Red Notice by Bill Browder

“How do you rebel against a family of Communists?” asks Bill Browder in the title of the second chapter of Red Notice. Browder’s grandfather, Earl Browder, had started as a labor organizer in Kansas and rose to be the American Communist Party’s presidential candidate in 1936 and 1940. Prior to those campaigns, he spent some time in Moscow, married a Russian woman, and had a son — Felix, Bill’s father — who was born in the Soviet capital in 1927. A second son, also born in Moscow, followed in 1931 and a third was born in New York in 1934. (Bill chooses not to comment on what it meant to stay a Communist between 1936 and 1940, years that included the show trials of old Bolsheviks, the height of Stalin’s purges that meant death and the gulag for millions, and the Hitler-Stalin Pact in 1939 that gave the Nazi war machine a free hand in Poland — and the Soviets the eastern half of interwar Poland.) By contrast, his “grandmother was a Russian Jewish intellectual and had no desire for any of her sons to go into the dirty business of politics. For her, the highest calling was academia, specifically in science or mathematics.” (p. 13)

Felix sped through MIT and Princeton and had a PhD in math by age 20. Bill’s other two uncles likewise became mathematicians, with his uncle William serving a term as president of the American Mathematical Society. Bill saw himself as a misfit in “this strange, academic, left-wing family.” (p. 15) It probably didn’t help that his older brother Thomas went to the University of Chicago at 15 and then started a physics PhD program at 19. In his telling, Bill was an indifferent student and barely scraped into the University of Colorado. Before that, he figured out how to rebel: “I would put on a suit and tie and become a capitalist. Nothing would piss my family off more than that.” (p. 17)

Easier said than done, though, especially with a fast start majoring in partying at a major party school. When a frat brother goes to federal prison for trying to rob a bank to fund a cocaine habit, “I realized that if I kept it up, then the only person who would suffer from this particular form of rebellion would be me.” (p. 18) From there, it turns out that Bill is a Browder after all. He excels at his studies, transfers to the University of Chicago and lands a plum pre-MBA job with Bain & Company. Later, when Browder is working in finance, he casually mentions the kind of mental math he would be doing during high-pressure meetings; the family knack for the subject had clearly not deserted him. A Stanford MBA (“the normal academic competition was replaced with something that none of us expected: an air of cooperation, camaraderie, and friendship” pp. 20–21) leads to a series of depressing job interviews and a search for connection with the family history he had been working so assiduously to escape. Turned down by the steelworkers’ union, Browder starts to consider Eastern Europe. He has an offer from Boston Consulting, and the company is probably happy to have a newly minted Stanford MBA. Happy enough that when Browder says he wants to work in Eastern Europe, the Chicago office passes him along to the London office, where the sole specialist for that region works.

Browder moved to London in August of 1989. It was an auspicious time to be interested in Eastern Europe. In June, the partly-free election in Poland had seen the non-communist opposition win all the available seats in the lower house and all but one in the upper. Also in June, communist Hungary opened its border with Austria. I crossed that border in July shortly after Bastille Day. Just how auspicious would not be clear until a few months later as country after country pushed out its communist rulers and charted a course toward pluralist democracy and a market economy. Browder saw the opportunity. “My grandfather had been the biggest communist in America, and as I watched these events unfold, I decided that I wanted to become the biggest capitalist in Eastern Europe.” (p. 27)

The first half of Red Notice shows how he pursued that ambition. As the opening chapters suggest, it’s a combination of luck, fortuitous timing, agility of mind, ability to make disparate connections, persistence, and competitive drive. With a few well-constructed anecdotes, Browder captures the hope, looniness, and despair of the start of the transition toward democracy and market economics in Central Europe. The people there knew their old system didn’t work, and they had high hopes that changes would bring them kind of prosperity that seemed to be everywhere in Western Europe. And then there are incidents like this discussion with Browder’s liaison at his first consulting assignment in Poland:

“You are from London, yes?”
“That’s right.”
A smile spread across his face. “Then I have favor to ask.” He lowered his voice and whispered, “Can you introduce me to Samantha Fox?” Samantha Fox was a busty English pop singer who’d gotten her start by modeling topless on Page 3 of the British tabloid The Sun.
I gave Leschek a funny look. “I’m afraid not. I don’t know her.”
He leaned back in his chair with a doubtful look and insisted, “But you must. You’re from London.”
“Leschek, I wish I could help, but there are seven million people in London.” (p. 33)

Consulting did not go well. The westerners thought the only way to save the company was to fire a bunch of people. The town depended on the company. Browder writes that he hated what the human cost would be if the company followed the recommendations his group of consultants prepared. Along the way, Browder sees some financial figures in the local newspaper.

I leaned over and asked, “Leschek, what are those?”
“These are the very first Polish privatizations!” he announced proudly.
I’d heard that Poland was privatizing its formerly state-owned companies, but I was so wrapped up in [the assignment] that I hadn’t been following this at all. “That’s interesting. … What’s this number?” I pointed to a figure near the top of the page.
“That’s the share price.”
“And this one?”
“The profit from last year.”
“How about that one?”
“The number of shares being offered.”
I did some quick math. The share price valued this company at $80 million, while the company’s profits for the previous year were $160 million, which meant that the Polish government was selling this company for one-half of the previous year’s earnings! I was stunned. In simple terms, this meant that if you invested in this company and it stayed in business for six months, you would effectively make your money back.
I asked my questions again just to make sure that I wasn’t missing anything—and I wasn’t. This was extremely interesting. We went through the same exercise for some of the other companies in the newspaper, and the results were roughly the same. (pp. 36–37)

Browder gathers his limited assets, converts them into Polish currency, and buys shares in newly privatized Polish companies. He has found his calling, and it isn’t consulting.

What I really wanted to do was become an investor in the privatizations of Eastern Europe.
As it turned out, I couldn’t have been more right. Over the course of the following year my investments would double, and then double again. Ultimately, they went up almost ten times (p. 39)

Boston Consulting is no place for a would-be investor, and Browder jumps ship for Robert Maxwell’s company, joining in March 1991. “By the fall of 1991 I had reviewed more than three hundred deals, I had raveled to nearly every country in the former Soviet Bloc, and I was responsible for making three significant investments for our fund. I was exactly where I wanted to be.” (p. 45) In early November, Robert Maxwell was lost at sea and his company proved to be a house of cards, collapsing into bankruptcy administration within a matter of weeks.

Having Maxwell on his CV made Browder radioactive in London’s financial circles, and the only place he found to land was at Salomon Brothers, which was also trying to put a major scandal behind it. Their Central Europe practice was cutthroat, and nobody wanted another banker on the team to divide the pot with. Which is how Browder found himself headed to Murmansk to work on the privatization of that city’s trawler fleet. It was a low-key beginning for someone who would eventually manage the largest international fund investing in Russia. Math strikes again:

“Tell me, Mr. Prutkov—how much does one of those boats cost?” I asked, Irina still translating.
“We got them for twenty million dollars new out of a shipyard in East Germany,” he answered.
“How many do you have?”
“About a hundred”
“And how old are they?”
“Seven years on average.”
I did the math. A hundred trawlers at $20 million each meant that they had $2 billion worth of ships. I figured that if the fleet was seven years old, then it was about half-depreciated, meaning that they had $1 billion of ships at the current market value.
I was amazed. These people had hired me to advise them on whether they should exercise their right under the Russian privatization program to purchase 51 percent of the fleet for $2.5 million. Two and a half million dollars! For a half stake in over a billion dollars’ worth of ships! … I couldn’t understand why they needed anyone to tell them this. More than anything, I wished I could have joined them in buying the 51 percent. (p. 58)

If Browder’s rough calculations were correct, he was not looking at the ten-fold gains of his investments in Poland — already considered a tremendous percentage increase — but a four hundred–fold increase. There were reasons to think that his rough calculations were not correct: there might not be a market for the ships, the market for the fleet’s catch might collapse, Russia’s fledgling free economy might completely fail to take wing. All of these would have brought the fleet’s value to zero. The bet was not nearly so obvious as Browder makes it out to be. In his telling, Salomon simply could not grasp the opportunities that Russian privatization was presenting. His fellow bankers were too busy looking for advisory fees or trading spreads to see that there were potential gains of 10,000 percent.

A top Salomon person had gotten wind of what Browder was doing and called him to New York for a meeting. Bobby Ludwig was regarded as eccentric, but he made major money for the firm every year so he had some leeway. In New York, Ludwig walked out on Browder mid-presentation. When he returned forty minutes later, he brought a mandate: “Browder, that story’s the most amazing thing I’ve ever heard. I just went to the risk committee and got twenty-five million for us to invest in Russia. Don’t waste time doing anything else. You get back to Moscow and let’s put this money to work before we miss out, you hear?” (p. 63) As Browder tells the story — and his telling is fast, interesting and funny — they took that money and quintupled it within a year. He tells readers that the meeting with Ludwig was in October 1993. What he doesn’t say in Red Notice is that October 1993 was the month that the army shelled the Supreme Soviet building as part of a struggle between Boris Yeltsin as Russia’s president and the many Soviet holdovers in the Russian parliament. Browder says that money was basically lying around in the streets; he doesn’t say that nearly 150 bodies were lying in Moscow’s streets too. He discounted the political risk and got rich. Whether that was luck or perspicacity probably depends on who you ask.

The kinds of returns Browder made for Salomon attracted notice in the financial world. George Soros, Julian Robertson, John Templeton — according to Browder they all wanted to see him and learn what he had done in Russia. “After nearly every meeting I was asked, ‘Bill, can you manage some money for us in Russia?'” (p. 70) Once again, Salomon’s institutional shortsightedness got in the way of raking it in. The company’s answer to these offers was to set up a task force. In the meantime, Browder met independently with several billionaires who are interested in setting up an independent fund to invest in Russia. Browder left the bank to strike out on his own.

That is how he came to start Hermitage Capital, a company that eventually became the largest foreign investment firm in Russia. Red Notice follows the company’s, and Browder’s ups and downs, with his breezy but informative style carrying the story along at a good clip. He built a team in rough-and-tumble 1990s Moscow. They made vast amounts of money, took on murky vested interests, and not only survived but won more often than not. Then the ruble collapsed and Hermitage lost $900 million. Astonishingly, that didn’t put him out of business, and he patiently built back in Russia while also extending Hermitage’s techniques to other markets.

Much of the second half of Red Notice tells a more cautionary tale, the beginning of which forms the book’s very first chapter and which gives the book its title. An Interpol “red notice” is a request from a government to locate and provisionally arrest a person pending extradition or surrender. Starting in 2005, Russia first denied Browder re-entry on his visa, then declared him a risk to national security, and eventually issued a red notice asking governments worldwide to turn him over to the Russian state.

The shortest version of how all that came to pass is that Browder and Hermitage got crosswise with Vladimir Putin. When both were on their way up, Browder was useful to Putin. He exposed corruption, stood up against insider self-dealing, provided an international counterweight to Russian oligarchs. Once Putin was solidly ensconced, the calculus changed. Browder dates the turn to the 2003 arrest of Mikhail Khodorkovsky, then reckoned Russia’s richest person.

Unfortunately, I wasn’t paying enough attention to see that Putin and I were on a collision course. After Khodorkovsky’s arrest and conviction I didn’t alter my behavior at all. I carried on exactly as before—naming and shaming Russian oligarchs. There was a difference this time, though. Now, instead of going after Putin’s enemies, I was going after Putin’s own economic interests. …
But Putin was not as brazen [in 2003] as he is [in 2015 when Red Notice was published]. Back then killing a foreigner would have been too drastic a move. And putting me in prison would have made Putin just as much of a hostage to the situation as I was. If he did this, every Western head of state would have been forced to spend a third of their meetings with Putin arguing for my release. In the end, Putin came up with a compromise that satisfied everyone in his circle—on November 13, 2005, upon returning to Moscow from London, I was stopped in the VIP lounge at Sheremetyevo-2, detained for fifteen hours, and expelled from the country. (p. 169)

Browder soon realized what that meant. “When the Russian government turns on you, it doesn’t do so mildly—it does so with extreme prejudice.” (p. 182) Under direction of the very highest levels of the Russian government, the conflict starts and continues for the rest of the book. In fact, it continues to this day, six years and more past the publication of Red Notice. The fall is every bit as riveting as the rise, not least because it’s clear that the stakes are not only investments and money, but their very lives. The way the Putin government inverts law is breathtaking, and the personal corruption involved is revolting, all the more so when I think of ordinary Russians I know whose money is being siphoned off to fund tax assessors’ mansions.

Most of Browder’s team made it out of Russia, but one of the auditors, Sergei Magnitsky, did not. He was arrested, beaten, held in pre-trial detention, systematically denied medical attention, and died in custody in November 2009. Magnitsky’s death opened another front in the conflict, with Browder devoting his considerable drive and resources to establishing legislation that would enable, and in some cases require, democratic states to place sanctions on individual foreign officials found to be human rights offenders or involved in significant corruption. Sanctions include freezing personal assets and banning them from entry. The United States passed a narrow Magnitsky Act in 2016 and a more general one after Red Notice was published, in 2016. Canada passed the Justice for Victims of Corrupt Foreign Officials Act in 2017; the United Kingdom passed similar legislation in 2017 and 2018; the European Union passed a Magnitsky Act in 2020. Browder is still making waves in Russia.

In Red Notice he tells numerous gripping stories. Finance might be mostly spreadsheets, but in Browder’s recounting, it is never dull. I tore through the book in a day or two, on the edge of my seat as often as not, moved by Sergei Magnitsky’s courage, hoping for a measure of justice. Red Notice elides some history, and it’s very much Browder’s tale with himself cast as the hero, often down but never out. He’s a major player in the story of post-communist Russia, and this first-hand account is irreplaceable perspective.