The U.S. adopted the Magnitsky Act in 2012, imposing travel bans and sanctions on Russian officials seen as involved in the lawyer's death.
The act was named after Mr Browder's former lawyer, Sergei Magnitsky, who uncovered an alleged tax fraud in Moscow - and died in a Russian prison in 2009.
Browder has led a campaign to persuade countries to adopt sanctions on Russian officials believed to be responsible for human rights abuses after the death of Magnitsky.
A Moscow court in December sentenced Browder in absentia to nine years in a penal colony after convicting him of deliberate bankruptcy.
The financier and Ivan Cherkasov, an associate who was sentenced to eight years behind bars, were also ordered to pay four billion rubles ($83 million Cdn) to the Russian government in damages. Browder was also found guilty of tax evasion in a separate case from 2013. He has dismissed the accusations against him. They could try to assassinate me on the street.
Mr Browder was in Madrid to give evidence to a Spanish prosecutor about money from the Magnitsky case that was moved to Spain.
The financier, who is a plaintiff in the Spanish investigation, said Spain is among 15 countries following the money trail.More news: Mi 8, MIUI 10 and 5 other products Xiaomi launched today
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Mr. Browder was born in the United States but later renounced his American citizenship and became a citizen of Britain.
In an image of a detention report posted by Browder himself on Twitter, police identified the reason for the detention as "fraud".
Browder subsequently tweeted that the Spanish police had released him, after Interpol told them to do so.
This article has been updated to include Interpol's denial that it issued a warrant for Browder's arrest, and Browder's subsequent tweet about his release.
"Urgent: Just was arrested by Spanish police in Madrid on a Russian Interpol arrest warrant", he announced to his followers Thursday morning.
"There is not, and never has been, a Red Notice for Mr Bill Browder", it said in a statement.