April 21, 2011, 6:00 PM ET

http://blogs.wsj.com/corruption-currents/2011/04/21/swiss-launch-money-laundering-probe-in-hermitage-fraud-case/?mod=google_news_blog

Switzerland’s prosecutor said Thursday it will launch a money-laundering investigation linked to Credit Suisse Group after a complaint by hedge fund Hermitage Capital made allegations of a huge fraud scandal in Russia.

The scandal involved the alleged theft of hundreds of millions of dollars from Hermitage by Russian police, tax officials and others.

New details of  the alleged theft and use of Credit Suisee accounts  were covered in a blistering story in this week’s edition of Barron’s.

“Due to the need to preserve confidentiality and to ensure the purpose of the investigation, no further details can be given at this stage, and in particular no information can be given in regard of any measures that have been taken or findings that have been made so far,” the Swiss prosecutor said in an emailed statement to the Wall Street Journal.

The original accusations of a massive fraud came from Hermitage attorney Sergei Magnitsky, who died in a Russian prison. He had lodged a complaint saying he uncovered a complicated scheme in which Russian interior ministry officials took over the hedge fund’s local subsidiaries.

Magnitsky had testified to Russian prosecutors in October 2008 and following an interview he did with BusinessWeek magazine, he was arrested and remanded to the very officials he accused in his testimony. For almost a year, according to his complaints to prosecutors and police chiefs, Magnitsky was subjected to increasingly harsh treatment in order to get him to implicate himself and Heritage’s founder for committing the crimes.

After falling gravely ill, he died on Nov. 16, 2009, becoming, in the eyes of many, an internationally recognized martyr for whistleblowing. Last week, one U.S. lawmaker introduced legislation that would impose economic sanctions on officials found responsible for his mistreatment.

Bill Browder, one of the founders of Heritage Capital, which was once the largest foreign investor in Russia, has sought justice for Magnitsky’s death.

“It’s been impossible to get any kind of real criminal investigation in Russia,” Browder said in a phone interview with Bloomberg News. “It’s highly significant that a Western law enforcement agency is taking this seriously and is launching an investigation.”

According to the Barron’s report, which said the scene was widely reported, Hermitage’s Russian offices were raided by Interior Ministry police in June 2007. The police said they were part of an investigation of one of Hermitage’s investors and seized the corporate seals and certificates of Hermitage’s Russian subsidiaries, items that give the holder corporate powers.

Those tokens made it into the hands of a convicted killer named Victor Markelov, who used them to act in the name of Heritage. He filed for a $230 million tax refund in December 2007, which was approved in a single day by  the office of a Russian tax official named Olga G. Stepanova. She was never investigated in the Hermitage case, according to an Interior Ministry spokeswoman, and Stepanova couldn’t be reached by Barron’s.

Part of the refund was wired to newly created accounts at a couple of banks in Moscow, and all of it was gone before February 2008, when Russia began its investigation, according to the Barron’s story. The money is still missing; the Interior Ministry spokeswoman told Barron’s that all of the relevant records were destroyed in a truck explosion in 2008.

Browder showed Barron’s purported records for Cyprus shell companies controlled by Stepanova’s husband. They show that, following approval of the tax refund, two secret accounts at a Zurich branch of Credit Suisse received $10.9 million in deposits.

Stepanova and her husband, as required under Russian law, reported their combined income, which was about $50,000 a year, yet the accounts were the source of funds for several multi-million dollar vacation homes, and they live in a $20 million mansion outside Moscow, according to Barron’s.

After showing the records to Barron’s, Browder filed a money laundering complaint with Credit Suisse and Switzerland’s federal attorney general, and by law the bank froze the accounts as they wait for Swiss authorities to decide what to do next.

Credit Suisse declined to comment directly on the allegations to the Wall Street Journal, saying in an emailed statement it “complies with all applicable laws and regulations including those relating to antimoney laundering, sanctions and antiterrorist financing.”

“Obligations include carrying out due diligence on clients, monitoring transactions and reporting any suspicious activities,” Credit Suisse spokeswoman Sally Rubery said in the statement. “We are confident that we have a sound control framework with the necessary internal policies. Credit Suisse takes allegations against its compliance standards very seriously.”