A 360 degree view of the legal industry in Russia.

15.06.2010

Andrey Goltsblat, Managing Partner of Goltsblat BLP, Russia’s first international law firm, writes for European CEO about the legal industry’s journey in one of the world’s largest markets.

Russia is still an emerging economy, with the earliest accounts of a market economy only dating back to the period 1987- 1992. One can understand therefore that its legal industry is developing and still struggles with the remnants of past political systems. With a population of 142 million, and higher growth rates than its European neighbours – growth reached 2.90% in the first quarter of 2010 - Russia is seen as a land of opportunity for businesses and Moscow is fast becoming a global financial centre. According to different estimations, in 2009 Russia ranked among the top five countries for foreign investment in Europe showing increase in investment projects. The combination of growth, political impetus and the attraction of foreign investors to the Russian market has meant that the professional services industry has had to develop rapidly in order to keep up with growing demand.

When one reflects on the development of the legal industry as a whole, it is not until the late 1990s that a handful of Russian law firms started to compete with their international counterparts. After I gave up my position as Chief of Staff for the Constitutional Commission of the Russian Parliament and set up my first law firm in 1994, the market was quite parochial and the Russian firms were small and lacked the resources and expertise necessary to compete with international standards. In the ten years after that, the trend was for Russian lawyers to go and complete their education and training abroad in order to be fully versed in those international standards required to service multinational companies. By the time we set up Pepeliaev, Goltsblat and Partners in 2002, the legal industry and market were quite different and we were starting to see an increase in M&A activity and international legal work following the peak in foreign direct investment in the year 2000.  

The rush of international law firms to the market in the past 20 years has helped develop the legal market but until recently there has been very little integration. It is widely acknowledged that the growth rate of the Russian firms has been unequivocal but a distinct dualism in the system remains today, with only half a dozen homegrown firms even offering international services.  

We have started to see a slight shift over the past two to three years – a shift, that has without a doubt been influenced by the new economic conjuncture. However, those international firms still hold the monopoly on all the work associated with international investment projects, mergers and acquisitions and debt financing. This work is often carried out from their main base in London or New York, with the support of smaller branch offices in Moscow.  

Following the fallout from the global economic crisis, and the ensuing reduction in demand for legal services in those areas, we have now started to see international firms venturing into areas such as domestic litigation, labour and tax; practice areas traditionally serviced by homegrown firms. Another consequence of the crisis has been the move by senior lawyers between the two types of firms, helping each one of them develop their capacities further in order to cover more ground than before and offer wider practice areas, something that is proving quite beneficial to the industry as a whole. I chose to go a step further when I integrated one of the biggest teams of Russian lawyers (partners and lawyers from Pepeliaev, Goltsblat & Partners, one of the most highly regarded Russian law firms at that time) with leading UK firm Berwin Leighton Paisner in 2009; this has opened the firm up internationally and created a completely new breed of legal consultancy.  

On the whole, changes in the industry have been less significant and international lawyers have simply moved to Russian firms, with a stronger pipeline of work, bringing with them their expertise and international contacts and Russian lawyers have moved to those international firms seeking to expand their business base in Russia. Another reason for the apparent migration of mid-level and senior lawyers from Russian firms to international ones is a desire for clearer remuneration structures, something that has not been sufficiently developed in the homegrown firms, which brings me onto my next point, that of the apparent limitations in the Russian system today. 

The Russian legal sector is quite developed in terms of size and number of firms but it suffers deeply from a lack of regulation and best-practice methods, which hinders its further growth and ability to compete with the larger international firms. Russia still lacks a legal industry regulator for instance; something that would be quite unthinkable in the United Kingdom or the United States for instance. Progress is being made though and the Deputy Minister of Justice, Yuri Lyubimov, has just started a process of consultation with the aim to establish an independent regulator and set standards of best-practice across the country and at all levels in the industry. So far there no limitations on practicing commercial and other laws apart criminal representation, which can be handled by advocates (Russian bar) only. At the same time advocates can not be arranged as a business unit, while law firms can, but law firms are not granted immunity and attorney client privileges as advocates are. So those two issues are most important to be resolved.   

Alongside advances in both the number and structure of law firms over the past 20 years, the Russian legal system has been developed extensively, with new areas of regulations being explored constantly. Progress has been made in areas such as foreign investment, migration laws, customs and litigation, where a simplification of certain procedures and the more frequent recourse to mediation, for instance, have been introduced. The most interesting advance in recent months has been a clarification of key migration legislation and the introduction of the definition of a highly-skilled worker – under which someone earning in excess of $67,000/ £46,000/ €54,000 will benefit from preferential visa conditions and a lower rate of income tax. Not only is this important progress on the legislative side, it will obviously also have notable effects on the economy as a whole, thus underlying the further integration of the business and legal sectors to promote political objectives. Up until now, the legal system has always slightly lagged behind hindering progress in areas such as consolidation, holding regulations, corporate governance. 

As we enter the second decade of the twenty first century and Moscow edges closer to the leading global financial centres in the world, I am very confident that we will be able to implement the changes necessary to overhaul the legal industry and bring Moscow to the forefront of the world’s legal centres as well, within the next five to ten years. Russia is such an important political and economic player on the world scene and has come a long way in the last twenty years; it is only a matter of time before it sits alongside New York and London as one of the world’s leading centres for legal services.

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