Moscow police said Thursday that they were investigating whether a Cyprus-registered firm they say has links to Hermitage Capital, one of Russia's largest foreign investment funds, underpaid millions of dollars in taxes.

The probe raises concerns about the investment climate just days after President Vladimir Putin blessed the signing of billions of dollars in deals at an economic forum in St. Petersburg. Some analysts warned that the authorities might be seeking to revoke a double-taxation treaty with Cyprus that benefits many firms working in Russia.

But the investigation could also be the latest step in a drive against Hermitage CEO William Browder, a well-known campaigner for shareholder rights in Russia who has been barred from the country since November 2005 for purportedly posing a threat to national security.

The Moscow police tax department is investigating whether Kameya, a Cyprus-registered company, failed to pay 1.15 billion rubles ($44 million) by illegally applying a tax scheme stipulated in a double-taxation treaty between Cyprus and Russia, police spokesman Vladimir Korobkov said.

An official at Hermitage, who spoke on condition of anonymity, said the fund had acted as an adviser to Kameya on investing in Russia and that it was "completely independent" of the company.

Police insisted that Hermitage owned the firm. "They especially opened a Cyprus firm to avoid paying taxes," Korobkov said. The investigation was focusing on a May 2006 dividend payment, he added.

Under the double-taxation treaty with Cyprus, investors who put more than $100,000 into Russia can pay a reduced rate of 5 percent withholding tax rate on dividends, rather than the usual 15 percent.

Cyprus remains one of the top foreign investors in Russia, thanks to the many firms doing business in Russia that benefit from tax breaks in registering on the island.

"For the Interior Ministry to leapfrog the whole process [over the Federal Tax Service] raises the question of whether this is a tax issue at all," an individual close to the matter said.

Browder last applied for a Russian visa in February and has yet to receive a reply, the Hermitage official said.

"It's completely within the law that we're the ones leading this," Korobkov said. "It's a banal procedure. There is absolutely nothing political here."

He declined to comment on the Cyprus-Russia tax treaty and whether other firms would be investigated.

The investigation had "just started," Korobkov said, and any documents will be passed to a Moscow court after the inquiry is completed. The Hermitage official said the fund had been informed of the probe last week when Interior Ministry officials visited its Moscow offices with a copy of the investigation summons.

The Hermitage official denied any wrongdoing by the fund or its client.

"The basis for this investigation contradicts Russian law and makes no sense," the official said.

The official also denied speculation by Kommersant on Thursday that said the investigation might have been prompted by the fund's use of so-called "gray schemes" to snatch up Gazprom shares.

Until January 2006, only Russian investors could buy shares in Gazprom, prompting many firms and funds to register in Cyprus to benefit from tax breaks while opening Russian subsidiaries to buy stock in the company.

"We've seen the documents and all they point to is the May 2006 dividend payment that was approved by the tax authorities," the Hermitage official said. "There are no indications it has anything to do with Gazprom."

Browder's banning from Russia in November 2005, after nearly a decade of activity in the country, sent shock waves through the investor community. Many observers at the time suspected he was singled out over his attempts to fight for minority shareholder rights within companies such as Gazprom and closely-held Surgutneftegaz.

"He was the pioneering investor into Russia," said Roland Nash, head of research at Renaissance Capital. "He invested a lot of money at a difficult time when the rules weren't particularly clear."

"[Hermitage was] enormously successful and whatever you think about his methods he was extremely well respected in the investment community," Nash said.

Hermitage has been steadily decreasing its presence in Russia. In March it opened a new fund to focus on emerging markets in Latin America, Asia and the Middle East. The fund currently manages $3.2 billion, representing some 6,000 investors. It declines to specify what percentage is devoted to Russia.

Prosperity Capital management, another Russia-focused fund, manages $4.5 billion.

"It's quite obvious in this situation that he's being singled out," said Hawk Sunshine, head of equities at Metropol, referring to Browder.

Yet he also warned of the effects of any investigation that centered on the Cyprus-Russia tax treaty.

"[The investigation] could set a precedent that calls the treaty into question," he said. "The dual tax treaty is a cornerstone of tax planning in Russia."

"There would be disastrous collateral damage, similar to the Yukos tax case," Sunshine warned.

Critics say the Federal Tax Service's campaign against Yukos and CEO Mikhail Khodorkovsky signaled a reassertion of state power over the country's energy sector and served as a warning to businessmen to stay out of politics.