Clifford Chance (CC) is the latest in a raft of firms to slash its headcount in Russia as Allen & Overy has ditched having a solely Moscow-based managing partner to head its office.

CC is making five lawyers and five non-legal staff redundant. The redundancies are underway and will be complete by the end of the financial year.

The firm is also relocating Moscow-based M&A partner Nick Rees to London at the end of April.

Rees moved to Moscow in 2010, originally for a three year term which has twice been extended. CC does not plan to second another partner to Russia though Rees will continue to work on Russia-related matters from London.

CC's total Moscow headcount is set to fall 10% to 110 after these departures.

A CC spokesperson said the firm was "committed to maintaining the long-term sustainability" of its Moscow office and its wider Russian practice, adding: "To that end, we have had to make some difficult decisions to ensure the office is in the right shape for the market as we see it over the next two to three years."

Meanwhile, Allen & Overy (A&O) has appointed London corporate partner Philipp Wahl as Moscow managing partner to replace Edwin Tham who was based full-time in the Russian capital and retired from the firm at the end of March after 18 years at the firm. Wahl, who joined A&O as partner in 2009, took over in late 2014 when Tham went on sabbatical.

However, Wahl will divide his time between Moscow and London while managing the office.

The news follows Freshfields Bruckhaus Deringer's confirmation yesterday that it had found just two lawyers so far to replace its five-strong Moscow litigation team that left to form boutique KK&P Trial Lawyers last month.

Also this week, Berwin Leighton Paisner (BLP) energy partner Andrei Baev left the firm to become Moscow managing partner at Chadbourne & Parke and will not be immediately replaced at BLP.

Ongoing departures

CC's downsizing is the latest in a string of law firms cutting their headcount in the country or relocating staff to other territories as Russia feels the effects of geopolitical crisis surrounding it. The firms that have most suffered are ones that primarily handled capital markets work for Russian companies now facing sanctions.

"Some transactions are returning but not at the same volume as before. General practice law firms have 60-70% of the partners and associates dedicated to M&A so they have had to reduce their staff or relocate them," says one partner at magic circle firm in Russia.

Legal Week contacted the firms in the top 30 law firms by revenue that have offices in Russia. Of the 19 firms contacted, five including CC reported a decrease in total headcount over the past 12 months.

Most of the reductions were in the M&A, corporate and capital markets practices.

Three firms reported an increase in headcount in Russia over the period, another two reported headcount had remained the same. Nine firms did not comment on their headcount levels.

Out of the five cutting headcount, Allen & Overy has experienced the sharpest fall. In late 2014, four associates and partners Tham and banking partner Alina Tchoubykina left the firm – which amounted to a 20% fall in the firm's headcount in the city. A&O declined to comment on the reason for the departures. Tchoubykina joined the firm in 1997 and was made partner in 2009. Following the departures, A&O's headcount in Moscow has remained stable at 24 this year.

Meanwhile, Freshfields' headcount in Moscow has fallen 3% after five lawyers left in March to launch an independent litigation boutique in the Russian capital – though the firm has since hired two senior associates to bolster its practice.

It is understood that its total headcount is 150 after these departures, including 55 lawyers.

Among the US firms with a presence in Russia, White & Case also slashed its headcount by 15% last year. The firm's headcount there remains stable at 67 after 10 lawyers left in the last 12 months, according to a press spokesperson. US firm Latham & Watkins' headcount has dropped 2% after a paralegal left the firm's Moscow base taking its total to 41.

Crisis continues

The Russian legal market has been under pressure since mid-2014 after the Ukraine crisis began in February that year, during which Russian speaking separatists took control of part of the country and demanded to join Russia.

Morgan Lewis' Moscow chief Brian Zimbler said: "The current situation is not that different. After the recent 'Minsk II' agreement with the de-escalation of violence in south-eastern Ukraine, things seem to have stabilized for the Russian business and legal communities. However, the depressed rouble and weak Russian economy remain major concerns for everyone."

Trouble for the rouble has been exacerbated by sanctions from the West.

The EU and US have imposed sanctions on Russia in relation to the violence in the Ukraine since March 2014. Minsk II is the second ceasefire deal agreed in February between the leaders of France, Germany, Russian and Ukraine.

However, fierce fighting has continued on the ground in Ukraine after the latest signing. If the violations of the Minsk agreements continue, the US and EU may impose new limitations on Russia.

"Long term financing from Western markets is practically frozen and people have lost a lot of work and they have to down size their law firms," says a senior partner at a Russian law firm.

Russia, one of the world's largest energy exporters, has also been hit hard by plunging oil prices.

The lack of work available has created an intensely competitive market, says Zimbler.

"Among international law firms in Russia, there is continued pressure on fees, and fierce competition for the best projects," he says. "Some clients have asked for rate discounts, pointing to the changes in the Rouble/USD exchange rate since 2014."

Silver lining

However, others are faring better, particularly boutique practices and more diversified firms, sources in the region say.

Of the 19 firms contacted, Baker & McKenzie and Dentons reported a slight increase in total staff to 230 and 248 respectively, while Hogan Lovells reported a sharper increase from 81 to 95.

Norton Rose Fulbright and Skadden, Arps, Slate, Meagher & Flom confirmed that their headcount has remained unchanged over the past 12 months at 71 and 55.

"There is not much new transactional work, but there is advice on Western sanctions, restructuring work, and some asset sales," says Zimbler.

However, the volume of work is not as significant as the last major economic crisis which hit Russia in 1998, known since as the "Russian Flu" which saw the government default on its debts and a four-fold decline in the rouble.

"1999 was one of the best years ever for our practice, as using lawyers became essential to deal with bankruptcies, debt restructurings and other urgent matters," says Zimbler.

With its root causes tied to geopolitical conflicts, he concludes the current crisis may continue to dampen the legal market in Russia.

"Unfortunately, it may be with us for a while. The solutions are not yet clear."

Out of the top 30 global firms by revenue with Russia offices, Morgan Lewis, DLA Piper, CMS, King & Spalding, and Cleary Gottlieb Steen & Hamilton declined to give figures on total headcount. Jones Day, Herbert Smith Freehills, K&L Gates and Linklaters were approached for comment and figures but did not respond.