Baker McKenzie has bagged the dubious honour of bookending the three-decade love affair English and US law firms have had with Russia.
The Chicago practice was the first to open in Moscow in 1989 in the era of perestroika and even before the final demise of the Soviet Union. This week, it was the last of the big American and London players to close their Russian operations against the backdrop of Vladimir Putin’s widely criticised war on Ukraine.
As it left, Baker McKenzie sounded remarkably similar to the dozen or so other international practices that have baled out over the past three weeks. It was “a difficult decision” but the partners “strongly condemn the Russian invasion”, which “stands in stark contrast to our values”.
Until the end of February, the values of western law firms in Russia could probably have been encapsulated in the phrase “coining it”. And their rapid departure, some analysts suggest, has far less to do with sympathy for Ukraine and more with the practicalities of the sanctions imposed by their countries’ governments on the Kremlin.
Commentators who are close to a range of City law firms, but did not want to be identified, say that most law firm departures from Moscow and St Petersburg have more to do with the fact that the clients of those offices are sanctioned individuals and organisations. In short, says one commentator, “it isn’t legally viable to continue the relationship”.
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Because of the sanctions, the cadre of western firms that were in Russia would have found it difficult to continue in the jurisdiction as local lawyers at their offices would have had past involvements with sanctioned entities or individuals. As one analyst says, “anyone remaining in Russia these days has to be part of Putin’s circle”.
From a rules perspective, bringing down the shutters on offices for some of the English firms was not as difficult as it might appear. While all of the ten highest earning City practices had offices in Russia, the Solicitors Regulation Authority says that only one — the Anglo-German firm Freshfields Bruckhaus Deringer — was covered by the English watchdog. The other nine operated under structures that meant that they were regulated locally.
Still, Tony Williams, the founder of Jomati, a legal profession consultancy, notes that the practicalities of ditching Moscow offices will not have been easy. “They will have had to have a number of discussions to identify people who can be transferred out of Russia and those who may have to be made redundant in Russia,” says Williams, adding that it may also be “difficult to get money into Russia to pay off the appropriate staff”.
However, Williams points out that for those English firms that operated “Swiss verein” structures in Moscow — effectively independent, limited liability offices — “the issues are somewhat easier in that they can just terminate their membership”. In those cases, the business remains, without the branding.
English firms will also take a considerable financial hit by pulling out. City firms do not publish separate revenue figures for operations in Russia, but researchers at The Lawyer website have calculated earnings for the top ten firms based on those practices’ average revenue per lawyer.
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On that basis, Linklaters has the most to lose thanks to Putin’s war, having estimated Russia earnings last year of nearly £48 million. DLA Piper, an Anglo-US firm, is estimated to have earned more than £38 million, while Herbert Smith Freehills, an Anglo-Australian practice, is estimated to have earned nearly £27 million.
Is there a way back to the Russia gold rush for international firms? Not any time soon, Williams says.
“Given the range of major corporations that have either withdrawn from Russia or have currently closed their operations, there was no choice for the firms but to exit,” he says, adding that it is “very unlikely that firms will seek to re-establish in Moscow while Putin or any of his ilk are in charge. This will be the case even if sanctions are eased.”
Russians have been important to UK lawyers both in and outside Russia. Analysis of English commercial court figures before the coronavirus lockdowns show that Russians formed the third largest group of litigants after those from the UK and Kazakhstan.
In their 2020 report, researchers at the Portland consultancy found that before the pandemic “Russia and Kazakhstan had more litigants in London than ever before”.
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In light of revelations that have emerged as part of government sanctions over the invasion of Ukraine, those warning about the dangers of that rush of litigants may be allowed a wry smile.
In 2018 the Commons foreign affairs committee published a report that lambasted the government for an allegedly lax approach to tackling international money laundering. Its chairman, the Conservative MP Tom Tugendhat, lashed out at City law firms that had offices in Moscow, saying that he feared that they “and other companies representing the Russian oligarchs and their businesses, provide a veneer of respectability that enables their corrupting influence to spread”.
At the time, Marius Nasta, the chief executive of Redress Solutions, a litigation funder, told The Times that “attempts are being made to use the English legal system to put in place money-laundering schemes through collusive litigation”.
Perhaps the Ukraine war will bring a dose of disinfecting sunlight to relations between western lawyers and Russia.
