By Maria Tsvetkova
MOSCOW (Reuters) - Russian prosecutors portrayed a dead anti-corruption lawyer as a money-hungry schemer who used mentally disabled people to avoid paying taxes, in a case that has highlighted human rights concerns following Vladimir Putin's return to the presidency.
The courtroom cage normally reserved for defendants stood empty as prosecutors called witnesses to testify that Sergei Magnitsky, who worked for a law firm hired by Hermitage Capital Management, exploited loopholes for financial gain.
Tax service official Anastasia Gerasimova told the court that William Browder, head of the investment fund, had evaded taxes by using tax breaks for disabled employees.
"They didn't do any work. They also didn't receive any payments, just some small fees for what they did in the firm, but at the same time they had a permanent job," Itar-Tass quoted Gerasimova as saying.
"As a result of these schemes, half a billion roubles (around $16 million)were lost," she said.
Magnitsky was arrested on tax fraud charges shortly after he leveled similar accusations against Russian state officials in 2008. He died in jail nearly a year later - family and former colleagues say he was mistreated and denied medical care.
His death and posthumous trial have strained Russian-U.S. ties, Washington imposing sanctions on dozens of Russians suspected of a role in his death in December, prompting Moscow to ban Americans from adopting Russian children.
Magnitsky's mother Natalya has refused to appoint lawyers to represent her late son or attend the trial, which she says is a designed to punish his exposure of schemes in which officials allegedly stole $230 million through fraudulent tax refunds.
"This trial is an example of the hypocrisy and lawlessness of the justice system (and) an outrage against the memory of my son", she said in a statement.
"Those who organized a reprisal against my son, who deprived him of liberty, health and life, now want to take away his good name and discredit him posthumously, taking advantage of the fact that Sergei is dead and cannot answer their charges."
The court appointed a legal team to defend Magnitsky after his family's refusal to attend the proceedings, which will resume on April 1.
No-one has been held criminally responsible for Magnitsky's death, which underscored the dangers faced by Russians who challenge the authorities and deepened Western concerns over the rule of law during Putin's years in power.
Browder, who now lives in Britain, is on trial in the same case but has refused to attend the court, saying the charges against him and Magnitsky are retribution.
Prosecutors closed the case against Magnitsky after his death but reopened it in 2011, a step defense lawyers say is allowed only with the consent of relatives.
Rights activists say Magnitsky's treatment amounted to torture and the Kremlin's own human rights council has voiced suspicions he was beaten to death, allegations Putin dismissed.
Magnitsky's entourage say officials tried to get Magnitsky to admit tax evasion and give evidence against Browder. He blames his lawyer's death on the same police and tax officials he gave evidence against shortly before his arrest.
Russia's federal Investigative Committee, which answers to Putin, on Friday denied any link between Magnitsky's posthumous prosecution and his campaign to expose alleged fraud.
The United States adopted a law in December barring Russians implicated in Magnitsky's death and other suspected human rights violations from entering the country and freezing any assets they hold in the United States.
Russia retaliated with similar measures and also banned Americans from adopting Russian children, adding to tension that has increased since Putin returned to presidency last year, after four years as prime minister.
He has frequently accused the United States of using human rights concerns as a pretext to meddle in Russia's affairs. ($1 = 30.8922 Russian roubles)
(Reporting By Thomas Grove; Editing by Jon Boyle)