U.S. law firms have significantly reined in their ambitions in Russia over the last decade, but the fallout from the current Russian invasion of Ukraine is likely to test the resolve of those remaining players like nothing before.
A number of U.S. firms have already exited Moscow since Russia’s 2014 annexation of Crimea, leaving a core group with significant client relationships remaining. Roughly 20 Am Law 200 firms retain Moscow offices. But these firms are now likely to face reputational risks if they don’t reevaluate their presence in the country. Meanwhile, sanctions enveloping the Russian economy might make it impossible to continue business as usual, whether it’s conducting financial transactions or even getting paid legal fees.
“When you open an operation in Moscow, what every American law firm takes into account is political risk,” said Zeughauser Group consultant Bruce McLean, who oversaw Akin Gump Strass Hauer & Feld’s 1994 expansion into Moscow as the managing partner of the firm. “There have been incidents before of political upheaval, where there’s stress in the relationship with Russian clients, when U.S. clients aren’t going to be as active in investing in Russia. But none of that compares to what we’re seeing right now.”
The United States and the European Union first hit Russia with extreme economic sanctions in 2014, following the takeover of Crimea. And responding to alleged meddling in the 2016 election, the U.S. doubled down on 24 specific oligarchs allied with Russian President Vladimir Putin.
King & Spalding, Jones Day, Vinson & Elkins, Quinn Emanuel Urquhart & Sullivan, Orrick Herrington & Sutcliffe and K&L Gates have all left Moscow since 2015. In an email, former K&L Gates chairman Peter Kalis said the decision to exit was an easy one, as the firm hadn’t had the opportunity to build a substantial client base since opening in 2010 when sanctions hit.
Other firms have lost some of their most lucrative work in the country, like when a disputes lawyer who reportedly billed $20 million a year left Akin Gump in 2018 to launch an independent practice with a corporate partner after their clients were impacted by sanctions.
But global firms that remain in the country, such as White & Case, Baker McKenzie and Linklaters, have worked hard to establish these ties. Advising Russian companies on international capital work has been particularly lucrative for firms who’ve built up these ties, according to several sources.
“It took a long-term investment to open those markets and build a client base there,” said University of Pennsylvania Carey Law School professor Bill Burke-White, who focuses on international law and foreign policy. “All of that is completely under threat today in every way.”
Reputational Risk
As companies such as global energy giant BP and organizations such as FIFA, the world’s governing body for soccer, have swiftly moved to cut ties with Russia and businesses in the country, global law firms are bound to face calls to end their own relationships to Russian clients, particularly state-owned enterprises and others with clear ties to the Putin regime.
Think of this as just one more way in which firms aren’t exempt from growing scrutiny over their commitment to environment, sustainability and governance concerns.
“It’s something that every firm with a big Russian presence or client base is going to face,” said Burke-White.
Baker McKenzie, Sidley Austin and Venable all said Monday that they are parting ways with major Russian clients, while Linklaters said it was reviewing its Russia-related work.
But Kalis believes it would be repugnant if firms turned their back on these clients in the face of social opprobrium, citing the presumption that lawyers should see their engagements through, as long as ethical and legal ground rules don’t indicate otherwise.
“I would rather have Russian clients properly advised by leading US and UK firms than see them blowing by sound counsel,” he wrote. “But what if there are adverse commercial consequences to the lawyer or firm that continues with representation of its Russian clients? Please. Firms fought for Russian fees before the world deservedly turned on Putin. Lawyers shouldn’t change clients the way that vodka lovers change brands.”
Kalis suggested that firms balance their representation of Russian clients with pro bono representation of Ukrainian refugees and relief organizations.
Harsh Economics
But as the U.S. and governments around the world have ratcheted up sanctions against the Putin regime and pledged to bar Russian banks from the SWIFT financial messaging system, firms continuing these representations will face real economic challenges.
Burke-White, who served in the Obama administration on the Secretary of State’s Policy Planning Staff, said that the move to block Russian banks from SWIFT makes financial flows in and out of the country nearly impossible.
“If I was a U.S. law firm today, I’m not sure how I would get paid for doing work in Russia or for Russian clients,” he added.
Firms structured as Swiss vereins, such as Baker McKenzie and DLA Piper, may find it easier to maintain their Russian operations, owing to the relative independence of different national units. But more integrated firms may find they need to pause work in Russia or formally sever it from the rest of the firm. Otherwise, they may struggle to pay staff and maintain a physical presence in the country, along with sending money earned there to the firm’s fee accounts.
“The biggest workaround is the degree to which the firms’ Russian operations remain separate from their global operations, so you don’t need to have financial flows to the same level across borders,” Burke-White continued.
Other strategies are likely to again raise the question of reputational risk.
“Public sentiment is such that for you to say, ‘We’ve got a workaround and we’re OK,’ public opinion would probably find you guilty and string you up,” said Jomati Consultants principal Tony Williams, who was managing partner of Clifford Chance’s Moscow office in the 1990s before he became the firm’s managing partner.
When Williams was in Moscow, there was tremendous optimism about the prospect of Russia freshly aligning with the West as well as modernizing its legal system. At that time, the U.S. and U.K. law firms that moved into Russia were undoubtedly concerned about building a new profit center, but many also saw their presence as a step toward establishing the rule of law there. The events of the last week have made that point in time feel particularly distant.
But Burke-White, the University of Pennsylvania professor, said there’s moral reasons for law firm leaders to hope that Putin’s regime won’t last indefinitely and to take that into account in their decision-making.
“It’s one thing to not work for Russian state-owned enterprises; it’s another thing to think about what it means to abandon that market,” he said. “I hope firms will think about how to disentangle themselves from elements of the Russian government but not completely abandon a country that depends on building the rule of law for its future.”
