Charles Davidson: Bill, it’s a pleasure speaking with you again. Last September, we discussed your career, the murder of Sergei Magnitsky and your reaction to it, the creation and passage of the Magnitsky Act, to which you devoted much time and energy.The success of the Magnitsky Act,in asset recovery—I refer to the New York City real estate but I gather much beyond that was recovered—suggests that the Act can work, that it is “battle tested.” You also said that for the average Russian, the primary political issue is corruption, trumping all other issues by an order of magnitude. We speak today as talks are being held in Geneva between Russia, the European Union and the United States regarding the crisis in Ukraine. In this context, I suggest we frame our discussion around the Magnitsky Act and its possible utilities regarding current events, and the issue of corruption, which in many guises led to the Magnitsky Act. Let’s start with Russia, and then we’ll get to Ukraine.

If you were deploying sanctions against Putin and his regime, how would you go about it?I imagine we could use your advice in this regard.

William Browder: Well, if you want to change Putin’s behavior, you have to go after his money, and from many objective reports, he has a lot of it. From what I understand, he keeps most of his money not in his own name, but in the name of what I describe as “oligarch trustees.” These are members of the new Russian oligarchy, not the ones we’ve traditionally heard about. And you need to seize their money, freeze their assets and ban their travel. And thankfully the United States did just that in the second round of sanctions, not to very many, but in the analogy of the game of “battleship” got a direct hit. They finally targeted people close enough to Putin to affect his own economic interests. The only thing that’s upsetting about the sanctions is that there weren’t more people like that targeted—those aren’t the only “oligarch trustees.”

The other group of people who are tremendously wealthy—wealthy beyond our wildest imagination—is Putin’s cabinet. So if I were devising the sanctions, I would target members of Putin’s cabinet, including Putin. Some argue that you need to exclude Putin, Lavrov, and a few others because you want to talk to them. Well, we talked to Iran when we were ready. At the point when these guys want to talk, they’ll talk whether they’re sanctioned or not.

CD: Let’s talk further about the Russian oligarchs. So there are those closest to Putin, his cabinet ministers and such, and then another circle that is less close but tolerated by him, and perhaps another circle that’s on the edge of this toleration. In broad strokes, what does the map of Russian oligarchy look like?

WB: Anybody who is currently wealthy right now in Russia has had to pay tribute to Putin. Putin seems to operate as if he is a mafia boss. And so most oligarchs, both the new ones and the old ones, are economically intertwined with Putin. I would argue that oligarchs are potential targets for a western sanctions regime against Russia. Anybody at the top of the Forbes list in Russia would likely have economic interdependence with Putin, hold assets for Putin, and potentially be leverage in a western approach toward trying to sanction Russia.

CD: If we were to deploy the sort of sanctions you’re suggesting, what sort of countermeasures do you imagine Putin would use to parry their effects?

WB: Putin will retaliate any way he can. When the Magnitsky Act was passed, he sanctioned America by banning adoption of Russian children by American families, no matter how terrible it was for the disabled orphans who had the opportunity to have a better life. As far as America’s concerned, our economic dependence on Russia is extremely low, almost nonexistent. There are a few companies they could cease buying products from, but given the total U.S. GDP and its total exports to Russia, it wouldn’t make much of a difference.

CD: What about the Russian oligarchs’ investment in the United States? Is there much that’s significant there, even Putin’s own money?

WB: I don’t think we’d see any noticeable impact. I think that these people, to the extent that they’re worried about sanctions, have already pulled out their money. I met yesterday with some bankers who described to me how a number of family offices in the UK that look after wealthy Russian families have been aggressively liquidating their assets in the UK. I’m sure the same thing is going on across the world as these people try to figure out where the safe place is. The interesting thing is there’s no safe place. If they bring their money back to Russia, it’s likely Putin will take a bigger share of it, and if they keep their money in the West it could be frozen. So they’re all probably dabbling around in Abu Dhabi, Singapore, and Hong Kong.

CD: If we look now politically within Russia, is there anything we can do in terms of financial measures and sanctions that might turn the oligarchs against Putin?

WB: I think the oligarchs have already turned against Putin in their own heads. To become a Russian oligarch you most likely had to be a nihilistic, amoral person; the legal and moral sacrifices that you’ve had to make to get to that point are something that normal people couldn’t imagine, and the only objective of a Russian oligarch is to make money. And so all of a sudden, before any of them have been sanctioned, Putin has already cost them lots of money. The value of their ownership of Russian companies has declined by probably a quarter or more in dollar terms, just from the initial stages of Putin’s military adventures.

So the oligarchs are saying, “this guy is costing us money,” and Putin is saying, “I wonder which ones of these sons of bitches is about to become disloyal.” Putin is so paranoid that he’s probably already planning to purge parts of the oligarchy before these guys turn on him. I foresee the following chain of events: Putin will go after oligarchs before they have any opportunity to be disloyal to him, and they’re all too scared at this point. The ones he doesn’t go after will try to pull their money out of Russia and reduce Putin’s leverage on them as much as they can, quietly. The Russian Central Bank will look at this and conclude that too much money is leaving the country, and I believe that, in a relatively short period of time, Russia will impose very serious capital controls.

CD: In the United States and Europe, to what extent do we have the will to impose sanctions and follow through? I’m thinking of the supporters of the Magnitsky Act in the legislative branch of the United States—who voted overwhelmingly in favor of the Act—and the Western polity in general.

WB: The current leadership in the United States and Europe consists of people whom I would describe on a foreign policy basis as caretaker leaders. They’ve never had a real foreign policy crisis to deal with, and what we’re seeing now is the caretaking mentality at work. It doesn’t consider the consequences of what Russia’s doing, and purely looks at where are we today: “If we take any action, where might we be tomorrow? That’s going to cost us money, we better not take that action.” And because these people are not looking out three months, or one or two years down the road, they’re not calculating the far higher costs, both potentially military and certainly economic, that we will have to bear as Russia continues to flex its muscles and expand beyond its border. And so I don’t believe that the leaders of Europe and even Obama will take the necessary steps now, because they’re only going to take them when they’re absolutely forced to. And it’s going to become much more expensive for everybody when they are forced to.

CD: And what’s going to force them?

WB: I think that Russia will destabilize Ukraine. I can’t imagine that Ukraine will be able to hold up against this highly resourced, vindictive, and non-law-abiding neighbor, but I think that when Russia starts playing around with the Baltics to see if our NATO commitments are for real, that’s going to be the true testing moment for the West.

CD: I’m going to presume that the corruption in Ukraine is something you might have encountered now and then in your own experience with Russia. From what we can tell, corruption permeates the society from top to bottom. It seems almost more corrupt than Russia in some ways, and poorer. We know that all of the leaders since the 2004 Orange Revolution are reputed to have been massively kleptocratic, with much of the loot stashed and protected in European financial centers of one sort or another. Is there any chance for honest government there as we seek to move in with pretensions to reform the place?

WB: I think there’s a chance of honest government anywhere; it all depends on the person leading the country. I think that Georgia under Saakashvili was a case study in taking a country that was completely kleptocratic and bringing it up to almost normal. One of the reasons Putin hated Saakashvili so much is because he was a role model of how this stuff could work properly. They fired the entire traffic police and replaced them completely because they were all taking bribes. They got rid of almost all of the Soviet institutions. It’s all a question of leadership and a will to turn things around. But the reason Ukraine is in such a mess right now is that twenty years of kleptocracy have effectively eviscerated the country to a point that it’s almost a failed state.

CD: Let’s say that we did get a good leader to emerge on the political scene there. Could that person progress and reform given how incredibly corrupt the whole society appears to be from top to bottom? Wouldn’t an honest person just get destroyed by the pervasiveness of corruption?

WB: I don’t think so. I think it would be a big fight, and it might be a difficult fight. I think the key is the intentions of the leader and having a team around him or her that can implement things. The problem we have had is that people have sought leadership positions in the post-Soviet countries in order to use them for kleptocratic purposes. But if you actually have an honest leader like you did in Georgia, anything is possible.

CD: So you don’t think that the corruption completely permeates Ukrainian culture? You think there’s a cultural basis that would support honest government?

WB: Well, Georgia’s was a very corrupt culture—until it wasn’t. It just took a young man along with a bunch of like-minded people who believed in change and reform. Georgia is now in a mess because Putin has been successful in putting one of his proxies in one place, having spent a lot of money to do so. But Georgia is still in much better shape than it ever was when it was run by Soviet kleptocrats.

CD: This is the most optimism about Ukraine I’ve heard in weeks. If we turn to another aspect of the situation in Ukraine, the history of kleptocratic leadership, do you think the West has any responsibility regarding the protection of looted wealth? Almost all of this wealth is coming into the Western financial system in one way or another, so are we incentivizing the wrong people to ascend to positions of political power? Political power seems to be the surest path to personal wealth in a lot of these countries. In the United States or Britain, people go into finance or technology; in Russia and eastern Europe, they go into politics or politically protected crony capitalism. So is there an incentive machine at work, or is that a peripheral issue?

WB: Certain people in the West are completely enabling the kleptocracy in Ukraine and various other countries. And what makes it most shocking is that the people who have enriched themselves in the West from this kleptocracy then use their political influence to moderate any kind of reaction or condemnation of it. I’ve seen it here in the UK when we were fighting on the Magnitsky case: Some people here don’t want to rock the boat regarding Russian kleptocrats because it would cost money to the very close friends of people who are in political power.

CD: So what sort of need for reform do you see in that arena?

WB: I think that people’s political careers need to end. People need to be disgraced for their support of Ukrainian and Russian kleptocrats, in the United States and in the UK. So that the next guys who come around won’t want to be disgraced and have their careers ruined.

CD: We’ve identified in Europe a large vested interest in loot protection. And yet we see now a sort of Russian invasion of our cultural and political space, and very low military expenditure in Europe. How do you see that playing out?

WB: We were living in a blessed time since the end of the Cold War where the international agreements and law and diplomacy allowed everyone to live in peace. Now, the head of a regional power that has nuclear weapons, a lot of money, and no morals is ready to redraw the borders all around Europe. If someone is doing it by force there’s only one way to respond: by having force and being ready to use it.

In a certain sense, the Cold War was a much safer time than we’re in right now. Back then, everyone had missiles pointed at each other, and everyone was responsible about not wanting to mutually assure each other’s destruction. Right now we’re in a situation where Putin is basically taking territory and understands that no one is going to do anything. We’ve said that we’re not going to militarily intervene, so he has no compunction about violating every law and every treaty to take whatever he wants. So sometimes the best way of avoiding military intervention is by showing that you’re ready to take military intervention. Unfortunately, neoconservatism was sort of disgraced with the invasion of Iraq, but its advocates just came twenty years too early. They were all flexing their muscles at the wrong time. This is the moment where we need neocons to constrain a truly evil man.

CD: Well, Bill, let’s turn now to your political career. We’ve talked about the Magnitsky Act, which in our previous interview you described as the “iPad”: the new tool in the fight for human rights and justice. With that success under your belt, do you have anything else up your sleeve?

WB: Well, we’ve only succeeded in one part of the world, the United States. And I would say that we only succeeded there in a very narrow way because only 18 names have been added to the Magnitsky list. My goals going forward are, first, that the Magnitsky list in the United States gets heavily populated with names, from not just our case, but many other cases, so it becomes truly a tool for human rights advocacy. Second, I want to see the Magnitsky Act implemented by other countries, particularly in Europe. Third, and more ambitiously, the Act should be used against not just Russian human rights violators, but also other human rights violators. There’s no reason why an Uzbekistan torturer should have better privileges and rights then a Russian torturer.

WB: It is worrying that politicians spend half or more of their time raising money. Even if they aren’t taking bribes—and most of them aren’t, thankfully—they are heavily conflicted by the money sloshing around. They need to finance their campaigns, and they’re going to be more likely to listen to the people who give them money than the people who don’t. If there were some way of creating a level playing field, I think we’d have a more honest political discourse than the one that currently exists.

CD: Let’s turn to investing. When confronted with a famous investor we’re all looking for advice and stock tips. Presumably you no longer invest in Russia. Where does your firm, Hermitage Capital, invest? What are its specialties? More importantly, do you have any particular advice for investors in the current geopolitical mess we face? In other words, if one is deeply concerned about current geopolitical risk, how best to protect oneself, and what is the safest way to preserve capital?

WB: I spent most of my career as a specialist in Russia, and then the remaining part as a specialist in emerging markets, after the Russians kicked me out. And what I’ve learned from this whole experience is that rule of law is completely undervalued in the investment markets. If some emerging market is trading at 13 or 14 times earnings, and the United States is trading at 16 times earnings, then that market is very interesting because it’s a little bit cheaper. I would argue that, because in emerging markets property rights and your ability to enforce contracts really don’t exist, emerging markets should be much cheaper, and they were when I first started my career. So I’ve gone sort of full circle, and I now only invest in developed markets where there’s rule of law, because that’s infinitely valuable. In other words, the lack of rule of law makes what happens to you in emerging markets infinitely arbitrary.

CD: Where do you think the BRICs stand, beginning with China?

WB: I think that China is a complete unknown. Under an authoritarian regime, the authorities determine how resources are allocated, and they can’t be fired by their people for misallocating those resources. They’re bound to create the most spectacular misallocation of resources because there are no self-correcting mechanisms.

CD: So do you think China will hit the wall then or continue to grow, not that the economic statistics are terribly reliable?

WB: Who knows what they’re growing, and how, because they lie. And there’s no media to keep them honest and there’s no democracy to kick them out if they lie.

CD: What about India?

WB: India is a little bit different. India is not an authoritarian regime, but India doesn’t have strong rule of law. It has a sort of court system, but the business practices in India are not what we would expect in the West, and there’s no way of getting any recourse in a reasonable period of time if you’ve had a bad situation with an Indian investment. The only BRIC country I would look at would be Brazil, because Brazil is a democracy. Brazil does have a rule of law, though it’s not the most robust. Brazil is still in the early stages of an economic slowdown, of currency instability, and various other things, so I think that Brazil could undergo lots of macroeconomic upset before it becomes a place you want to be invested.

CD: Bill, thank you, we much appreciate your time and insights.