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Guest Editorial: From Russia with Drive

Guest Editorial: From Russia with Drive

Legal Markets
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I was born in the USSR – a country that has not existed for almost 25 years. The legal system in Russia before the USSR had been in place since the 10th century. Russia after the USSR, it seems, began its path practically from scratch.

My last years at school came at the moment when the USSR ceased to exist, along with the criminal punishment for currency transactions, the small-family tax on men over 18 years old, the absence of private property and, as a final note, the Iron Curtain. 

Russia got the opportunity to use the West’s practices. As an example, the first version of the Russian Civil Code was almost fully adopted from the German one. New definitions appeared in the law, in custom, and in conscience – including private property and the necessity to protect it, economic competition (replacing the state monopoly of previous years), arbitration of disputes among commercial entities (along with the legitimate existence of commercial companies themselves in the first place), and a banking system with foreign investment.

Looking at the legislative reforms shows that we live in a phenomenal time. We are creating the legal sphere for the development of the economic market by seven-league steps.

Lawyering in the USSR as a profession was far from prestigious. But, as the expression goes, demand breeds supply. While building the new country, individuals were required who could translate texts from legalese to normal language. A little bit later international law firms began to dominate the market, following the belief of most people at the time that “foreign is best.” About ten years ago, however, a new dynamic appeared: local law firms grew up and began taking their place among the best in the country, taking advantage of their dynamism and better understanding of Russian reality and mentality. 

In-house lawyering also evolved, from lawyers who knew the laws and could say “yes” or “no” to lawyers who became an essential part of business. 

For the past two years we have been in a state of economic sanctions, including a ban on direct relations with a list of countries. A new phrase – “import-substitute” – appeared, and the level of patriotism significantly increased towards all locally-produced goods. Lucky are the companies that have property here, because they receive preferential treatment over other competitors.

Major changes in the banking sphere are expected in the near future. For the past three years the government, working together with the Central Bank of the Russian Federation, has worked to improve the banking sector, recalling the licenses of those banks that operate improperly. It is expected that 1,000 banks will be decreased to 300, consolidating more than 95% of all assets. In addition, of course, this does not exclude further consolidation through commercial M&A.

This year a new bill (known as the “Yarovaya Package,” following the name of its primary author, Irina Yarovaya) was presented to the Government and adopted in a very short period of time. The law was directed at antiterrorist activity and directed communication providers to keep metadata for three years or risk potential criminal punishment. This bill triggered controversy among businesses, politicians, economists, and lawyers, because it affected the interests of all market players. Similar requirements exist in some other countries. Russian providers have calculated that the cost of implementing the necessary systems would be about 34 billion dollars – which would be approximately 7.5 billion dollars more than the industry earned, combined, in 2015. 

Recently a reform of the Russian court system has also taken place. The Supreme Court (along with the lower courts where disputes between individuals are considered) and the Supreme Arbitration Court (with lower courts where all disputes among legal entities are considered) were combined. This consolidation represented an attempt to create a unified system to consider different issues and legal questions. In addition, an additional instance (the second cassation) was added. In the lower courts the unification is not very remarkable so far, as their traditional approach – more rights to the consumer and the employee than to the merchant and the employer – should remain. But, of course, only two years have passed. Time will tell. 

By Natalia Belova, Head of Legal, Inchcape, Russia

This Article was originally published in Issue 3.5 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.