Law firms scramble to reposition Moscow practice as EU sanctions hit home Russia’s volatile political environment began to have an impact on international and domestic law firms in Moscow at the beginning of this year, but as 2015 nears, and with multiple rounds of international sanctions imposed on the country, the situation has dramatically deteriorated.
US and EU sanctions on Russia have taken their toll on many located in Moscow, including Allen & Overy (A&O), which offered redundancy packages at associate level in October; Linklaters, which seconded 19 associates into other regions; White & Case, which reduced its Moscow-based headcount across both partner and associate levels; and Cleary Gottlieb Steen & Hamilton, whose office associate headcount dropped.
At A&O, four associates, including two senior associates, were laid off from the Magic Circle firm’s Moscow office as it consolidated its capital markets practice within its broader finance offering in late October. In addition, the office saw its Russian law capital markets partner Alexandra Fasakhova take maternity leave this year. One Moscow-based A&O partner said: ‘Our capital markets team has scaled back, but we still have a strong finance practice.’
A spokesperson at A&O said: ‘Following a review of our Russian business, we have decided to scale back our Russian law international capital markets practice, consolidating it within our wider finance team. Regrettably, this is resulting in a small number of redundancies. This adjustment reflects anticipated demand for local capital markets advice in the foreseeable future. We remain committed to our business in Russia and to meeting the changing needs of our clients in this market.’
Fellow Magic Circle firm Linklaters has also been hit, with Moscow-based banking and finance partner Dmitry Suschev departing earlier this year. As corporate work has dwindled to a halt, part of the firm’s response has been to second 19 associates out to London, Dubai, Warsaw and Hong Kong.
‘Geopolitical events, including the imposition of sanctions, are clearly having a noticeable impact on business activity levels in Russia,’ said Linklaters in a statement. ‘In response to this we have implemented a redeployment programme whereby a significant number of our lawyers (both UK and Russian qualified) have been seconded around the Linklaters network to meet client needs.’
Other firms also challenged include White & Case and Cleary Gottlieb, with, according to one Moscow-based partner, White & Case being the most affected in comparison to its peers. ‘White & Case trades in Russia out of the US so its issue is that it can’t take instructions on matters that are impacted by the US sanctions,’ said the partner of a rival firm.
White & Case said it had made no sanction-related redundancies in the last 12 months, but the firm has scaled down its legal headcount at both partner and associate level, including ‘transferring or seconding lawyers between offices to meet the needs of our clients’. The US firm’s Moscow office executive partner Igor Ostapets added: ‘It’s clear that market conditions in Russia have changed and we are continuing to review the situation closely.’
‘Looking at how the market was developing, we didn’t see much future in debt capital markets work in Russia.’
Oxana Balayan, Hogan Lovells
Cleary Gottlieb’s Moscow office is also understood to have been heavily affected, it having lost the $50bn high-profile Yukos arbitration where it represented the government of Vladimir Putin. ‘People can speculate but our relationship with the government remains strong. We continue to do a lot of work for the government,’ said Cleary Gottlieb partner Russell Pollack.
The firm has seen staff members depart since the beginning of the year including three associates. ‘We have not downsized as a response to the Ukrainian problem. We remain committed to the market and are not withdrawing. It is a challenging year but nothing extraordinary,’ added Pollack.
Firms that downscaled before the storm hit seem to be doing better. For example, Hogan Lovells decided to cut its debt capital markets in December 2013 with the last lawyer leaving the practice in April 2014. ‘Looking at how the market was developing, we didn’t see much future in debt capital markets work in Russia, and started re-arranging our capital markets offering in December 2013,’ said Oxana Balayan, managing partner of Hogan Lovells’ Moscow office and head of Russia’s corporate practice.
Instead, the firm expanded into infrastructure and hired energy partner Alexander Dolgov along with two associates from Gide Loyrette Nouel to develop and lead its PPP and projects practice.
Hogan Lovells also shifted its focus from the closed US and Europe markets and into Asia, in particular China, Hong Kong, Singapore and Vietnam.
But while capital markets work has dried up for international firms, there are still some opportunities for new money finance transactions, albeit considerably less, as well as regulatory work on how Russian-based clients should tackle the different types of sanctions.
Firms must now decide whether it is worth spending the money to pursue these opportunities before shutting up shop completely as re-entry into the market is difficult. As one Moscow-based partner put it: ‘If you opt out of a region like Russia, the barrier to entry is very high. If you turn your back on Russia during a crisis, then that does not look good.’
jaishree.kalia@legalease.co.uk