Citing police sources, Russian business daily Kommersant reported on its front page last week that William Browder, CEO of Hermitage Capital Management, and Ivan Cherkasov, the fund's general manager, have been charged with tax evasion for using a Cyprus-based company to evade Russian taxes.

The charges against Browder and Hermitage are understood to centre on a dividend payment to a Cypriot-registered firm by Kameya, a Russian company advised by Hermitage Capital.

The Interior Ministry claimed last year that Kameya failed to pay the correct amount of tax on the dividend, paid to the controlling shareholder of the Cypriot firm in May 2006.

Under the Russia/Cyprus tax treaty, companies in Cyprus with investments in Russia that exceed USD100,000 are subject to 5% withholding, as opposed to the normal 15% for other foreign investors.

The company has said that the correct amount of tax was paid on the dividend, but the Russian authorities are of the view that Kameya should have withheld 15% rather than 5%, and that therefore it owes the government some USD22mn in back taxes.

They also believe that there are stronger links between Hermitage and Kameya than that of a client relationship, but Hermitage has insisted that it is "completely independent" from Kameya, and that it has no case to answer.

The Russian Interior Ministry and the Moscow police force have both denied that any warrant for Browder's arrest has been issued, leading many observers, as well as Browder himself, to suspect that the story is a new chapter in a conspiracy designed to discredit him and his company which goes beyond mere allegations of tax evasion.

For many years Hermitage has been the largest foreign hedge fund focused on Russian markets. But as an activist investor who battled for shareholders' rights, Browder has doubtless made some powerful enemies within the business and political establishment, as he took on some of the country's largest companies such as Gazprom and Sberbank.

Browder, an Anglo-American now based in the UK, has been prevented from entering Russian since November 2005 on grounds of 'national security.'

Numerous attempts to obtain a visa to re-enter Russian have been refused, including one application in January 2007 that went through now-President Dmitry Medvedev.