The Wall Street Journal reports:

Hermitage Capital Management Ltd., one of the largest foreign funds investing in Russian stocks, is facing new pressure from authorities more than a year after its chief executive, William Browder, was denied entry to the country. The case of Mr. Browder, a British national, has come to epitomize the risks facing foreign investors in Russia. Despite appeals from Western governments, Russian officials have refused to reinstate his visa, which they say was revoked because he was a threat to national security.

A Hermitage spokesman said yesterday that Moscow police went to Hermitage's office June 4 with a search order in a criminal tax-evasion investigation and confiscated documents and several computers. The spokesman said the tax obligations at issue had been paid in full and Russia's tax authorities hadn't raised questions about them. That the police pursued the tax-evasion probe anyway "suggests that this is more about harassment than it is about anything substantive," he said. Hermitage plans to challenge the investigation in court. The tax case doesn't involve Hermitage directly, the spokesman said. The search order named a Russian employee of a Hermitage affiliate. Police allege that a Russian unit of an offshore investment company failed to withhold 1.15 billion rubles ($44.2 million) in taxes on dividends paid to its Cyprus parent. The Hermitage spokesman said a Hermitage affiliate advised the companies. "If this case is allowed to proceed, it calls into question all of the tax treaties Russia has with other countries," the spokesman said, noting that Moscow's agreement with Cyprus offers a lower rate for dividend payments. "It will seriously damage the investment climate." A police spokesman said no charges have been filed and denied an ulterior motive. "There is no politics in this, just tax evasion," he said.

Earlier this decade, when his funds were reporting some of the best returns in the world, Hermitage's Mr. Browder was a supporter of President Vladimir Putin's economic policies. He also was an outspoken advocate for shareholder rights in Russia, often challenging what he saw as mismanagement or corruption at powerful companies like state gas giant OAO Gazprom.

Since being denied entry to Russia in November 2005, Mr. Browder worked from London, and Hermitage, with $3.2 billion under management, has expanded its horizons to emerging markets beyond Russia. As of last month, its Russia-focused Hermitage Fund was down 13.2% from the start of the year, underperforming a Russian market swamped by new share issues and battered by weakness elsewhere in the world.