Democracy Dilemma: Business Leadership in an Era of Rising Autocracies

Introduction and Background

• The event is sponsored by the Corporations and Society Initiative (CASSIE), which is a collaboration of faculty, students, and staff that focuses on institutions in the private sector and government, and how power is distributed and rules are made and enforced (35s).
• CASSIE is about six years old and is powered by student leaders, including Rachel H, who is moderating the event and is a lead on this initiative (1m11s).
• The event features Bill Browder, who is the CEO of Hermitage Capital and the founder and head of the Global Magnitsky Justice Campaign (2m54s).
• Bill Browder is a distinguished person, having been awarded the title of Sir and the KN Commander of the Most Distinguished Order of St Michaels and St George for his service (2m28s).
• He is also the author of two books, "Red Notice" (2015) and "Freezing Order" (2022), and has been a prominent figure in exposing corruption in Russia (3m3s).
• Browder was declared an enemy of the people in Russia in 2005 due to his exposure of corruption in state-owned companies, and his lawyer, Sergei Magnitsky, was jailed, tortured, and died in prison in 2008 after exposing a massive fraud (3m33s).
• Browder has devoted his energy to seeking justice for Magnitsky's death and has been instrumental in creating laws that punish human rights violators, including the 2012 Magnitsky Act in the United States and the 2016 Global Magnitsky Act (4m43s).
• The introduction highlights the guest, Bill, who has written a book about laws in different countries, corruption, politics, and propaganda, and is passionate about justice and the system, which resonates with the host, a finance professor who has also taken a different career path (5m30s).
• A new series called "Power to Truth" is being started, and an interview with Bill will be recorded, with potential for further collaboration (6m18s).
• The event is the first of the year, and there will be 15 minutes for open Q&A at the end, with questions submitted via the chat for those joining via Zoom (6m56s).
• Bill is thanked for joining the event, which coincides with his 35th reunion from the GSB, and is congratulated on his accomplishments (7m21s).

Family History and Early Life

• Bill's background is discussed, including his unusual family, with his grandfather being a labor union organizer who was invited to Moscow by the Soviets and became the head of the American Communist Party (7m54s).
• Bill's father was born in Moscow, ran for president against Roosevelt in 1936 and 1940 on the Communist ticket, was imprisoned, and later expelled from the Communist Party for being too capitalist (8m30s).
• Bill was born in 1964 and rebelled against his family's communist legacy during his teenage years, trying to find a way to differentiate himself (9m6s).

Stanford Business School and Career Epiphany

• The individual attended Stanford Business School, enrolling in 1987 and graduating in 1989, a year that marked the fall of the Berlin Wall (9m52s).
• During their time at business school, they struggled to find a career path that resonated with them, attending various information sessions and recruiting dinners, but nothing seemed to excite them (10m28s).
• The individual had an epiphany, deciding to become the biggest capitalist in Eastern Europe, given their grandfather's communist background and the fall of the Berlin Wall (10m48s).

Solomon Brothers and the Russian Privatization Program

• They moved to London and worked at Solomon Brothers, a job that defined their life and career, specifically on the East European Investment Banking team (11m4s).
• Their first assignment was to advise a fishing fleet in Russia, where they discovered the fleet had 100 ships, each costing $20 million, with a total value of $2 billion (12m30s).
• The individual was tasked with advising the management on whether to exercise their right to buy 51% of the company under the Russian privatization program, with the government selling 51% for $25 million (13m3s).
• A business opportunity in Russia involved buying 51% of a fishing company for $2.5 million, which was considered a good deal, and this led to further exploration of investment opportunities in Russia (13m13s).
• After discovering this opportunity, a trip to Moscow was made to determine if this was an anomaly or a more widespread phenomenon, and upon arrival, a thin English-language Yellow Page directory was purchased to find potential contacts (13m34s).
• Cold calls were made to 40 potential contacts over seven days, and by the end of the meetings, it was discovered that the Russian privatization program was a compelling investment opportunity (14m12s).
• The Russian government made a political decision to transition from communism to capitalism and implemented a voucher system, giving every person in the country a voucher that could be bought, sold, or traded (14m47s).
• The vouchers were exchangeable for 30% of the share capital of all Russian companies, and the market cap of Russia in 1992 was $10 billion, which was considered extremely low given the country's natural resources and industries (15m26s).
• The realization that the entire country of Russia could be bought for $10 billion, less than the value of a medium-sized oil company in Oklahoma, led to the decision to invest heavily in this opportunity (15m57s).
• The individual's entrepreneurial spirit was sparked by a discovery of an investment opportunity in Russian equities while working at Solomon Brothers (17m26s).
• They rushed back to the London office to share the idea, but it was met with skepticism, and the person they spoke to "switched off" before they could explain the math behind the opportunity (18m5s).
• The individual lacks strong organizational and political skills, which made it difficult for them to convince others within the company to invest in Russian equities (18m12s).
• After being rejected by multiple people, the individual's credibility within the organization was damaged, and they were seen as the "crazy guy" who wanted to invest in Russian equities (18m30s).
• Solomon Brothers had a simple deal: employees had to earn five times their salary for the firm or face being fired, and the individual was not meeting this requirement (18m42s).
• The individual was on the verge of being fired due to their lack of earnings and their persistent advocacy for investing in Russian equities, which was seen as a radical idea at the time (19m1s).

Investment Success and Rise in Finance

• Just as the individual was feeling hopeless, a senior partner from the New York office of Solomon Brothers called, expressing interest in hearing their thoughts on Russia, and invited them to come to New York to explain their idea (19m27s).
• The individual saw this as an opportunity to save their career and prepared a detailed PowerPoint presentation to showcase the potential of investing in Russian equities (19m38s).
• A person had a crucial meeting with a high-ranking individual at Solomon Brothers to present an investment opportunity, which they had thoroughly rehearsed, but the meeting initially seemed to go poorly as the individual showed no feedback or interest, leaving the room for 45 minutes without explanation (19m49s).
• However, the individual eventually returned and revealed that they had secured $25 million for the investment, which was a significant turning point in the person's career (21m4s).
• The person invested the money and the investment proved highly successful, with the portfolio growing from $25 million to $125 million over three weeks, largely due to an article in The Economist magazine that sparked interest in Russian equities among other investors (21m25s).
• The success of the investment attracted attention from other investors, including prominent figures such as George Soros and John Templeton, who sought to learn from the person's strategy (22m51s).
• The person's experience took place in a highly competitive and often rude environment at Solomon Brothers, where people were frequently disrespectful to one another (22m25s).
• A world tour was conducted to present an investment opportunity to people from Wall Street, who were impressed and offered to invest, leading to the consideration of managing money for them in Russia (23m3s).
• The head of the trading floor in London thought it was a brilliant idea and formed a task force to study it, which led to a meeting with 45 people, including high-ranking officials, to discuss the opportunity (23m24s).
• A fight broke out during the meeting over who would get the economic credit for the business, with various divisions arguing for control, and it was clear that the associate would not receive any economic credit (24m4s).
• This experience led to the decision to become an entrepreneur, as the associate was frustrated with the dysfunctional institution and knew people who wanted to invest with them directly (24m35s).
• The associate took a leap and started a hedge fund, with Edmund Safra, the owner of Republic National Bank of New York, providing the initial $25 million investment (24m59s).
• The fund started with $25 million and grew to $1 billion in assets under management in 18 months, with an 835% return, making it the best-performing fund in the world in 1997 (25m18s).
• The transition from working at Solomon Brothers to running a successful fund was meteoric, with people begging to invest, and it was an unprepared and crazy experience (25m59s).
• At 31 years old, Bill Browder was a successful fund manager, featured on the front page of the Financial Times and the New York Times, and toasted by clients on their yachts in the south of France (26m24s).

The 1998 Russian Financial Crisis and Transition to Activism

• However, in 1998, the Russian government defaulted on their bonds, devalued their currency by 75%, and Browder's billion-dollar portfolio went down 90%, resulting in a loss of $900 million of his clients' money (27m9s).
• Looking back, Browder would advise his 25-year-old self to stay in California instead of going to Russia (27m35s).
• After the 1998 crash, Russian oligarchs began to misbehave and steal from companies, as there was no real legal incentive against misbehavior in Russia (28m47s).
• Browder, who had lost most of his portfolio, became an anti-corruption activist to prevent the oligarchs from stealing his remaining $100 million (29m41s).
• He researched how the oligarchs were stealing and began to take action to prevent it, which eventually led to his work on the Magnitsky Act (29m51s).

Exposing Corruption and Putin's Rise

• A team of analysts, mostly Russians, worked together to expose corruption and share their research with major newspapers such as the Financial Times, The Wall Street Journal, and the New York Times, which led to the publication of stories that could have had no effect, but in this case, had significant consequences (29m54s).
• Around the time Vladimir Putin came to power, he was facing a problem where the oligarchs had informally taken away the powers of the presidency, and he wanted to bring the power back to the presidency (30m28s).
• The team's exposure of corruption was inadvertently helping Putin, as they were targeting his enemies, and every time they publicized a scandal, Putin would step in to stop the scams, which led to an increase in share prices (31m5s).
• The team's efforts led to a significant increase in their company's value, from $100 million to $4.5 billion, and they were making money for their clients and themselves, while also making Russia a better place, or so it seemed (31m45s).
• However, it turned out that Putin's motivations were not to make Russia a better place, but to win his war with the oligarchs, which he did by arresting the richest oligarch in Russia, Mikhail Khodorkovsky, and putting him on trial (32m9s).
• Khodorkovsky's arrest and trial sent a message to the other oligarchs that they could also go to jail, and they went to Putin to ask what they needed to do to avoid jail, to which Putin replied that they needed to give him 50%, which marked the moment when Putin became the richest man in the world (33m5s).

Targeting Corruption and Facing Reprisals

• A business leader's interests diverged from a key figure in 1993, leading to a naming and shaming campaign targeting the figure's 50% economic interest, which began in 1995 (33m13s).
• In November 2005, the business leader was arrested at the Moscow border, detained overnight, and then deported to London, where they were declared a threat to National Security (33m25s).
• Following the deportation, the business leader evacuated their staff, liquidated their entire portfolio in Russia, and retrieved their money, believing that was the end of the story (33m44s).

The Magnitsky Affair and the Fight for Justice

• However, the business leader's offices were raided, and the police seized documents, leading to the fraudulent reregistration of their investment holding companies into the name of a man convicted of manslaughter (33m55s).
• The business leader hired Sergey Magnitsky, a 37-year-old lawyer, to investigate and stop the sinister activities, which led to the discovery of a plot to steal the business leader's money and a $230 million tax refund scam (34m44s).
• Sergey Magnitsky found that the people who stole the companies went back to the tax authorities in 2007, claiming a mistake in the previous year's tax filing, and applied for a $230 million tax refund, which was approved and paid out two days before Christmas (35m32s).
• The business leader and Sergey Magnitsky wrote criminal complaints to every law enforcement agency in Russia and went to the media to expose the scandal, believing it was a rogue operation that stole the Russian government's money (36m32s).
• Sergey Magnitsky testified against Russian officials involved in the Russian State investigative committee, but instead of action being taken, he was arrested and put in pre-trial detention five weeks later (36m50s).
• While in detention, Magnitsky was subjected to torture, including sleep deprivation, being placed in cells with no heat or toilet, and being moved from cell to cell in the middle of the night, in an attempt to get him to withdraw his testimony and sign a false confession (37m7s).
• Despite the physical and mental pain, Magnitsky refused to perjure himself, and as a result, the torture and pressure intensified, leading to his health deteriorating significantly (37m46s).
• Magnitsky developed pancreatitis and gallstones, and was scheduled for an operation, but was instead moved to a maximum-security prison with no medical facilities, where his health completely broke down (38m12s).
• Magnitsky's lawyers desperately begged for medical attention, but their requests were ignored or denied, and he eventually died on the night of November 16th, 2009, after being beaten by riot guards with rubber batons (38m48s).
• The event led to a vow to seek justice for Magnitsky's death, resulting in the creation of the Magnitsky Act, which freezes the assets and bans the travel of individuals who commit human rights abuses, including those responsible for Magnitsky's death (39m30s).
• The Magnitsky Act was passed in the United States in 2012, prompting a strong reaction from Putin, who banned the adoption of Russian orphans by American families (40m1s).
• The Magnitsky Act was made a top foreign policy priority to be repealed by certain individuals in retaliation, leading to various threats and lawsuits against the person who advocated for the act (40m15s).
• Despite the threats, Congressional allies were more energized to take action, and the Magnitsky Act has now been implemented in 35 countries worldwide, sanctioning Russian oligarchs and officials involved in the invasion of Ukraine, as well as being applied to other countries like China, Venezuela, and Nicaragua (40m58s).
• The act has been broadened to apply to various "bad guys" around the world, and it is hoped that it serves as a deterrent for those who might be asked to do terrible things (41m26s).

Rule of Law and Investment Risks

• The intermingling of business and democracy, as well as the rule of law, is a significant theme, and it is believed that democracy and the rule of law are undervalued in today's business landscape (41m52s).
• Investing in emerging markets, particularly those without a strong rule of law, such as China, can be unwise, as the lack of rule of law means that investors may not be able to protect their assets or seek recourse in court (42m22s).
• The risk of investing in such markets cannot be accurately calculated, and investors may be left vulnerable to having their assets stolen or frozen (43m28s).
• As a result, some investors choose not to invest in emerging markets or countries without a strong rule of law, prioritizing the protection of their assets and the stability of their investments (42m15s).
• Speculation and investment are distinct concepts, with speculation being fine but not a substitute for investment, which requires components like democracy, rule of law, and media freedom to be viable (43m41s).

Global Backsliding of Democracy and Authoritarianism

• The current geopolitical environment is characterized by a backsliding of democracy, with examples including Hungary's shift towards authoritarianism under Victor Orban, Putin's actions in Ukraine, and the influence of individuals like Nigel Farage (44m11s).
• The spread of authoritarianism, such as Putin's "klepto fascism," poses a threat to global stability and could potentially be exported to other regions if left unchecked (44m45s).

Personal Reflections and Current Activism

• Despite the challenges, there are reasons to be optimistic, including the opportunity to celebrate milestones like a 35th reunion and the presence of family members, such as the speaker's children, who are making positive contributions (45m33s).
• The speaker has taken on a new role as a full-time human rights activist, which has provided a sense of purpose and enabled them to make a more significant impact, despite the risks and challenges associated with this work (46m15s).
• The speaker's mission is driven by a desire to do good and help people, and they feel a sense of excitement and purpose in their daily work, which is focused on promoting human rights and countering authoritarianism (46m41s).

Geopolitical Concerns and Potential Conflicts

• In a hypothetical scenario where Trump is re-elected, the speaker's response is not fully articulated in the provided text, but it is clear that they are concerned about the potential implications of such an event (47m20s).
• Putin has stated his intentions to cut off funding for Ukraine, which would lead to Ukraine running out of military aid and ammunition, ultimately resulting in Russia winning the war and occupying a significant part of Ukraine (47m26s).
• If Russia wins in Ukraine, Putin's next challenge would be to target Estonia, Latvia, and Lithuania, which are not part of Russia and are members of NATO (48m4s).
• This could lead to a situation where the US and other NATO members would have to decide whether to defend Estonia, which has a population of around 1 million people, most of whom are unknown to Americans (48m22s).
• The US president has expressed dislike for NATO and has shown partiality towards Putin, which could influence the decision to defend Estonia (48m46s).
• The outcome could be catastrophic, either with the US going to war with Russia or not defending Estonia, allowing Putin to expand his territory into Estonia, Latvia, Lithuania, and possibly Poland (48m59s).
• China is watching the situation closely, and if the US does not defend Ukraine, China may take Taiwan, which produces most of the world's chips, giving China a stranglehold on the US (49m15s).
• The situation could lead to a significant shift in global power dynamics, with China gaining control over a critical component of the global economy (49m31s).

Trump, Putin, and the Threat to Global Stability

• A friend suggested that the US president's actions, rather than his words, should be watched, offering a glimmer of hope that he may not follow through on his stated intentions (49m55s).
• Domestically and economically, the situation is uncertain, but the US president's meeting with Putin in 2018, where Putin suggested that he might hand over indicted Russian Military Intelligence Officers in exchange for goodwill and reciprocity, raises concerns about the US president's relationship with Putin (50m24s).
• Bill Browder shared a story about a time when he was nearly handed over to Russia by the US, with President Trump initially calling it an "incredible offer," but the Senate ultimately voting 98-0 against it (51m3s).

Reflections on Russian Investments and Politics

• Browder discussed his experience buying vouchers in Russia, stating that he didn't think about the Russians on the other side of the trade, as it was a public market with transparent prices and a level playing field (51m32s).
• He compared buying the vouchers to buying Apple shares when they were trading at $5, saying that he wasn't taking advantage of anyone, but rather participating in a public market (51m41s).
• Browder mentioned that the voucher program in Azerbaijan was different from Russia's, with only one desirable asset, the state oil company, which was initially expected to be included but ultimately wasn't, making the vouchers worthless (52m32s).
• As for Russia's domestic politics, Browder expressed pessimism, stating that Putin is a dictator who will become increasingly desperate and repressive as he tries to stay in power (53m54s).
• He believes that the most likely scenario is that Putin will be able to maintain his power, similar to Kim Jong-un or the Iranian dictatorship, and will still be in power 12 years from now (54m12s).
• Browder also mentioned that Alexei Navalny, a friend of his, was a genuinely popular politician who would have likely won a fair election with 80% of the vote, and that his death extinguished hope for many people in Russia (53m14s).
• Browder does not think that sanctions are an effective tool in this case, although this is not explicitly stated in the text, his overall tone suggests that he is skeptical about the effectiveness of sanctions in bringing about positive change in Russia (53m4s).
• Russia is likely to become more authoritarian in the next 12 years, with the current regime possibly leading to a dictatorship, and the country is already experiencing significant economic and social issues due to the ongoing war with Ukraine and international sanctions (54m25s).

The Impact of War and Sanctions on Russia

• The war has resulted in an estimated 682,000 Russian soldiers killed, and the sanctions have frozen $300 billion of Central Bank Reserves, cut off Russia from international capital markets, and led to high inflation and interest rates (54m45s).
• Russia's economy is overheating, with 20% interest rates and 2% unemployment, as many able-bodied young men have left the country, and 40% of the government budget is spent on the military (55m26s).
• Putin's strategy is to outlast the international community, and he is willing to sacrifice more lives to achieve this goal, which is a challenge for democracies with their own financial issues and budget constraints (55m44s).
• There is a small chance that the situation in Russia could escalate into a coup or a revolution, as seen in the example of Yevgeny Prigozhin, the head of Wagner, who marched towards Rostov and gained popularity among the people before being stopped (56m36s).
• A possible scenario could be a military victory for Ukraine, followed by Putin's discredit and the Russian people turning against him, but the probability of this happening is low (57m13s).

Unraveling Money Laundering and Corruption

• The situation in Russia is complex, and the international community needs to understand the underlying issues, including money laundering, which involves connecting databases and bank accounts to track illicit financial transactions (58m9s).
• The Magnitsky Act was a well-known project to get justice for Sergey Magnitsky, but another effort involved tracking the $230 million that Magnitsky was killed over, and identifying those who received, laundered, or touched that money (58m31s).
• A Securities analyst named Vadim worked on this project for 15 years, following leads from sources like the Panama Papers, the Paradise Papers, the Azeri Laundromat, and the Russian Laundromat, as well as whistleblowers who came forward with documents (59m7s).
• The information gathered was used to file criminal complaints in various countries, which sometimes led to law enforcement authorities opening investigations, particularly in European countries with civil law systems (59m33s).
• In these countries, the complainants gained access to the criminal case files, allowing them to discover new information and file complaints in additional countries, eventually tracing the money to 26 different countries (59m56s).
• Criminal complaints were filed in 26 countries, and 16 countries opened investigations, resulting in around $100 million being frozen or confiscated from those involved (1h0m24s).
• The first major bank discovered to be involved was Danske Bank in Estonia, with $200 million of the $230 million passing through its Estonian branch (1h0m50s).
• A criminal complaint was filed with Danish and Estonian authorities, which led to a Danish investigative journalist team contacting them after receiving a leak of data from Danske Bank (1h1m2s).
• The journalists compared the complaint with their database and found that the actual amount of dirty money laundered through Danske Bank was $8.3 billion, not $200 million (1h1m28s).
• This discovery was significant, given that Denmark is considered the second most honest country in the world, making it difficult for the CEO of Danske Bank to dismiss the findings (1h1m40s).
• A Scandinavian bank, Danske Bank, was found to have laundered $232 billion, significantly higher than the initial estimate of $8.3 billion, after an external investigation was conducted by hiring external accounting, law, and data analysis firms (1h1m51s).
• If similar investigations were conducted on other banks, such as Deutsche Bank, Credit Suisse, UBS, ABN Amro, and others, it is estimated that the total amount of money laundered from Russia could be closer to $1 trillion (1h2m15s).
• This laundered money, stolen by Putin and those around him, could have been spent on public services, hospitals, schools, and roads, but instead was used for personal gain, such as private jets, villas, and yachts (1h2m32s).

Putin's Motivations and the Future of the War

• Putin's motivation for going to war is to maintain power, as he understands that the significant wealth disparity in Russia, where 1,000 people hold all the money and 141 million people live in poverty, is a volatile situation that could lead to unrest (1h2m52s).
• Putin created a foreign enemy and started a war as a means to distract from the internal issues and maintain his power, using a tactic described as "Machiavelli 101" (1h3m14s).
• The war in Ukraine is not about empire or enlargement, but rather about Putin's desire to stay in power and avoid losing his wealth, freedom, and potentially his life (1h3m26s).
• The analysis of Putin's motivations for going to war is shared by those who understand the situation, including Alexei Navalny and Mikhail Khodorkovsky, and suggests that the war will not end quickly or easily (1h3m50s).
• The idea of ending the war through negotiation is considered a fantasy, as Putin needs to be at war to maintain his power and control (1h4m5s).