Reform tops Russia and CIS debate agenda
12 September 2011 | By Dale McEwan, Joanne Harris
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Regulatory reform is top of the agenda for lawyers and their clients across the CIS region at the moment, as the continued strength of the local economy is keeping inbound and outbound investment high.
Speakers and delegates at The Lawyer’s top-level Russia and CIS debate last week highlighted the raft of reform underway in the region.
The continued dominance of English law in Russia is something that is a bonus for the international firms in Moscow. Panellist Dimitry Afanasiev, chairman of Russian firm Egorov Puginsky Afanasiev & Partners, said he estimated that 80 per cent of domestic transactions were still governed by English law.
Afanasiev revealed that the project to reform Russia’s Civil Code, which involves 12 domestic law firms that have banded together to “take scissors” to the current code, is progressing well. He reported that the government continues to pledge support for the reforms, which are widely seen as the precursor to establishing Russian law as the norm in business transactions.
Despite the use of Russian law, the corporate environment still operates in a different way to that in which English lawyers are used to. Ashurst senior partner Charlie Geffen said: “My own experience working on contracts in Russian deals is that negotiations don’t begin until after the contract’s been signed.”
Changes to the regulatory environment are also on the horizon in other CIS countries. Irina Paliashvili, president of RULG-Ukrainian Legal Group, said anti-corruption legislation was a key area of focus in Ukraine.
“There’s a huge demand for local anti-corruption legislation,” said Paliashvili. Connected to this is the region-wide issue of legal professional privilege, which is granted only to qualified advocates - those lawyers with rights of audience before the courts.
Referring to armed raids by government officials on law firm offices in Russia and Ukraine, Allen & Overy arbitration partner Anthony Sinclair asked about the effect on the local profession.
Both Afanasiev and Paliashvili said the raids were isolated incidents as, indeed, was the more recent raid by Russian bailiffs on BP’s offices in Moscow. However, Egorov and RULG have taken steps to protect themselves and their clients against such enforcement activity. Afanasiev said Egorov’s offices had bulletproof doors, while Paliashvili revealed RULG had located servers outside Russia and was able to disable its IT system at the touch of a “red button” in the event of a raid.
But Afanasiev added that investors in Russia accepted the higher risk factor with the opportunity for a better return. “If you compare it with some of the other Bric countries, things out there are a lot more hopeless - at least that’s what out clients tell us,” he said.
Tatyana Suleyeva, a partner at Kazakhstan firm Aequitas, said the regulatory landscape in the country was changing continually.
“We’re participating in a constant social experiment,” Suleyeva said. “Our legislation is changing kaleidoscopically. It’s very difficult to know what’s going on. It’s very beneficial for lawyers.”
Across the region, competition issues are also crucial. Paliashvili explained that Ukrainian antitrust law catches any deal involving any company deriving even a small part of revenue from the country.
In response to a question from Jorge Munoz, in-house counsel at GlaxoSmithKline, the panel said international clients had to be creative in their use of termination clauses in contracts. This is because terminating a contract in Russia and Ukraine in particular can trigger antitrust law, even if it is being done due to compliance issues in the West.
“You have to be careful to draft your contract in such a way that instead of saying that a violation of FCPA [the US Foreign Corrupt Practices Act] is a ground for termination, you should structure it as a breach of commercial obligation,” suggested Afanasiev.
With regards to the future of the legal profession, Paliashvili said she wants to see a dramatic improvement in legal education in Ukraine, which used to offer a fundamental and solid grounding.
She added that Ukraine is likely to witness a generation shift and an increasing emphasis on globalisation.
“We started 20 years ago as the pioneers. Now we’re veterans. We feel we’re dinosaurs. Ten years from now we’ll be gone and a brand new young generation will be in.”
Afanasiev said there is a general consensus that the legal profession should be regulated, but added that it is difficult to reach a conclusion on what the future holds. “What do you do about those who practised for years but are not advocates? Are you going to force them to take bar exams? How do you establish a threshold to keep the right people?” he asked.
“What I see is that no one wants to come up with a regulation with an agenda, for example one that pushes out foreign law firms.”
Afanasiev said there is agreement that everyone should be in the same regulated group and that the profession has to be self-regulated by lawyers rather than the government.