Russia – the home of vodka, fluffy hats and James Bond supervillains. But Russia is also home to some of the world’s richest men. And in a country where the rule of law can often be sidestepped by political connections and power broking, ambitious rich men controlling mega-rich companies make for contentious clients for law firms from the Western world.
According to the annual Forbes rich list, there are 33 Russian billionaires in 2006, with a combined total wealth of $172.1bn (£92.05bn).
For years Russia was the Wild West of the legal world. In August 2002, The Lawyer reported on the first instance of an international law firm being instructed on a local M&A dispute. A papermill had barricaded its gates and the staff took up pickaxes to defend their mill, while heavies dispatched by acquirer and oligarch Oleg Deripaska waited on the other side of the fence. In past years physical force would have settled that takeover, but instead the now-defunct Coudert Brothers was called in to settle the dispute in the boardroom.
Three-way merger
Deripaska is now the chairman of Rusal, the world’s largest aluminium mining company, which earlier this month secured a $30bn (£16.05bn) three-way merger with domestic rival Sual and the alumina business of Switzerland’s Glencore. That merger involved a web of domestic and international firms, with Ashurst teaming with local firm Egorov Puginsky Afanasiev & Partners for Rusal, and Linklaters advising both Sual and Glencore.
Deripaska took full control of Rusal through a series of buyouts from the most famous of Russian oligarchs, Roman Abramovich. Deripaska now controls a 66 per cent stake in the merged entity alongside fellow oligarch Viktor Vekselberg, who is the chairman of Sual.
Vekselberg is also the chief operating officer of TNK-BP, Russia’s second-largest private oil company. Vekselberg and fellow oligarch Mikhail Fridman took over the Tyumen Oil Company in the 1990s privatisation years following the collapse of communism to make their fortune, then merged it with BP in August 2003. Fridman is also the founder of Alfa Group, which has a strong interest in telecom assets in Russia and the former Soviet states.
Big change
The cold winds of change are blowing in Russia. Instances such as the jailing of Yukos oligarch Mikhail Khordokovsky are unlikely to happen again and Russia is now firmly entrenched in the free market.
Indeed, Aleksei Mordashov, who runs steel miner Severstal and narrowly failed in his bid to merge with Arcelor ahead of Mittal, is campaigning for Russia’s entry to the World Trade Organisation, while Vekselberg heads a committee on international cooperation at the Russian Union of Industrialists and Entrepreneurs, an oligarch lobby group.
The 1998 financial crisis focused the mind somewhat, and Russia’s largest companies and the multibillionaires behind them are realising they need to clean up their acts if they are to do business on the world stage.
Lukoil, headed by Vagit Alekperov, led the way with a listing on the London Stock Exchange in 2003, instructing US firm Akin Gump Strauss Hauer & Feld. It is a trend many companies have followed since, and many more are planning.
Ashurst co-head of the Russia and CIS group Sergei Ostrovsky, who has a personally signed commendation from president Vladimir Putin on his desk, says: “Russian companies are eager to integrate into the UK and EU marketplace. They want to play by the rules now, and they need international law firms to tell them what those rules are.
“The Wild West days are coming to an end,” he adds. “The companies are too big and too much in the spotlight on the world stage to continue those methods. They want to be respectable and, crucially, they want access to Western capital.”
It is a view shared across the legal fraternity. Chadbourne & Parke project finance partner Nabil Khodadad says: “Oligarchs are using legal counsel more often, and they’re varying who they use a lot more than they have in the past.
“Many are starting to clean up their acts, hiring accountants to audit accounts, and preparing financial statements to international accounting standards. Some are listing on stock exchanges around the globe. Along with all this, they’re hiring more and better lawyers to ensure things are done properly.”
The oligarchs have seen the way forward, and are moving to meet the fiduciary and regulatory standards required to do business with the West, and the law firms are reaping the benefits. But for now, the Russian Federation remains a whole different ball game.
Who’s cutting the red tape for the billionaire businessmen?
Roman Abramovich
Estimated fortune: $18.2bn (£9.73bn)
Business interests: Chelsea FC
Law firm: Skadden Arps Slate Meagher & Flom
Vagit Alekperov
Estimated fortune: $11bn (£5.88bn)
Business interests: Lukoil
Law firms: Akin Gump Strauss Hauer & Feld; Denton Wilde Sapte; Norton Rose; White & Case
Vladimir Lisin
Estimated fortune: $10.7bn (£5.72bn)
Business interests: Novolipetsk
Law firm: Debevoise & Plimpton
Victor Vekselberg
Estimated fortune: $10bn (£5.35bn)
Business interests: Sual; Renova; TNK-BP
Law firms: CMS Cameron McKenna; Linklaters
Mikhail Fridman
Estimated fortune: $9.7bn (£5.19bn)
Business interests: Alfa Group; TNK-BP
Law firms: Akin Gump Strauss Hauer & Feld; Chadbourne & Parke; Herbert Smith; LeBoeuf Lamb Greene & MacRae; Lovells
Oleg Deripaska
Estimated fortune: $7.8bn (£4.17bn)
Business interests: Rusal
Law firms: Ashurst; Bryan Cave; Clifford Chance; Egorov Puginsky Afanasiev & Partners; Gibson Dunn & Crutcher
Aleksei Mordashov
Estimated fortune: $7.6bn (£4.07bn)
Business interests: Severstal
Law firms: Allen & Overy; Freshfields Bruckhaus Deringer; Willkie Farr & Gallagher
Vladimir Potanin
Estimate fortune: $6.4bn (£3.42bn)
Business interests: Norilsk Nickel
Law firm: White & Case
Mikhail Prokhorov
Estimated fortune: $6.4bn (£3.42bn)
Business interests: Norilsk Nickel
Law firm: White & Case
Vladimir Yevtushenkov
Estimated fortune: $6.3bn (£3.37bn)
Business interests: Sistema
Law firm: Latham & Watkins
