Russia is perhaps unique among Big Law markets in that it is almost completely unregulated. While there is a Russian bar and a form of licensed attorneys—the advokatura—there is no requirement for lawyers to be registered in order to practice, other than to litigate in court on criminal disputes.
The overwhelming majority of attorneys at international firms in Russia are not licensed advokats, instead effectively operating as legal consultants. But could this long-established status quo be under threat?
The Russian Ministry of Justice has been seeking to reform the country’s justice system—including its legal profession—for more than a decade. The efforts are primarily intended to improve the quality of legal services at the consumer end of the market, but the changes could have dramatic consequences for international firms in the country.
“It’s important to have the reform, as the quality of lawyers across the country—especially at the low end of the market—is very poor and clients are suffering,” says Vassily Rudomino, co-founder of Russian firm Alrud and part of the working group on legal services reform. “But it’s a very difficult discussion. The [advokat] forms are not very suitable for partnerships and big law firms.”
Currently, advokats cannot be employees and aren’t permitted to practice in profit-making organizations. While mainly self-employed, advokats can join together in one of four structures. The two most likely options for global firms, should they have to adopt one of the structures, are the so-called advokat “college,” which is a collection of individual practitioners; or the “bureau,” which is more like a traditional partnership with collective liability, but lawyers still contract with clients on an individual basis.
Some international firms, including Baker McKenzie, Dentons and Herbert Smith Freehills, have established separate advokat structures in Moscow, which they use to handle Russian litigation.
Others are monitoring the situation. Oxana Balayan, the head of Hogan Lovells’ Moscow office, says the Ministry of Justice informed a select group of firms last November that the reform would happen the following month, requiring all attorneys to become licensed. But that effort fizzled.Balayan, who provides litigation advice to the Ministry of Justice, says it is unlikely any reform will happen soon. “This has been on the agenda for over 10 years … We’ll probably see sanctions going away before we see licensing for lawyers,” she says.
Some firms are choosing to re-evaluate their structures regardless. In the past, many international firms operated in Russia as an OOO—effectively a Russian limited liability company—but the majority are now structured as foreign branch offices.. Firms say the OOO structure was more restrictive: An OOO can only collect fees in rubles and must pay a dividend or loan in order to move cash overseas. A branch simply operates as a local profit center and can move money in and out of the country more freely.
A partner at one U.S. firm in Moscow, speaking on the condition of anonymity, says the firm’s Russian accountants have recommended switching back to a local entity. “There is a sense that if you’re seen as a local Russian company, you’re less likely to be scrutinized [by the government and government agencies],” he says. “The question is, do you want to be above the radar or below it?”