* Death of anti-corruption lawyer creates intl tensions
* Executives concerned about impact of standoff with U.S.
* Investigations have taken place in 3 European countries
* Swiss and others have been conduits for Russian funds
* Magnitsky case seen adding to negative view of Russia
By Dmitry Zhdannikov and Darya Korsunskaya
DAVOS, Switzerland, Jan 25 It began with the
death of an anti-corruption lawyer in a Moscow jail and grew
into a row between Russia and the United States. Now Russia's
business elite are worried their interests could be harmed by
fallout from the Magnitsky affair.
With international concern spreading after the 2009 death of
Sergei Magnitsky, some Russian tycoons are worried their
legitimate cross-border money transfers involving anything from
industrial investments to luxury properties will get hit by red
And they complain that the Kremlin's hard-line stance on
Magnitsky is not doing them any favours.
"The Russian business (community) is absolutely united. The
situation is more than bad and things may well spread to the EU
and UK and God knows who could be sucked in," said a Russian
billionaire, speaking at the World Economic Forum in Davos.
The billionaire asked not to be named as he said the Russian
business establishment was still afraid of bringing up the
matter with Russian President Vladimir Putin.
Russian business has tried to stay out of politics since the
country's then richest man Mikhail Khodorkovsky was jailed for
tax evasion in the last decade, a move Putin's critics say was
revenge for Khodorkovsky's political ambitions.
Magnitsky died in a Moscow prison while in pre-trial custody
on tax evasion changes.
Authorities said the 37-year-old died of a heart attack, but
his former employer, investment fund Hermitage Capital, says he
was killed because he was investigating a $230 million theft by
mid-ranking interior and tax officials.
The Russian business elite was at first broadly indifferent
to the case, but that changed last year when the United States
introduced its "Magnitsky Act", imposing sanctions on dozens of
Russians, whom Hermitage and its owner Bill Browder accused of
being involved in money laundering and the lawyer's death.
Russia responded by banning the adoption of Russian children
by Americans. And subsequently the fallout from the affair has
Investigations have taken place in three European countries
which are important conduits for fund transfers by Russian
In Lithuania the prosecutor's office said an investigation
into suspected money laundering, based in information from
Hermitage, is continuing having already resulted in the freezing
of several bank accounts, while Estonia's public prosecutor said
local police had investigated the matter though they decided not
to open a criminal case.
And Swiss prosecutors have said they are conducting an
extensive inquiry into money transfers alleged to have been made
by Russian tax officials and others allegedly involved in
Although Russian businessmen say they have nothing to fear
from such investigations, they worry it will become increasingly
difficult to manage global portfolios which have grown in the
past two decades to take in interests ranging from soccer clubs
to French castles.
The biggest concern is that Magnitsky Act-type measures will
"Many more countries will join. We believe the EU will
impose the Magnitsky sanctions before the end of the year,"
Clearly he has an axe to grind, but he says he has heard
more and more complaints from Russian executives that the
Kremlin needed to investigate the case properly to stop tensions
with the United States from spreading and damaging business.
Economist Sergei Guriev said: "Russian business is very
upset. The last development they want is to see the EU or UK
joining those sanctions. Quite simply it is where the Russian
business has huge assets and where their kids are studying."
Russian officials and bankers say the impact on commerce is
becoming far too negative.
"Of course I have concerns about a worsening in
(Russian-U.S.) relations. It creates unease for business. And it
is a question for both sides - what's the point of continuing
all this? I think it is very important to move on," said German
Gref, head of top Russian bank Sberbank.
For many business executives, the Magnitsky affair is
symbolic of broader concerns about operating in Russia.
The case has repeatedly soured Russia's presence at the
Davos economic forum and this year delegation head and Prime
Minister Dmitry Medvedev faced more tough questions focusing on
the lack of reforms in his country.
Before Medvedev gave his opening speech, some 78 percent of
respondents voting in an audience packed with hundreds of
Western executives and politicians agreed that Russia's biggest
problem was weak government and corporate governance.
"The level of trust between Russian and foreign business is
again very low. And it is a very bad sign at a time when Russia
wants to speed up growth. And that is impossible without foreign
investment," said a senior Russian oil executive.
Economists like Guriev note the Russian stock market has
been one of the worst performers among emerging nations over the
past year, despite a stable macro economic environment.
The richest BRIC nation has also seen a continuing high
level of "capital flight", or money fleeing the country because
of domestic uncertainties, some analysts say. A report by
accountants Ernst & Young last month estimated capital flight
out of Russia at $32.3 billion in 2011, while a Reuters poll
showed net capital outflows of $71 billion in 2012.
Kenneth Hersh, CEO at NGP Energy Capital, a U.S.-based
energy fund which has $13 billion under management, says he is
not investing in Russia due to a general perception of a lack of
rule of law and weak regulation.
And he shares concerns that the Magnitsky case is adding to
the general perception of Russia as an unattractive place to do
"I need higher returns to compensate for that risk," Hersh