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#11 - JRL 7031
From: "Andrei Liakhov" <andrei.liakhov@nortonrose.com>
Subject: RE: 7030-Legal Profession
Date: Thu, 23 Jan 2003

RE: 7030-Legal Profession - Russian Lawyer's point of view

I work for an international law firm for almost 10 years and have triple qualification, including Russian and UK.

I have read Alex Nicholson's piece with some interest as I am a typical representative of what he refers to as " junior Russian lawyers who have come of age". This is a completely derisory remark which requires some explaining:

A. We did not have to "come out of age" either before or after '98 - 99.9% of us were either top of our class or well established specialists in our respective fields by the time we were hired. Most of us only required very basic training in essentially how to operate an office computer and ever important time recording system. Most of us due to the excellency of Soviet legal education were able to adapt to the requirements of Western clients much easier and quicker than the ex-pats who (with few notable exceptions like Marcia Levy of Norton Rose or Dominic Sanders of L&A) NEVER BOTHER to learn anything about Russian law or Russian business environment (or even Russian language despite living in Moscow for 10-12 years). Hence their tremendous ignorance of how the Russian legal system operates and silly complaints about: "getting copies of new legislation was virtually impossible" - there were no legal databases in the West either in 1992! Yes, you had to rely on a newspaper to read your law, but that was because the law required all new laws to be published in a national newspaper! (with several exceptions)

B. On top of that (again with a few exceptions) in the early 90ies Western law firms came to Moscow not through efforts of the dedicated pioneers but either because their key clients came here or because they got some IMF/TACIS/WB advisory work (e.g. Linklaters - on the back of a World Bank project to reform Russian transport laws). Some of that work was never finished (like the L&A transport project) but the money were spent..... Even though Russia was a bonanza in terms of legal fees in the early 90ies, international firms were not very eager to send their brightest or most experienced staff to Moscow, which was viewed in the majority of cases as an exotic outpost rather than a normal overseas office. That had an obvious impact on how the Russian practice was (and largely still is) perceived in head offices and how it is being developed.

C. Very often even experienced Russian staff (particularly true of US Firms) was made to perform support function and for a very long time (up until 1998) was not generally trusted (to put it mildly) by their ex-pat bosses. Difference in pay packages and posh lifestyles of ex-pats did not make any good either. Stories of pre-'98 ex-pats extravaganzas (particularly at client expense) are being told these days as "tales of the Wild East".

D. 99% of Western Law Firms pre '98 were extremely reluctant to take on purely Russian clients (with notable exceptions of Salantz Hertzfeld, Akin Gump and Norton Rose) and were primarily geared up to serve their regular Western clients doing business in Russia. With a notable exception of few UK firms all the Americans came in with the backing of their major banking clients which blossomed on, inter alia, GKO speculations until August '98.

E. '98 changed everything. With Western clients fleeing Russia en masse, a lot of firms either closed down Moscow offices completely or left a skeleton staff. Massive cut downs in expenditure coupled with the requirement to maintain a presence (only if token) in Moscow FINALLY made the majority of management committees to look at the Russian staff which is by a considerable margin cheaper than ex-pats. Thus claims of us "coming of age" are basically nonsense. Those managing committees which were too biased to see the not very hidden potential of Russian clients have ordered their Moscow offices to pack and leave. Those who had the courage and will to survive are now flourishing. The only way they could survive was to increase reliance on Russian staff and look closely at Russian clients. This shift had nothing to with the alleged progress in Russian reforms or professional development of Russian staff - just hard drive to survive in the tough environment of post '98 Russia. This also made Western firms to look at the developing Russian domestic market certain segments of which, (like domestic M&A and capital markets) got an unexpected boost from the '98 crash (e.g. Lukoil/KomiTEK merger or domestic lending programme of Sberbank which started shortly after the crash).

F. It would be a gross misstatement to hold legal profession a "peculiar type of business" in Russia or to claim that commercial law is the exclusive domain of Western law firms. Ours is as a straightforward business as accounting or investment banking. Furthermore, Russian law firms are expanding at a pace unknown to their ever cautious Western counterparts and are able to undercut them primarily because they are not bound by the strict time recording system universally adopted by Western firms and because they (as a rule) do not have to pay for excessively expensive ex-pat staff. Many of less wealthy Western clients prefer to use Klishin, Blischenko or Savelieva rather than Allen&Overy, Clifford Chance or White&Case as they are able to provide a comparable level and quality of service very often at a fraction of Western fees. Commercial litigation with a rare exception is exclusive domain of the locals. More and more Russian law firms are opening international offices in London and NY and getting prepared to compete with the likes of Clifford Chance and Cleary Gottlieb on their home turf.

G. Russian companies have started international expansion well before the crisis (e.g.LukAgip started in 1995) and the current interest in Russian clients from international law firms who missed the early train is caused by a dramatic decrease in their usual international business over the last three years (particularly in capital markets sector). Russian companies for obvious reasons present a much more attractive option than Latin America or South East Asia.... Again management committees of major law firms only noticed that when their banking clients started chasing mandates from Russian clients for their international work and not because they are interested in developing their Russian practice per se.

J. Although this does not relate directly to the legal profession as such - one comment on the dedicated Russian and East European investment funds. There were few attempts to set up such funds (e.g. Framlingtons, LLoyd George Asset Management, Pictet, etc), however their investment objectives and restrictions were so conservative that they were unable to fully participate in the Russian market even in the easy days of early 90ies. Their initial capitalisation was never at the level sufficient to make a real impact on Russian economy. A lot of them (save for EBRD's RVFs) suffered great losses in '98 and either closed down or withdrew. Those which still have Russian portfolios represent a tiny proportion of the total foreign investment in Russia.

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