It was uncharacteristically decisive. Rapidly after Russia did the unthinkable and invaded Ukraine on 24 February, many international law firms with Moscow operations hurried out strongly-worded statements at the behest of a hysterical legal press. Linklaters was the first of the major players to react, announcing on 4 March that it would ‘wind down’ its Moscow office, and vowed not to represent any clients connected to the Russian regime. Norton Rose Fulbright (NRF) promised the same, even swearing to withdraw ‘as quickly as we can’, while a host of firms ominously, and vaguely, pledged to ‘review the situation’.
The next few months saw many firms ostensibly live up to promises, albeit at varying speeds. Some favoured a hard and fast exit, and some went as far as to cease acting for any Russian nationals, irrespective of perceived guilt or innocence connected with the war. Fewer took more time to gently spin out their Moscow hubs to become new separate entities, with an optimistic view to reconnecting if the global situation ever makes that politically viable again.
Joining Linklaters and NRF in completely shutting down their Moscow bases were the likes of Akin Gump, Latham & Watkins, Freshfields Bruckhaus Deringer, Cleary Gottlieb, Allen & Overy (A&O), Clifford Chance and Herbert Smith Freehills (HSF). Firms taking the latter, softer, approach include Mishcon de Reya, DLA Piper, Dentons and Eversheds Sutherland.
But for all of the bravado, behind the scenes there was panic. ‘Winding down’ an international office in a matter of weeks would not only be a logistical nightmare; there would also be the ethical and regulatory minefield of abandoning staff who largely have no connection to Vladimir Putin’s regime. As for divesting dodgy Russian clients, even with the best of intentions, it is not that simple.
Richard Moorhead, professor of law and professional ethics at the University of Exeter, sums up the chaos: ‘My initial impression was that there was a panic where lawyers and law firms raced to respond to the criticisms that they were servicing Russian proxies of Putin. This led to a general divesting of interests in Russia. Firms have an obligation to their employees in Russia, but the imperative seemed to be “how quickly can we sever ties?”’
‘There was a panic where lawyers and law firms raced to respond to the criticisms that they were servicing Russian proxies of Putin. The imperative seemed to be “how quickly can we sever ties?”’
Richard Moorhead, University of Exeter
As Legal Business endeavoured to shine a light on these complexities, firms that were recently so robust suddenly became reticent. While clearly recognising the diplomacy required in speaking up in such a fraught situation, questions remain over whether some regret buckling to external pressures too soon and making rash decisions.
And there are big decisions to make. When analysing the fallout through an ESG lens, firms have serious social and governance responsibilities when it comes to their own staff. Even if wrapping up in Russia is the most prudent idea, what of firms’ duty of care to their Moscow employees?
Relocation, relocation, relocation
Illuminating the behind-the-scenes practicalities of wrapping up Russian offices proves challenging in the absence of first-hand accounts. But Jonathan Bloom, chair and chief executive of Avonhurst, a firm offering both legal and geopolitical advisory services to clients, offers insights based on experience: ‘When you shut down an office or relocate people, whether that’s due to an international or economic crisis, it’s the same mechanics you go through. There could be local law consultations required with employees, issues with landlords, contractual requirements. In many ways, lots of businesses probably dealt with this in the same way as they would in a financial crisis. It was just tainted by the international crisis.’
Of particular interest were the firms who claimed to offer Russian staff the opportunity to ‘relocate’ to other parts of the international network – a worthy idea in theory, but analysing the track record leads to murky results. A&O is one of the firms claiming to have offered to relocate Moscow staff, but does not provide any details. Hogan Lovells is able to name one instance in the form of its Moscow managing partner, albeit with the potential for more moves this year: ‘Natalia Gulyaeva will move from Moscow to Düsseldorf with a small team where she will continue advising clients on intellectual property, media and technology matters.’
One managing partner of a top 50 firm without a Moscow office reports that his fellow leaders are trying very hard to get people out but it’s easier said than done. ‘How do you get them out? There’s no airplanes! I’m getting the impression there hasn’t been a massive amount of relocation, but it’s not for the want of trying.’
As well as the practical problems, getting people to just abandon their country of residence is not simple. Another law firm leader brings the point home: ‘When we opened a regional office and we started encouraging people to relocate, we’d have people saying: “but I’ve got two kids in school in Croydon” We’re not talking about sole 25-year-old people with no family.’
Cleary is more candid than most. The firm has a well-established Moscow presence, having had an office in the Russian capital since 1991, numbering 13 lawyers prior to the invasion. It also represented prominent Russian businesses, such as oil giant Rosneft, sanctioned bank Sberbank and natural gas company Gazprom (previously owned by the high-profile sanctioned oligarch Roman Abramovich).
Despite this, the firm chose not to sidestep questioning. Tihir Sarkar, London M&A partner and member of Cleary’s executive committee, says the firm has relocated half its Moscow team to Abu Dhabi and outlines the process: ‘The main practicalities relate to helping people who will be relocating with establishing their immigration status in their new locale, complying with any applicable and new Bar registration requirements and giving up one’s office space where the office is closing, and arranging for office space and administrative support in the new location.’
Sarkar also says that Cleary had already been considering the viability of its Moscow operations prior to the invasion, before ultimately deciding to close down: ‘Managing risk goes to the heart of what we do as a firm for our clients and the business we run, we are constantly running scenarios and looking at areas of risk to our practice, and had considered the position of our Moscow office well before the crisis unfolded.’
‘Managing risk goes to the heart of what we do as a firm for our clients and the business we run. We had considered the position of our Moscow office well before the crisis unfolded.’
Tihir Sarkar, Cleary Gottlieb
Simmons & Simmons also wins plaudits for going on the record, with the firm fronting Sonali Siriwardena and Sophia Adams Bhatti, head of ESG and head of purpose and impact, respectively. The former is quick to remind firms of their responsibilities, believing those who took time in winding down in Moscow made the right call: ‘There is a strong point around your duty of care to your employees who might be immediately impacted if you decide on a whim to cut ties. They might not be directly involved or supportive of what’s happening, so could be inadvertent victims in this farce of geopolitics.’
Deliberations over the future of Moscow offices were reserved for the globetrotting international firms, but nearly all firms have been forced to assess their client base as a result of the invasion and ensuing sanctions. This has been an equally fraught process.
From a purely logistical standpoint, divesting even sanctioned clients can be difficult. While non-contentious matters pose no difficulty when disposing of unwanted clients, active litigation necessitates a duty of care that prevents firms from simply cutting and running. This quandary has led to some novel situations.
White & Case and Debevoise & Plimpton were representing sanctioned bank Sberbank in a case brought by the parents of Quinn Schansman, an American who died in the downing of Malaysia Airlines Flight 17. They allege that Sberbank financed the Donetsk People’s Republic, which they argue is a terrorist group responsible for the attack that killed 298 people.
Both firms applied to the judge in a federal court in Manhattan, arguing that the case be dismissed because it is a Russian state-owned bank and therefore has sovereign immunity from lawsuits in the US. Effectively, the firms had to argue that the bank’s connections to Russia excused it from the lawsuit, while also being the reason the firms wanted to cut ties.
‘If we are going to ban giving legal advice to Russians, then what on earth are we fighting for?’
Law firm partner
In other high-profile examples, HSF was able to shed its representation of Nord Steam 2 in an $8bn Energy Charter Treaty claim against the EU, and Latham was able to give up acting for sanctioned bank VTB Bank as part of the Malaysia Airlines Flight 17 trial.
Cloak and dagger
Outside of arcane court procedures, there are also more mundane obstacles to divesting client work. How do you truly know if your clients are linked to the Russian regime or not?
Moorhead says that firms, even prior to the invasion, had robust ‘bureaucratic’ procedures in place when it came to vetting clients such as KYC (Know Your Client) and AML (anti-money laundering). However, he suggests that a more nuanced approach is required when it comes to Russia: ‘Firms were good at that [KYC and AML]. What they weren’t good at was value-based judgements as to whether a client was a risky one or not – but that’s quite hard to determine at such a scale.
‘I guess you can describe it as a battle between a cloak and dagger versus a civil service approach. Firms are so driven by league tables and profits and the bottom line that partners have every incentive to give the best possible impression of their clients. A bureaucratic, civil service approach can’t deal with that.’
This suggestion caused some partners to bristle, one of whom fumes: ‘Everyone assumes we’ve got perfect visibility about our clients. We do diligence checks in good faith – and we don’t just trust partners, we do independent checks. But why do people think we can tell perfectly in advance how all clients made their money? Do we have access to their bank accounts or their criminal records which the government has? We don’t. Money laundering has been outsourced by the state, to those far less able to find out about the history. The original idea of “know your client” was to ensure law enforcement could follow up and investigate false disclosures, but governments are the ones not policing this, and they don’t try effectively to share information cross-border. It’s crazy. We just don’t always know despite trying.’
A senior partner chimes in: ‘[The invasion] has meant that your level of KYC and conflict checks has been ramped up, but the Russians are very good at hiding who’s the ultimate beneficiary owner. It has slowed us but not stopped us.’
‘It’s not about nationality. This isn’t a war against everyone who was ever born Russian. By taking a really blunt approach to it, you undermine the very values you seek to uphold.’
Sophia Adams Bhatti, Simmons & Simmons
Simmons is one of many firms to have a pre-existing ‘new business committee’ prior to the invasion, but recent events have heightened the scrutiny. Adams Bhatti says: ‘Anything that has a Russian interface comes to that committee and we look at it in detail. There are some clear black-and-white mandates, but the bulk of it is grey. That committee spends a great deal of time thinking about whether we are inadvertently or otherwise supporting the regime. That has led to us turning away business that may otherwise have been profitable.’
Adams Bhatti gets to the heart of the moral issue. How do you deal with the overwhelming grey area when it comes to assessing clients? Most firms have distinguished between the average Russian citizen and those propping up Putin, but some have implemented blanket bans on representing any Russian nationals. CMS, for example, has vowed not to accept any work from ‘Russia-based entities’. Likewise, Gowling WLG has declared: ‘We will no longer accept new instructions from Russian clients, sanctioned or not.’
This approach bemuses one managing partner: ‘We encountered a Russian national who’s lived in Monaco for 28 years, but she still retains her Russian passport. She wanted us to act on a perfectly legitimate and ordinary transaction. Her previous solicitors said they had a ban on acting for all Russian nationals and I just said that was bonkers. So I acted for her and it was all fine.’
Another partner is similarly indignant: ‘If we are going to ban giving legal advice to Russians, then what on earth are we fighting for? Which other nationality or group of people could be banned on the whim of government or a populist leader, depriving them of the legal rights they are supposed to have, taking them outside protection of the law?’
Adams Bhatti adds: ‘It’s not about nationality. This isn’t a war against everyone who was ever born Russian. There are good people in Russia who are probably working for the opposition. By taking a really blunt approach to it, you undermine the very values you seek to uphold. Considered reflection on each case is so important – and it doesn’t make for a great press release.’
Old empires
It would be disingenuous to suggest, for all its recent crimes, that Russia is the sole rogue actor on the world stage. Russia is certainly not the only unsavoury jurisdiction to rely heavily on UK law either. Will firms be keeping a closer eye on other politically sensitive clients and jurisdictions?
Audrey Koh, partner at Avonhurst, takes a cynical approach, suggesting: ‘Firms have always been open to representing PEPs (politically exposed persons) with enhanced due diligence. But if right now firms had a PEP from Venezuela or Iran, they wouldn’t react in the same way as if they were from Russia. And that’s quite interesting. The threat of sanctions down the line is a big cloud hanging over it, but given the devastating impact of the crisis, PEPs from Russia are paid more attention than counterparties from other countries.’
‘Firms have always been open to representing politically exposed persons with enhanced due diligence. But if right now firms had a PEP from Venezuela or Iran, they wouldn’t react in the same way as if they were from Russia.’
Audrey Koh, Avonhurst
Sarkar believes that even within the scope of the sanctions, firms are forced to pay closer attention: ‘The number and robustness of these sanctions has greatly increased over the past few months. Likewise, the extent to which there are substantive differences among the various regimes has also increased. As a result, strictly from the perspective of what is permissible under these sanctions, firms will need to increase the time they devote to their internal screening and verification processes.’
A number of partners took umbrage at the suggestion from some commentators that firms should not have been involved with Russia in the first place. More than a few pointed out that successive governments since the dissolution of the Soviet Union actively encouraged firms to open in Moscow under the banner of exporting legal services.
One City partner was particularly unimpressed: ‘Where else should we have not been? Saudi Arabia? Indonesia? China? Will we deal with anybody whose human rights standards are not the same as ours?
‘It risks being an elitist, white, subtext racist model of old empires. The reality is you don’t go from being a former Soviet Union country to being the US or Canada. You go through phases. Maybe some people think we shouldn’t deal with China, but the idea that international trade is not usually good at reducing international tension, I think is false. It gave us the leverage now being used by governments, it is worth noting, though of course it does not stop all wars.’
Jolyon Maugham QC has made a name for himself in recent years by wading into various controversial debates, particularly on Twitter, and is also the founder of the Good Law Project. The project’s stated aim is to achieve change through the law – in 2019 it launched a crowdfunded challenge to the prorogation of parliament by Prime Minister Boris Johnson, which was ultimately successful.
For him, the question of jurisdiction is an open one: ‘Law firms are not typically consumer facing. Their consumers are very sophisticated so they might not care, but they will also have regard to who their clients are. If you have grubby clients then you might not care that you have a reputation for doing business in places where you shouldn’t because your clients don’t care.
‘But if your client is Apple or Nike you are going to think the GCs are very interested in whether or not the law firm they instruct has a good or bad reputation.’
‘Let’s kill all the lawyers’
At the beginning of March, Conservative MP Bob Seely shook the legal profession when he ‘named and shamed’ four lawyers who he deemed to be ‘amoral’ defenders of Russian clients seeking to silence critics. Using parliamentary privilege, he named Harbottle & Lewis’ John Kelly, Geraldine Proudler of CMS, Nigel Tait at Carter-Ruck and Hugh Tomlinson QC of Matrix Chambers. The accusation was clearly wrapped up in Seely’s historic opposition to strategic lawsuits against public participation (SLAPPs), the tactic of pursuing burdensome litigation against critics in order to intimidate or censor them.
Seely professed to understand that people ‘have the right to advice and legal representation’, but lawyers have seethed at what they perceive as an ill-considered attack. Avonhurst’s Koh, who claims that colleagues in sanctions law have since received death threats, summarises: ‘A lot of us were advising clients on sanctions compliance, not sanctions evasion. To be then targeted as people who were trying to help oligarchs get around it, it was pretty offensive.’
Moorhead takes a sceptical stance against what many partners describe as the ‘right to representation’. He argues: ‘In the main it’s an excuse for a financially-driven, amoral and damaging legal services market. It’s a convenient fig leaf for firms.
‘There are very rare situations where a particular individual may not get representation and that’s where the right comes in. On some of this Russian stuff you’ve seen lawyers trying to divest clients – we have no evidence that these people can’t get representation.’
Maugham QC goes further. ‘There’s not a cab rank rule for solicitors so it’s perfectly fine to ask a firm why they represent so many arseholes. Firms can say the right to representation is an important principle. Which is right, but it’s also right to ask if their decisions are truly born out of principle or expediency.
‘There’s not a cab rank rule for solicitors so it’s perfectly fine to ask a firm why they represent so many arseholes.’
Jolyon Maugham QC, Good Law Project
‘So many lawyers who talk about everyone having access to justice are just looking for a justification to work with arseholes. What they are really about is providing cover for their desire to earn enormous fees.’
Needless to say, this ruffled some feathers. In many ways, this is an old debate: criminal lawyers have had to wrestle with the ethics of representing undesirable characters for ages. Koh, a white-collar expert with a criminal law background, is adamant: ‘Everyone has a right to a defence. Rule of law is very strong for me. Innocent until proven guilty.’
A City partner agrees: ‘What about the criminals? They all have a right to representation. What are we supposed to do, unperson someone because we don’t like them? Ridiculous. It’s very convenient for academics who don’t have to worry about the realities of it all [to] think we’re acting for “arseholes.” Who isn’t an “arsehole”? It’s a very subjective view.’
Siriwardena is eager for firms not to outsource difficult clients: ‘It reminds me of this perennial discussion about continuing to invest in fossil fuels or not. This morning I was reading a fascinating article about all these oil stocks: these retail funds and public companies are divesting of their stocks… but it’s private companies that are buying them. And guess what, flaring and prospecting has gone up by 700% because they haven’t made any commitments! If you cut ties with all these controversial things, someone else will be doing business with them, and guess what? They won’t be accountable.’
Clearly the scrutiny is having an effect however, as firms are becoming increasingly selective over who they represent. Bloom shares an anecdote which encapsulates the mood: ‘You should never represent arseholes! You shouldn’t work with them either. It’s just a basic tenet of mine. Saying that, we are being very thoughtful. We had a client saying that a law firm had been “ghosting them”. Think about that. It’s become a dating game.’
Perhaps the biggest danger, justified or not, is public trust in the rule of law being eroded as a result of the Ukraine invasion. One is reminded of the 2008 financial crisis, when bankers became the butt of jokes, bogeymen to whom society attributed a range of ills. Even before Ukraine, the infamous 2016 ‘enemies of the people’ Daily Mail headline, referring to three High Court judges who ruled that the UK government had to get the consent of parliament to push through Brexit, threatened to undermine public trust in the profession.
‘I don’t know when there was a time that lawyers were held in high regard! To suggest now we are held in low regard would be no real change from the past. There’s a reason
I have so many jokes about lawyers…’
Jonathan Bloom, Avonhurst
Maugham cites YouGov data which suggests that there is a disparity in trust in law based on class: those at the top of the socio-economic ladder tend to be more trustful of the law than those at the bottom. Maugham says: ‘Lawyers typically, and sometimes without reflection, say one must not criticise lawyers or judges because it undermines the trust in law. But whose trust? Shouldn’t we be exploring why these C2DE people have much lower levels of trust? Maybe the criticisms are fair? Maybe we should be increasing their trust by having a slightly more thoughtful approach on questions of legal ethics.’
Bloom is more light-hearted – referencing the famous Shakespeare line from Henry IV part 2, when Dick the Butcher suggests a controversial way to improve the country: ‘The first thing we do, let’s kill all the lawyers.’ He concludes: ‘I don’t know when there was a time that lawyers were held in high regard! To suggest now we are held in low regard would be no real change from the past. There’s a reason I have so many jokes about lawyers…’
The responsibility of endearing wider society to the work of City lawyers does not fall solely on the profession itself, and the current government’s ambivalence and, at times, antagonism does not help. But if the profession is serious about public perception, and about finding the right ethical answers to the wretched Russia problem, then a far more open line of communication is required. LB