Written by Jonathan Lack
When it comes to commercial awareness, there is a never-ending array of information available to the aspiring trainee lawyer: From leading financial publications such as the Financial Times, Reuters and Bloomberg, to more student-focussed options such as Chambers Student and The Corporate Law Academy.
While all of these sources provide excellent content on commercial awareness and the law firm application process, less attention is (understandably) placed on emerging markets.
This article is an introduction to one of these markets: Russia. It will cover some of the challenges and opportunities faced both by the Russian jurisdiction and Russian clients living abroad, provide a glimpse into the key commercial awareness stories facing the region and highlight their wider relevance to aspiring trainees.
The Russian Economy:
The first thing that comes to mind when mentioning the Russian economy is oil. It is a fair assumption, contributing to just under $74 billion of Russia’s exports in 2020. It is part of Russia’s rich reserves of energy and natural resources, including metals such as gold, wood and coal. Outside of Energy & Natural Resources, there are also opportunities to work with prestigious Russian clients in Construction & Real Estate, one of the few sectors to have grown during the 2020 pandemic slump. Private client work also provides opportunities to work with Russian clients, much of which is settling disputes between oligarchs of Russian origin living in London.
There is also the opportunity for lawyers to work with clients with a Russian connection internationally, with a number of Russian-born entrepreneurs based in London; the CEOs of Revolut and Badoo and Lebedev Holdings (owner of The Evening Standard and The Independent) to name a few. Other significant names you may see being thrown around include Tinkoff, Yandex, Gazprom and Aeroflot.
Challenges:
Oil prices - Even before the pandemic, Oil & Gas clients such as Shell and BP have been under pressure to endorse renewable energy resources in response to climate change. These developments have only further highlighted Russia’s need to diversify its economy and lessen its overreliance on oil & gas exports, heavily influencing economic performance. These issues have only been compounded by a lack of demand for oil in the light of COVID-19, with the price of Brent Crude decreasing as low as $22.58 per barrel. Oil prices also tend to react to geopolitical issues, as demonstrated by Russia’s decision to reject demands from OPEC to cut oil production has made oil prices even more volatile. These geopolitical events are sometimes as extreme as drone strikes, such as the attack on oil fields owned by the state-owned Saudi Aramco. Future trainees may find themselves dealing with clients wanting to create large scale-construction projects, many of which are oil and gas pipelines involving Russian clients (the most relevant to be discussed below). They could be advising clients as their general counsel or helping lenders finance projects (many of whom tend to be banks). Meanwhile, understanding the factors affecting oil prices is significant as their volatility can influence clients’ motivations to go ahead with projects and increase lenders’ demands for insurance. Sanctions - Western sanctions on Russia emerged in response to foreign political developments in crises such as the annexation of Crimea and Ukrainian protests in 2014. The effect of US and European sanctions on Russia is epitomized by the stop-start Nord Stream 2 Project, a 1,220 km gas pipeline proposed to provide up to 55 billion cubic metres of natural gas to Europe via Germany and the Baltic Sea. While Germany had endorsed the project to support its manufacturing-based industries, it has caused controversy due to its location, bypassing the first pipeline through Ukraine and exacerbating the fear of Europe’s overdependence on Russia. The project was 90% complete when the United States declared it would sanction any company associated with the project. This has forced European companies such as Royal Dutch Shell and some British insurance companies to reconsider their role and in some cases, pull out of the deal. It has also successfully stalled the project’s progress and put its completion into doubt. Domestic political issues: It is difficult to discuss the Russian legal market without covering its spectre of tight state-politics and control, with newsworthy cases of large-scale bribery, money-laundering, and corruption aplenty. The most recent of these is the protests surrounding opposition activist, Alexei Navalny. The difficulties surrounding Russian business under state interference and corruption are also highlighted by the case of the American financier, Michael Calvey, accused of embezzlement, and the death of investigative tax lawyer, Sergei Magnitsky. The vicious circle of sanctions and domestic political issues does not bode well for transactional deal-making, with the number of Russian firms listed on the London stock exchange decreasing from 99 in 2017*, to just 24 in 2020. At the same time, potential trainee lawyers may find that dealing with clients in jurisdictions susceptible to sanctions make for interesting due diligence, e.g. ensuring that the transition of assets as part of an acquisition does not indirectly lead to a sanctioned individual or country.
Movement from International Law firms to Domestic Law firms.
The effects of political turbulence have also been noticed across International Law Firms in Russia. While the U.S law firm Jones Day closed its Moscow office, many of its staff have teamed up with leading lawyers from Akin Gump Strauss Hauer & Feld to create domestic law firms such as ALRUD and Egorov Puginsky Afanasiev & Partners. The rise of domestic law firms may affect potential future trainee lawyers looking to carry out secondments at large corporate law firms, with seven law firms canceling Moscow secondment opportunities between 2016-2017. If you are going to talk about multijurisdictional transactional deals across emerging markets as part of an application or interview, make sure the deal involves the firm’s London office (guess who has made that mistake before… *sighes*). Some firms (e.g. Dentons) have Swiss Verein structures, meaning they can easily buy up other firms. This can make discussions on international deals irrelevant to graduate recruitment and partners as, in the case of Dentons, the offices have little communication or cooperation between each other, while many of the acquired firms retain their original culture. Other firms such as Baker McKenzie and Herbert Smith Freehills have much more integrated offices, and so trainees could end up working on transactions involving all corners of the world. This is the type of information which makes 1st-year events and open days worth attending. Opportunities: Litigation & Arbitration: The volatility of judgment in Russian courts encourages wealthy Russian businessmen and oligarchs to use the English court system. The impartiality and the ease of enforcing decisions are other reasons cited as to why cases such as Roman Abramovich vs Boris Berezovsky, a contract dispute over the ownership of the oil company Sibneft, can provide opportunities not only for aspiring trainee solicitors but also barristers, to deal with Russian cases. While economic problems may have caused transactional deal-making involving Russian clients to dry up, work appears to have ‘shifted‘ rather than ‘disappeared’. This can be seen on a broader scale, highlighting the never-ending demand for lawyers, regardless of the economic situation. During economic recessions, disputes become commonplace. When times are good, the roles switch round. Alternative sectors: Due to difficulties facing construction projects in Europe, Russian clients’ attention has somewhat turned to other regions. One emerging opportunity is Africa, which has seen a 350% increase in trade across the past decade. Projects such as Lukoil’s Deepwater Tano Cape Three Points off the Ghanaian coast, Rosneft’s gasfield acquisitions in Egypt, and the diamond company, Alrosa, setting up mining projects in Angola are the types of deals to look out for in the coming years. Another potential partner is China with the two nations negotiating 70 joint investment projects worth $107 billion in 2020 alone. While political motivations of the two countries may lead to domestically coordinated work, projects such as the Silk Road Fund (advised by lawyers at Herbert Smith Freehills) are nevertheless, capable of providing complex, multijurisdictional M&A work to trainees in London offices. Sanctions are not all doom and gloom: Although sanctions have complicated matters for Russian clients looking to orchestrate multijurisdictional deals, they have not caused deal making to completely dry up. FixPrice, a discount retail chain, is looking to raise at least $1.7 billion through an IPO listing in London Stock Exchange in 2021 is one such example. A trainee task in a deal such as this would be involvement in negotiations of the share structure, organising the listing in a way that does not deter potential investors who may be suspicious of underlying links to political regimes.
Concluding Arguments: It is true that issues surrounding corruption, human rights and political issues make for a ‘wild West’ experience for lawyers dealing with Russian clients. At the same time, the country’s economic, political and historical situation can make for incredibly interesting work for future trainee lawyers, especially at major international law firms. * Statistic includes both Russian and CIS companies Sources Used: https://www.chambersstudent.co.uk/law-firms/trainee-life-abroad/moscow https://www.legal500.com/c/russia https://thestudentlawyer.com/2019/07/08/the-student-lawyers-introduction-to-sanctions To keep up to date with Russian political, financial and legal information, see the following sources: https://www.themoscowtimes.com https://meduza.io/en Recommended further reading: Under the Wig: A Lawyer’s Stories of Murder, Guilt and Innocence – William Clegg QC. The Oligarchs: Wealth and Power in the New Russia – David E Hoffman (also available in the SSEES library).