Aerial view to Moscow-city (Moscow International Business Center) over Moskva River. Aerial view to Moscow-city (Moscow International Business Center) over Moskva River.

 

Jonathan Nelms, a Baker McKenzie partner in Washington, D.C., who spent nearly three years toiling in the firm’s Moscow branch, chooses his words carefully when describing the current state of relations between this country and Russia.

“I don’t want to call it a new Cold War,” said Nelms, whose firm has 120 lawyers in Moscow and St. Petersburg.

But the relationship has chilled enough to have business consequences for U.S.-based firms that have Russian outposts, according to Nelms and other partners at five different firms—most of whom spoke only on condition of anonymity.

Jonathan Nelms of Baker Mackenzie, Washington DCJonathan Nelms of Baker Mackenzie. (Photo by AnneLord)

A few years back, the firms’ hires in Moscow were making legal industry headlines. Now, as U.S. leaders spar with their Russian counterparts over Syria and other issues, Western firms in Russia may be happy to stay off the Kremlin’s radar. If the geopolitics are bad, the economics for some of the firms aren’t any better, particularly for those that represent clients in the price-depressed oil industry. Many are worried about losing both Russian and U.S. clients.

The roster of U.S. firms with Moscow offices includes, among others: Akin Gump Strauss Hauer & Feld with 27 lawyers; Latham & Watkins with 20 lawyers, Morgan, Lewis & Bockius with 29 lawyers; Cleary Gottlieb Steen & Hamilton with 21 lawyers, and Baker Botts with 23 lawyers.

‘A Double Whammy’

U.S.-Russia relations have been perpetually rocky since the Obama administration imposed sanctions against Russians in response to the invasion of Crimea in 2014 and amid Russia’s backing of Syrian President Bashar al-Assad. Tensions rose further when federal law enforcement agencies and Congress announced multiple investigations into allegations that Russians interfered in the November 2016 U.S. presidential election.

On April 6, President Donald Trump ordered missile strikes on an airbase held by the Russian-backed Syrian government in retaliation for an apparent chemical attack by Assad’s forces. U.S. officials later accused Moscow of attempting to cover up the attack.

“It’s hard to tell what will happen since the weekend,” Nelms said.

For the firms, the question is how far the tensions—not to mention sanctions—could erode zeal for cross-border business between Russians and their U.S. and European counterparts. The worst-case scenario is a purge: The Kremlin could potentially bar many U.S. concerns, including law firms, from operating within the country’s borders. The government has already imposed restrictions on credit card and software companies.

A law firm partner whose firm has a Moscow office, and who travels regularly to Russia, summed up the mood of Russian clients and U.S. clients with deals there: “It’s bad.”

The 2014 sanctions froze a significant chunk of Moscow-directed cross-border business, the partner noted. But the present atmosphere in D.C.—where all things Russian have become stigmatized by the political climate—has “poisoned” relations, he said.

Other partners whose firms do business in Russia echoed that view. Low oil prices, combined with the political battles over Russia in the United States, represent “a double whammy” for international law firms in Moscow, one said. Another said U.S. clients are staying away, because “they just don’t want to get hauled before Congress.”

On the Russian side, companies have shown some hesitation to use U.S. and British law firms, but not enough to cease all relationships, one of the lawyers said. “So far, they don’t hold that much against us. They are very polite and friendly,” he said.

Nelms said his firm faces fewer risks of a negative Russian government response aimed at U.S. law firms than its rivals. That’s because Baker McKenzie has historically stocked its overseas offices with local lawyers, he said. Baker McKenzie also has focused on providing legal services to local clients doing local business, rather than solely on international clients engaged in cross-border transactions and litigation—another reason Nelms expects his firm to escape any wrath that the Russian government or clients may aim at U.S. and European lawyers.

“It’s been a hallmark of this firm not to rely on expats but to populate our offices with local lawyers including in leadership positions. We are homegrown. Maybe that’s why we have weathered or managed better than others,” Nelms said.

The local strategy seems to be spreading. “Everybody has gone more Russian,” one of the international firm partners said, Now, he added, the only American name in the office is often the name of the firm on the door.