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Russian evolution

Russian evolution

Known as the land of vodka, socialist revolutions and Vladimir Putin, Russia often struggles to be taken seriously by its European counterparts. But this emerging economy is home to an increasingly sophisticated business environment in which many foreign law firms are thriving. Claire Chaffey reports

In 1990, Carol Patterson made a decision that would change her life.

A partner in a Toronto-based Canadian law firm, she watched from afar as the Soviet Union teetered on the brink of collapse after Russian President Mikhail Gorbachev had embarked on
his historic reforms of “perestroika” (restructuring) and “glasnost” (openness) to liberalise the communist state and enact laws allowing private enterprise and foreign investment.

As the country gradually opened up, Russian-speaking Patterson and her journalist husband sought jobs in the new Russia; Patterson with Baker & McKenzie, which had opened an office in Moscow in 1989, and her husband as the bureau chief of a Canadian news service.

Twenty-two years later, they are still in Moscow, and Patterson works as Baker & McKenzie’s Commonwealth of Independent States (CIS) managing partner.

Describing the last two decades as being “an amazing experience”, Patterson says the change she has witnessed has been simply phenomenal.

A burgeoning profession 

One of the most significant changes over the last two decades in Russia, says Patterson, is the rapid way in which both the law and the legal profession have developed since the early 1990s.

“When Russia started to open up, when Gorbachev captured the world’s attention and imagination … companies started to come to Russia,” she says.

“There was no legal market here 22 years ago, and it has developed with a speed that I could never have imagined.” One major shift, says Patterson, has been Russia’s transformation from a country in which the law was not a prestigious profession, to one where the best and brightest see immense value in being a lawyer.

“It changed in the 90s with all the inbound investment,” she says. “Gorbachev was a lawyer … Foreign companies were coming in and they depended on lawyers to do due diligence and advise them on the risks and the structuring of investments.”

Following the collapse of the Soviet Union in 1991, law quickly became one of the most difficult faculties to get into, and the US and UK governments sponsored many Russian law graduates  to study Masters degrees abroad.

This had a massive impact on Russia’s legal profession which, prior to 1991, was effectively non-existent. “In 1991, there were no Russian lawyers to hire. 

There was no-one here,” says Patterson. “When I came to Moscow, I thought we’d quickly be replaced by Russians, but that wasn’t the case because there were no Russian law graduates who also had English language skills.

“From about 1992 to 1997, everybody who was smart was going to law school and we had all kinds of people getting their LLMs in the US. Those are the people who are now our partners. 

They had a very sophisticated, very quick education, and they have been working on big transactions since the time they were junior lawyers.”

Striking while the iron’s hot

While Baker & McKenzie was the first foreign law firm to open an office in Russia, plenty of others followed soon after.

Clifford Chance was one. The magic circle firm opened an office in Moscow in 1991 and became the first UK firm to have a physical presence in Russia’s capital.

“What we saw then was the huge potential of the Russian market, and that has proven to be the case,”says Jan ter Haar, Clifford Chance’s Russian managing partner.

“This continues to be a very exciting economy and one full of opportunities for domestic Russian
and international clients.” Norton Rose also landed in Russia in 1991, primarily lured by clients trading in the country’s significant natural resources. 

In the past 18 months, Norton Rose has grown the Russian practice even further, merging with Canadian firm McLeod Dixon, which had been in Moscow since 1990.

“Russia and the Commonwealth of Independent States (CIS) are a very important part of  NortonRose Group’s practice, not just in European terms but also in global terms and, more particularly, in Asia Pacific terms,” says Nick Dingemans, a corporate lawyer in Norton Rose’s Moscow office.

“Russia is an Asian country as well as a European one, is a member of APEC and has significant and increasing trade links with Asia. In revenue terms, our Moscow office is neither the largest nor the smallest office in the network, and in terms of growth, Russia and the CIS hold huge potential for both ourselves and our clients.” 

Russia’s vast potential is evidenced by the fact there are now over 50 foreign law firms with a significant presence on the ground in Russia. 

While all the major US and UK firms have been there for many years – rubbing shoulders with French, German, Scandinavian and even Cypriot firms – one country not flying the flag in Russia is Australia. 

As Minter Ellison and Allens Arthur Robinson move into neighbouring Mongolia, and others eye off South Korea, ter Haar believes one cannot rule out an Australian presence in Russia in the future. 

“The connections between Russia and Australia haven’t been particularly strong in the past,” he says. 

“However, with increased focus on resources and the growing ties between China and Russia, as well as China and Australia, this is already changing. This is apparent in the client mandates coming into our own network, which spans these three key geographies. 

On that basis, I certainly don’t think we can rule out an Australian firm opening in Moscow.” Patterson, though, says it would be difficult for an Australian firm to establish a presence in what has become an incredibly competitive market brimming with talented Russian lawyers – and one which presents many other challenges. 

“It’s a difficult market to break into at this point, because I think everybody is trying to do M&A
work,” she says.

“And it is not an easy country to set up in, because there is a lot of bureaucracy and a lot of paperwork … There is a very high cost of doing business, in terms of commercial real estate and rental of office space. Moscow has the fourth most expensive real estate market in the world, so there are overheads to consider too.”

Reaping the rewards

For those firms that did break into the Russian market, the rewards have been great – even when considering the volatile nature of the Russia’s economy and the current unstable political environment which has seen widespread protests against Prime Minister Vladimir Putin’s iron-fisted rule.

According to Patterson, when it comes to operating in Russia, you simply have to take the good with the bad. 

“It has been a challenging economy,” she says.

“When the economy is doing well, Russia’s economy is doing spectacularly. When there’s a blip, the Russian market contracts faster than anybody else.”  

Despite this, though, those firms that established full-service offerings with counter-cyclical practice
groups have been able to survive the various bouts of turmoil.

“In 2008, when the global slowdown hit, we were leveraged at one partner to 12 or 15 associates
because business was growing so quickly,” says Patterson. “We had to look at it quickly, but we didn’t do significant layoffs because we thought the market would rebound, and it had been so hard to find qualified people, so we scaled salaries back and kept our numbers.

But some firms completely disappeared.” 

The economy aside, Russia is also currently experiencing political turmoil which is impacting business – though some see current events as likely to have a positive impact on business. 

“Naturally, the current political uncertainty has an impact on the business climate,” says Dingemans. 

“My personal view is that we are entering a period of change in the approach of the government to business and to society in general. I think this process will continue for a period of time. However, in the medium to long term, this is going to be positive for Russia and for business.

Investing in Russia has to be a long-term strategy.”

Unlike Dingemans, however, ter Haar says the current political events are having little impact on Russia’s business environment, though he agrees the future looks good. 

“It is an interesting time to be living and working in Russia … many of our clients are bullish about the future of Russia and continue to invest in this huge market,” he says. 

Crackdown on corruption

While the current economic jitters plaguing Europe persist, there is no doubt that firms focusing solely on high-end M&A work are suffering. 

However, Russia’s continually evolving business landscape is offering firms an alternative practice area as it moves towards increasing transparency and cracking down on corruption. “[CIS] countries aren’t very high on the transparency index,” says Patterson.

“Certainly, any multinational company investing here needs to be very aware of the Foreign Corrupt Practices Act in the United States or the Anti-Bribery Law in the United Kingdom, which have very punitive sanctions.

We have always been busy doing due diligence from an investment standpoint, but now we are also being asked to do compliance due diligence, where we look to make sure that there aren’t grey transactions or money being hidden or cash payments being made.

“Compliance and anti-bribery is a growth area in our practice, because the rules in Russia have tightened.” 

Other boom areas, according to Dingemans and ter Haar, are banking and litigation, with real estate also enjoying a particularly busy period due to new investment Russia’s regional centres.

The cultural nuance

 The fact that so many foreign law firms have been in Russia for so many years attests to its overall and continual progress, despite the many “blips” that have popped up along the way.

 And, if having to function when it is minus 32 degrees Celsius doesn’t faze you, chances are you’ll find working as a lawyer in Russia very rewarding – albeit challenging and prone to cultural nuances. 

“Client relationships are a very important part of legal work in Russia,” says Dingemans. “As a foreigner working in Russia, one of the key factors has been to make the effort to learn some Russian, engage with Russian culture and traditions, recognise the differences in cultures, and have patience.

The legal work in Russia is as sophisticated as you would see in London or New York in terms of content, but it is made more interesting again by the cultural and social environment in Russia.”

For those firms that did take the plunge early on, it is a move proving to be consistently fruitful.

“There is no denying that Russia can be a challenging environment to work in, both in terms of the clients’ demands and expectations, but also the physical environment,” says ter Haar.

“But having been in Moscow for such a long time, and with a strong body of Russian lawyers and partners, we are well placed to deal with those challenges.

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