Kremlin complex in Moscow
Kremlin complex in Moscow (Martha de Jong-Lantink / Flickr)

UPDATES: 3/19/14, 6:05 p.m. EDT. Eric Posner, a professor at the University of Chicago Law School, looks at Vladimir Putin’s address to the Russian Duma from the perspective of an international lawyer. 3/21/14, 9:35 a.m. EDT. The U.S. and the European Union have announced news rounds of Russian sanctions, causing shares in Russian companies to drop sharply and threatening Wall Street’s ties to Putin’s regime. In a piece this week for Foreign Affairs, national security expert and Boies, Schiller & Flexner partner Lee Wolosky writes that the Obama administration’s sanctions won’t work.

President Vladimir Putin announced Tuesday that he would accept Crimea’s bid to join the Russian Federation, potentially opening the door to further sanctions by the United States and the European Union against his country and wealthy business elites with close ties to the Kremlin. Caught in the middle of the deteriorating situation between East and West are several top international and Am Law 100 firms, whose offices in Moscow could be adversely affected by a more permanent schism as hardliners on both sides angle for confrontation.

The Obama administration and the EU announced sanctions Monday against several key individuals with ties to the Kremlin—including Ukraine’s ousted president Viktor Yanukovych—as a result of Russia’s incursion into Crimea and subsequent recognition of the peninsula’s independence from Kiev. Russia, which according to data compiled by Mergermarket accounted for 17.2 percent of global M&A value in 2013, has watched its economy take a nosedive amid the political unrest in neighboring Ukraine. Norton Rose Fulbright partner Troy Ungerman told Investors Weekly earlier this month that sanctions of any kind are likely to put a damper on Russian M&A, and more could be forthcoming following Putin’s decision to formally annex Crimea.

The economic impact of those sanctions, as well as additional costs incurred by absorbing Crimea into the Russian state, have yet to be determined. Some analysts have put the figure as high as $400 billion, and economist Sergei Guriev notes in a recent post for Prague-based Project Syndicate on Russia’s “imperial road to economic ruin” that the damage will be vast as the ruble continues to decline in value.

“The situation in the economy bears clear signs of a crisis,” Russia’s deputy economic minister Sergei Belyakov said publicly this week. Already reports have emerged of huge flows of capital being repatriated to Russia ahead of another potential round of sanctions. Nearly $105 billion in U.S. government bonds were recently withdrawn from the Federal Reserve and moved offshore, leading many to speculate that Russia was behind the removal of state assets so it could have the flexibility to sell them away from U.S. jurisdiction. (The BBC reported this week that in the past, Russia has tried to use other ways to play with U.S. financial markets.)

All the uncertainty surrounding the deteriorating relations between Russia and the U.S. has some American lawyers in Moscow worried.

“It is scary,” one senior U.S. lawyer told The Moscow Times this week on the condition of anonymity. “I wish Russian colleagues would get a more balanced view [of the current crisis], maybe by talking to colleagues in Britain or the U.S. Their viewpoints are getting more radical, and it is depressing to hear them.”

The unidentified lawyer, who like many working at large international firms in Moscow advises Western companies seeking to enter Russia, told the English-language newspaper that foreigners in the Russian capital these days are exposed to unwelcome scrutiny at a time of heightened nationalism.

After the fall of the Soviet Union, Moscow became an attractive destination for Am Law 100 and Global 100 firms seeking a slice of transactional work stemming from the country’s abundant natural resources and oil and gas reserves. While only a handful of large foreign firms have offices in Kiev, nearly a quarter of the Am Law 100 now have a base in Moscow.

Media representatives for nearly a dozen firms—such as Akin Gump Strauss Hauer & Feld, Baker Botts, Cleary Gottlieb Steen & Hamilton, Hogan Lovells, K&L Gates, King & Spalding, Latham & Watkins, Morgan, Lewis & Bockius, Squire Sanders and White & Case—declined a request for comment by The Am Law Daily this week about what plans they might have for their Moscow outposts should the situation worsen between the U.S. and Russia.

Other firms who did not respond to a request for comment on the matter include Baker & McKenzie, Chadbourne & Parke, Debevoise & Plimpton, Dentons, DLA Piper, Jones Day, Orrick, Herrington & Sutcliffe, Skadden, Arps, Slate, Meagher & Flom and Vinson & Elkins.

Despite their silence, one fact that has become abundantly clear is that Russia’s transition from communism to a more centralized form of managed democracy—albeit one that has its fair share of critics—has not been smooth for its citizens or foreigners looking to do business in the country. While Russia’s own leading domestic law firms have grown in power and influence—in part because of mergers and close ties to the Kremlin—their U.S. counterparts have sought to thread the needle between handling deals for the country’s elite and not running afoul of U.S. laws and regulations.

The Moscow offices of DLA and White & Case were raided by Russian law enforcement nearly five years ago over a business deal gone bad, and the shocking death of jailed Russian lawyer Sergei Magnitsky in November 2009 called into question Russia’s commitment to the rule of law and brought about U.S. legislation that further strained ties between both countries. (The U.S. lawyer who ran Magnitsky’s firm fled Moscow two years later, and last summer a Russian court posthumously found Magnitsky guilty of fraud—two months after a Baker & McKenzie lawyer was expelled from the country.)

Robert Amsterdam, an international lawyer and leading Kremlin critic profiled by The American Lawyer in early 2012 for his unique brand of “law firm foreign policy” and “political litigation,” wrote on his personal blog this week that Putin’s bold moves in Crimea and Ukraine are being driven by domestic politics.

“With significant economic pressure on the horizon, negative demographic trends and a bankruptcy of ideas, a war with Ukraine ticks all the boxes of what Putin needs: continuing power, control, fear and international isolation,” Amsterdam writes. “It has already been a politically successful project despite the negative long-term consequences.”

Amsterdam once represented Russian oligarch Mikhail Khodorkovsky, whom Putin released after a decade in prison last December as part of a goodwill gesture ahead of the Winter Olympic Games in Sochi. Khodorkovsky’s oil company Yukos filed for bankruptcy after his arrest in 2003 and was sold off piecemeal by the Kremlin to state-backed companies like Rosneft and Gazprom.

Those deals provided ample work for Am Law 100 and Global 100 firms. Cleary helped Gazprom take full control of a former Yukos unit from Italian energy giant Eni for $4.2 billion in 2009—a deal publicly excoriated by Amsterdam—and the firm took the lead for Rosneft in late 2012 on its $28 billion acquisition of British oil giant’s BP’s stake in the TNK-BP joint venture, according to our previous reports.

The New York Times reported Tuesday that pressuring U.S. and global investors to reduce their holdings in Russian state-backed companies like Gazprom and Sberbank—the nation’s largest financial institution—could be more effective than sanctions in curtailing the Kremlin’s foreign policy escapades.

Sberbank tapped Linklaters for counsel in 2012 for its $1 billion buy of rival Troika Dialog, and the Magic Circle firm got the call again this week for another big Russian M&A deal. Corporate partners Ralph Wollburg and Tim Johannsen-Roth in Dusseldorf are leading a Linklaters team advising the LetterOne Group on its $7 billion purchase of an oil and gas subsidiary of German utility RWE.

LetterOne is an investment vehicle controlled by Russian oligarchs Mikhail Fridman and German Khan to invest the roughly $14 billion they made last year following the completion of the sale of their stake in TNK-BP. The latter deal has also landed roles for a trio of other Magic Circle firms, as well as German legal giant Hengeler Mueller, according to reports by German legal publication Juve and the U.K.’s Legal Week.

For its part, Rosneft announced Monday its purchase of a 50 percent stake in Camfin, a holding company that owns Italian tire maker Pirelli. Mario Notari, an Italian lawyer and director at Camfin, and Pirelli general counsel Francesco Chiappetta did not respond to requests for comment about the names of the lead lawyers working on that transaction, nor did Rosneft, whose top in-house lawyer is Igor Maydannik. (Citing sources familiar with the deal, whose terms were not disclosed, Bloomberg reports that Rosneft will invest $500 million and assume some of Camfin’s debt in exchange for a 13 percent stake in Pirelli.)

As Russia’s wealthiest individuals and corporations seek safe harbors for their assets, those on the country’s U.S. payroll are beginning to distance themselves from Putin’s regime. NBC News reported earlier this month that Alston & Bird and Venable have done stealth lobbying work for Russian interests through subcontracts with public relations firm Ketchum, which also does work for Gazprom and helped place a high-profile op-ed by Putin in The New York Times last September arguing against U.S. intervention in Syria.

Both Alston & Bird and Venable have referred questions about their Russia-related activities to Ketchum, which earlier this month told Reuters that it had no role advising the Kremlin during the Ukraine crisis, as its work is focused on economic development, not foreign policy. Records filed with the Justice Department under the Foreign Agents Registration Act show that Ketchum has reaped roughly $55 million for its Russian lobbying efforts since 2006, while Alston & Bird was paid at least $100,000 last year for its work on behalf of the Russian Federation and Venable received $168,000 for advising Gazprom.

Russia has long had historical ties to Crimea, which was ceded to Ukraine in 1954 and became an autonomous republic after the fall of the Soviet Union. The region has a majority Russian population, although its referendum Sunday in favor of secession has been called illegitimate in the West, a position not supported by all legal scholars in this country. In response to this week’s sanctions, Russia has hinted that it may respond with measures of its own.