medal, not visa problems," said James Fenkner, managing partner at the Red Star Management fund who has worked in Russia for more than a decade.

"The body of Bill's work at Hermitage is practically a unique example of asking the right type of questions and holding the highest kinds of authorities to responsibility ... and indeed is a far too rare example of genuine courage in business in the country," said Bernie Sucher, chairman of Alfa Capital.

"You just have to shake your head in disappointment and amazement" over the decision to bar him, Sucher said.

Most astonishing, colleagues said, was that the measure had been taken against one of the Kremlin's loudest cheerleaders.

"It seems like we can say anything we want and they'll ignore it," said Eric Kraus, chief strategist at Sovlink Securities. "The only time you get into trouble is when you stand between someone and the cash machine."

Kraus said there was growing speculation -- but no proof -- that Browder's standoff with Surgut could have been a reason behind the affair.

Hermitage, together with Prosperity and New York-based Firebird Capital Management, has been fighting a system of ownership at Surgutneftegaz in which management retains control of the company through a complicated system of ownership via Surgut subsidiaries. Browder argues this is a system of treasury shares that undermines the rights of other shareholders.

The Constitutional Court sided with Surgut on the issue in December.

Kraus said the decision to bar Browder did not tally with recent moves to improve Russia's image abroad.

"Putin has made it clear he's interested in solving Russia's image problems. They're spending $70 million on Russia Today," Kraus said, referring to the Kremlin-sponsored satellite channel launched in November. "But this is the best way to destroy it. ... This sends a really bad message that business interests can interfere with agencies that are responsible for immigration."

It was unclear whether Putin was aware of the matter. "If he knew, then there's a cognitive dissonance. On the one hand, they're working very hard to improve Russia's image, and on the other hand they're excluding the person who's most relevant to it," Kraus said.

"Welcome to Russia. Leave your logic at the door," he said.


(The Moscow Times 20.iii.06)

 
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