Law firms and other businesses around the globe are voicing growing concern over the Russia-Ukraine crisis. In the short term, however, EU and U.S. sanctions are also creating work for lawyers on the ground.
Although foreign firms have expressed trepidation about Russia’s actions in the region, many fearing it is destabilizing a large part of the economy at a time when there is still a hangover from the global financial crisis, some Moscow-based lawyers say it is business as usual for the most part.
Still, with the annexation of Crimea and fighting in East Ukraine, firms in Europe and the United States are largely adopting a wait-and-see approach. But if the crisis drags on, even the more optimistic lawyers say it won’t be good.
Some lawyers and GCs who do business in Russia have reported an exodus of Western business people. Some legal consultants have mentioned a freeze on activity. For many it is about perspective, with the more veteran Western lawyers showing less concern than those more new to Moscow.
In the United States, the situation has revived questions about the safety of investments in Russia, and some companies have put projects on hold, leaving lawyers without deals for fear that opportunities for U.S. companies could dry up if tensions between East and West increase.
Brian Zimbler, managing partner of the Moscow office and a partner in the Banking and Finance department at Morgan Lewis, said there is still a lot of activity. “We are relatively busy,” he said. “The more experienced [Western lawyers] are taking this in stride.”
Sanctions are generally increasing the amount of legal work because lawyers are needed to advise clients on what the sanctions mean. “It is generating more work for us,” he said. For example, Zimbler said, even if sanctions are targeted at an individual, if that individual owns a company, the business is now affected.
Zimbler, who advises financial institutions and multinationals and has worked in Russia for 25 years, said working in emerging markets means sometimes the unexpected can happen. “We are just trying to focus on what our clients need,” he said.
“There are certainly a lot of questions,” he said. He added that a prolonged crisis would only be bad for the whole market.
Others already see it as bad.
In the off-shore banking hub of Cyprus, technically the largest foreign investor in Russia with $69 billion accumulated through the end of last year, legal and accounting firms are distressed by the recent actions, particularly after that country’s banking collapse.
The island is also the second-biggest destination for Russian investment at $33 billion.
But European Union foreign ministers met in Luxembourg on April 14 and said the bloc should be prepared to impose a third round of sanctions, including economic measures. The United States has also advocated further sanctions if diplomatic talks are not successful.
Although sanctions have yet to impact the island directly, firms are being cautious. Elias Neocleous, vice chairman of legal firm Andreas Neocleous & Co LLC, in an interview with Bloomberg Businessweek April 15 said the annexing of Crimea has had little direct impact, but “as long as uncertainty continues, many business decisions will continue to be put off.”
Barbara Novosel, General Counsel for Emerging Markets for Zurich Insurance told GC Grapevine that situation is having an obvious affect on business.
“Any uncertainty has an adverse impact and is challenging,” Novosel said. “Business and people fear economic sanctions. The foreign investment necessary to develop further the financial and other markets in Russia will be hesitant to come under the current circumstances.”
She said existing businesses are busy reviewing risks coming out of the sanctions, political crisis, isolation and even possible war.
“I hope the crisis resolves itself quickly,” Novosel added. “The longer it goes on, the bigger the risk that it will not be successfully resolved. This week I saw much fewer foreign business people at the hotel.’
Kevin Livingston can be reached at Kevin.livingston@gcgrapevine.com
