The ever-closer diplomatic relationship between China and Russia is undergoing a stress test.
The Chinese government has suggested to Russian president and aggressor, Vladimir Putin, that he should seek negotiations to end his conflict in Ukraine. While that suggests that the Chinese government is not endorsing the war that Russia has waged, China will also not be joining the ranks of many global governments in imposing sanctions on Russia.
China is Russia’s largest trading partner in the world and for many years, a long list of Chinese and international law firms have benefited from that relationship.
In 2020, King & Wood Mallesons launched its Russian Cloudoffice as part of a broader cloud-based office launches globally. Its lead partners for Russia-related deals are based in Singapore, Beijing, London and Dubai. The firm’s credentials on Russian deals are vague on its website but primarily involves energy, oil and gas and infrastructure projects.
Last year, Morgan Lewis & Bockius represented a consortium of investors led by the Russia-China Investment Fund (RCIF), which was established by the Russian Direct Investment Fund (RDIF) and China’s sovereign investor, China Investment Corporation, on the launch and joint development of pharmaceuticals holding company, Binnopharm Group.
Also last year, Bryan Cave Leighton Paisner advised the RCIF, and Russia’s state-owned and now highly scrutinised financial institution Sberbank on a US$14 million investment in an offshore investment holding company, Eruditor Group Holdings.
Leading Chinese law firm Fangda & Partners has also previously advised the RCIF.
Again, last year, international firms White & Case and Dechert advised on a 40% stake disposal in Russia’s Amur Gas Chemical Complex by the country’s top petrochemicals company, SIBUR Holdings, to China’s state-owned energy and chemicals company, China Petroleum & Chemical Corporation (Sinopec). White & Case represented the seller and Dechert acted for Sinopec.
White & Case, which also advises Russian-owned oil giants Bashneft and Rosneft, has since said that it will be “taking steps to exit some representations” in accordance with applicable ethics rules. It is unclear if SIBUR would be one of those demised relationships.
U.S. law firm Cleary, Gottlieb, Steen & Hamilton has also previously advised SIBUR. Back in 2015 and 2016, Cleary acted for SIBUR on two separate share sales to Sinopec and Chinese state-owned investment fund, Silk Road Fund, respectively. Herbert Smith Freehills was also involved in the latter transaction.
Cleary’s credentials for Russian-China deals run deep. In 2019, the firm represented Russian integrated telecommunications operator MegaFon in relation to its joint venture with Chinese conglomerate Alibaba Group, Mail.ru Group, and the RDIF, to build Russia’s consumer internet and e-commerce platforms.
Last year, the firm also advised MegaFon on its joint venture with Chinese financial technology giant Ant Group, and three other Russian funds and businesses, to upgrade the country’s digital payment and financial services. In fact, Cleary, as well as Sidley Austin, led on Hong Kong’s first Russian initial public offering, advising metals manufacturer, Rusal, back in 2010, raising US$2.2 billion.
A Hong Kong-based Cleary partner did not respond to specific queries and instead directed Law.com International to its London- and New York-based spokespeople, who did not provide a comment in time for publication.
Russia’s hope to revive its economy relies heavily on China as stringent western and increasing Asian sanctions continue to roll in.
Four other Asian governments – Japan, South Korea, Singapore and Taiwan – have also now imposed sanctions on Russia.
Singapore made a rare move to block certain Russian banks and financial transactions connected to Russia. The city-state, along with South Korea, also imposed export controls on items that can be used as weapons in Ukraine. Taiwan Semiconductor Manufacturing Company, one of the world’s largest computer chip companies, has halted sales to Russia.
Japan took a an even stronger stance and froze assets held by six Russian individuals including Putin, and three Russian banks- Promsvyazbank, Bank Rossiya and Russia’s economic development bank VEB. Its sanctions package also includes export controls on 49 entities dealing in the sectors including technology and semiconductors.
“Japanese banks, in general, are having difficulty to identify whether any money transfer involving Russia or Ukraine is prohibited under the sanctions imposed not only by the Japanese government but also other governments,” said a Japanese partner at one of the Big Four firms. Banks are therefore voluntarily suspending such transactions to avoid any breach of sanctions, he added.
International law firms have also been under the pump, advising Asian stakeholders on how the compounded sanctions would impact their investments in Russia.
Japan and Russia have long had a fractious relationship over territorial issues. Two of Japan’s islands were seized by the Soviet Union after World War II and Russia has considered those islands as part of its territory since.
To ease tensions, the two countries inked US$2.5 billion worth of deals in 2016. Law firms benefited from that progress, with the Big Four Japanese firms taking the lead in advising some transactions within Japan-Russia nexus.
Big Four firm Mori Hamada & Matsumoto, which did not respond to a request for comment, has established a Russian and Commonwealth of Independent States practice led by five Tokyo-based partners who advise on corporate, regulatory, finance and international trade matters. According to fellow Big Four competitor Nishimura & Asahi’s website, its Russia-Japan-related legal work includes mergers and acquisitions, business alliances and dispute resolution, particularly involving the energy, natural resources and automobile industries
International law firms with local expertise on the ground have also gained – in 2018, Freshfields Bruckhaus Deringer advised Japan Tobacco on its US$1.6 billion acquisition of Donskoy Tabak, then the fourth largest tobacco company in Russia.
Just last month, Baker & McKenzie’s Japanese office was still advising the Japan Bank for International Cooperation (JBIC), and the Tokyo branches of Deutsche Bank AG, Societe Generale Bank, and Goldman Sachs Realty on a US$871 million credit facility for Russia’s Irkutsk Oil.
Both Freshfields and Baker are listed as top legal advisors for Russian businesses. Freshfields has since issued a statement to say that it “has acted swiftly and responsibly with regard to ongoing mandates and new mandate requests to comply with our legal, regulatory and professional obligations and with a close eye to our values and reputation as a firm, irrespective of the potential business impact that will flow from this. Various mandates have therefore been terminated, suspended or declined.”
Baker McKenzie also issued a statement to say that it is “reviewing and adjusting our Russia-related operations and client work to align with all applicable sanctions and comply with these fast-evolving laws,” but declined to comment on specific client relationships.
