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No Russian clients forever?

April 14, 2022
Insight
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Legal firms under attack for their links with Russia, ‘majors’ are winding down their offices in Russia

Large international legal firms have long enjoyed a lucrative business helping clients linked to Vladimir Putin’s regime in conducting their projects in Russia and worldwide. Now the whole legal industry is under fierce pressure to re-evaluate those relationships as sanctions are imposed. Lawyers still must find a proper balance between the government’s intention to press the Russian economy as hard as possible and their duties to the clients and rules of conduct.

"The legal profession, everybody involved in assisting those who wish to hide money in London and assisting corrupt oligarchs have been set on notice that their actions are under scrutiny," Boris Johnson told recently the Parliament. "If they break the law, if they undermine the interests of this country and advance the interests of Putin's war machine, they will pay a price."

Foreign secretary Liz Truss has reportedly told MPs that ‘London law firms’ are delaying government efforts to implement sanctions against Russian oligarchs. Conservative MP Bob Seely told the House of Commons that the English legal system had become ‘corrupted’ by Russian money and influence.

However, it should not be forgotten that it was Boris Johnson who, as London Mayor, called on Russia’s oligarchs to flock to London’s courts and praised the city's lawyers for serving them. “If one oligarch feels defamed by another oligarch, it is London’s lawyers who apply the necessary balm to the ego,” boasted Johnson back in 2012.

He urged even more Russian oligarchs to bring their (possibly dirty) money to the City, telling the CBI’s annual conference that: “I have no shame whatever in saying to the injured spouses of the world’s billionaires: ‘If you want to take him to the cleaners, darling, take him to the cleaners in London.’

Litigants from Russia were involved in more commercial cases in London in the year to March 2021 than any other foreign country except the U.S., according to a report by Portland, a communications firm.

The Law Society President, I. Stephanie Boyce has defended the lawyers under siege saying that “it’s the job of solicitors to represent their clients, whoever they may be, so that the courts act fairly.” In its update from 8 March 2022 the Law Society stressed: “However, we are again hearing rhetoric about solicitors as ‘professional enablers’ – this is a concerning and damaging narrative on the reputation of the profession. The Law Society will continue to champion the profession and counter this narrative.” Nevertheless, the situation regarding British and international legal firms with Russian clients, especially those having their offices in Russia, remains worrying and unclear. Some firms must make difficult choices.

The firms are split into two big groups: the first one is either closing their offices completely or suspending all their operations for an indefinite period; the second – just terminating their relationships with sanctioned individuals and entities and ‘reviewing their project portfolios’.

The ‘fast leavers’ are the recognisable leaders of the international legal market: Linklaters (to close in Moscow and “wind down operations” in Russia, making ultimately redundant around 70 lawyers), Norton Rose Fulbright (‘closing down its office and wounding down all the operations’ – according to the press release), Cleary Gottlieb Steen & Hamilton (will “temporarily” close its Moscow office), Freshfields (closing its Moscow office), Squire Patton Boggs (“will cease all activity in its Moscow office”), Morgan Lewis & Bockius (its office in Moscow will be wound down with the majority of its lawyers in the Russian capital set to remain with the firm in different jurisdictions), Latham & Watkins (“immediately begin an orderly transition” from Russia to the independent international  firm ), Akin Gump (will pause operations in Moscow “pending further developments), Eversheds Sutherland and Gowling WLG [1].  

Amongst the initial ‘stayers’ were also well-known majors: CMS (Moscow office under ‘critical review’), Hogan Lovells (“terminating some matters”), Herbert Smith Freehills (keeping its Moscow office open but will stop ‘certain’ Russian work), White & Case (“Moscow office remains open, but review is ongoing”). However, later all of them decided to close their offices at least temporarily. So, there are no more intentionally recognised ‘majors’ with functioning offices in Russia.

Some firms decided to transfer their Russian legal teams to the ‘independent’ local legal firms, evidently aiming to continue business ‘as usual’ through them. For example, Dentons decided to spin out its 250-strong Russian arm into an independent firm. Baker McKenzie - the first international firm that came to Russia in 1991 and the last large international firm to “leave” - has also announced the spin out of its Moscow and St Petersburg offices into an independent law firm. Some 130 lawyers and 260 staff in total are affected by the move. To what extent this strategy is effective in Russia, or results in truly independent firms, needs to be seen in 2-3 years.

Several ‘leavers’ do not deny that they continue providing legal services to non-sanctioned Russian clients through their other offices mostly with the exception of state-connected bodies [2].  

It should be noted that the firms leaving Russia at the wake of the ‘sanction war’ are unlikely to come back, at least under the current political regime. Their presence in the Russian legal market even through third party firms will not be welcomed.

Considering the general lack of M&A and international litigation work and inability to retain or find new state-connected clients, the Russian legal market will face the most tremendous change since the early 90s. The bulk of redundant professionals are likely to be employed by the rising Russian majors, which will dominate the national legal market with much more competitive fees. Therefore, potential western clients will have either to contact them directly or liaise through the mid-market British and international firms that keep their links to Russian colleagues due to the lack of reputational exposure.

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[1]According to GolbalLegalPost and The Lawyer.

[2] See for full details of international legalfirms ‘exodus’ https://300.pravo.ru/story/239607/(in Russian, but with references to press-releases)

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