Partners on alert over Russia work as 'new Cold War' tensions turn up scrutiny on client connections
Lawyers in the Russian market on the 'wake-up call' for firms to check their client list
April 12, 2018 at 07:24 AM
7 minute read
In December last year, Boris Johnson became the first UK foreign secretary to visit Russia in five years. Now, following claims and counter-claims about the Salisbury nerve agent attack, his visit seems unlikely to be repeated soon, as talk of a 'new Cold War' grows louder.
The legal industry has played its own role in the unfolding drama, with US President Donald Trump's lawyers drawn into the investigation into Russian election interference, and Conservative MP and foreign affairs committee chair Tom Tugendhat going so far as to call on lawyers to consider the "moral decisions" they take when they engage with Russian clients.
Partners, however, are understandably sceptical about the characterisation of unscrupulous City pros cashing in on work for disreputable Russian clients, while also acknowledging the need to tread carefully.
"We are particularly careful with Russian clients in applying the legal criteria that exists, particularly in relation to sanctions," says Dentons arbitration partner Dominic Pellew, who was based in Moscow for more than three years. "If the regulations that we have to apply get tougher, then law firms will apply them, but it will be difficult for me or anyone else personally accepting work to be expected to apply their own standards."
Pellew adds that while firms do consider reputational issues when considering whether to accept clients, they tend to take the more "legalistic approach" of doing the due diligence that ensures the work falls within the law. "In reality, the former criteria is quite rarely applied in practice and it is difficult to ask firms to apply in this situation," he says.
One firm currently coming under public scrutiny in the context of the Russia furore is Squire Patton Boggs. The firm, which this week called time on its alliance with Trump's personal lawyer Michael Cohen following an FBI raid on his New York office, has also attracted attention for its role advising under-fire political consulting firm Cambridge Analytica, as well as its past work for Russia's Gazprombank.
What is happening will have firms looking over their shoulder – it is a wake-up call for firms to check their client list
One M&A partner who has previously practised in Moscow and has a large Russian client base agrees with Pellew that the implication that law firms are facilitating illegal activities with Russia is wrong, and that the number of Western lawyers working with "dodgy" clients is very low.
"What is happening with Squire Patton Boggs will have firms looking over their shoulder – it is a wake-up call for firms to do more compliance and check their client list," he said. "In the UK if you take on a new client, you should know where he lives, but the US is a bit more lax about these things – firms probably do not do the same amount of diligence as they do in the UK when taking on clients.
"The big firms understand that if you start picking clients based on whether they are popular, then that is very dangerous. If you represent Adolf Hitler, I can see why you might consider backing away from that client, but just because a company like Gazprom is state-owned, that doesn't mean that they are the Russian government."
One City M&A partner who works across his firm's Russian and London offices argues that Western lawyers can have a positive impact on Russia, encouraging best practice in a country that has scaled back its efforts to engage with the West on international relations.
"There is a lot of political heat now attached to anything Russian, but when Western lawyers are there we are a reminder that the rest of the world has rules, and that Russia has to comply by those rules if it wants to play," he said. "For politicians to attack us because of Russia hysteria in the press does not help us in doing that."
All of the lawyers contacted for this article say the political relationship between Russia and the UK – and particularly the heavy sanctions applied by the UK and US following Russia's annexation of Crimea in early 2014 – have affected the type of work available.
Baker McKenzie CIS managing partner Sergei Voitishkin says politicians have not been helpful in making lawyers' lives easy in Russia. "As a business we have seen many political crises, such as the sanctions imposed in 2014," he explains. "If major new sanctions are imposed, that will affect us. We try to stay away from politics and service clients on the business side – we would hope we can just do that and help clients with their work. Political tensions are an obstacle to the business we do."
Another UK infrastructure partner with clients in the CIS region says that over the three years since sanctions were first imposed, he has seen a shift away from cross-border work involving Russian clients and a move towards "local and regional work" within Russia. Private equity has suffered too, he says, owing to the sanctions placed on Russian businesses.
Firms will be looking at whether their client base is still considering Russia and will be dictated by that
"I suspect the best practices are still doing the best work out there, but I would imagine it is not good cross-border stuff," the partner says. "You have to steer your way through a lot of trouble in Russia at the moment. Firms will be looking at whether their client base is still considering Russia, and will be dictated by that."
Pellew also highlights negativity towards Russia among European and American companies as a major factor in what work is available, specifically noting that the financing of projects in Russia has become more difficult. "In concrete terms," Pellew says, "if there is any increase in sanctions or other controls, we will feel the squeeze in terms of business."
This is echoed by an M&A partner with Russian clients, who says that large-scale projects such as shale oil or arctic developments have reduced in frequency, while capital markets work has suffered as Russian banks and companies have been prevented from raising capital by "targeted sanctions".
However, despite the geopolitical upheaval, Voitishkin says that Bakers has no plans to scale back its 260 lawyer-base in Moscow. Similarly, other UK law firms with large Russian practices have not scaled back their lawyer numbers since the implementation of sanctions. Allen & Overy has seen its office grow slightly to 22 lawyers, while Dentons and White & Case have 112 and 60 lawyers in Russia respectively.
"I am not aware that any of our clients have been reconsidering their strategies in Russia due to this new crisis in relations between Russia and the UK. Obviously politicians have own agendas and react to internal developments in their own countries, and we have to look at how that can affect us, but at the moment we have no plans to downsize or leave the market," says Voitishkin.
With regards to Tugendhat's calls for firms to consider their activities in Russia, Pellew is similarly resolute.
"It is problematic with Russian clients, because as we have seen from the 'Putin List' in the US, these people are just a collection of wealthy Russian businessmen that you can get off any Forbes list. There are value judgements to be made. I would rather that judgement be made by the government and Parliament than by me or a law firm," he says.
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