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The Buzz in Russia: Interview with Leonid Zubarev of CMS

The Buzz

According to Leonid Zubarev, Senior Partner at CMS, Russia, the economy in Russia continues to suffer from the wave of sanctions imposed on the country by the West in 2014 — an effect only exacerbated by the simultaneously plummeting price of oil and depreciation of the ruble. As a result, he reports, “clients are thinking twice,” and international law firms in Moscow are "fiercely competing" for work. The problem is especially potent, he believes, for firms without diverse practices, while those with the capacity to refocus on bankruptcy, restructuring, and other contentious practices are in a bit better position.

Indeed, Zubarev maintains, the crisis has affected ILFs more than locals, who are less focused on foreign clients and able to work with Russian clients who may be on sanction lists. The international law firms, at the very least, are required to do more due diligence before taking on a client matter. Although Zubarev is unaware of any international law firms closing aside from K&L Gates (which closed its smaller Moscow office back in December 2015 (as reported by CEE Legal Matters on January 7, 2016), he reports that most firms have sent most of their expatriate lawyers back to their home countries.

Nonetheless, Zubarev insists, the situation is hardly bleak. Some transactions are continuing to take place, and disputes and other matters continue to generate revenue. As the leader of CMS’s Insurance Group in CEE, Zubarev reports that his own practice remains fairly active, with various claims and disputes between and among insureds, insurers and reinsurers, regulatory issues, and so on. Ultimately, 2015 was “not as bad as expected,” Zubarev says: “Not good — but not disastrous.” General corporate and competition work, disputes, etc., remain active, though he concedes that some are fairly dormant — the infrastructure practice in particular. In 2015 - 2016, according to Zubarev, CMS’s M&A practice has been picking up as well, primarily as a result of new Russian clients

Turning to the subject of legislation, Zubarev notes that the most significant recent development is a set of the anti-terrorism laws enacted at the end of July that, among other things, requires all Internet and telecom providers to keep records of all correspondence and Internet traffic. This “very controversial law,” which will come into full force in July 2018, is contested by Rostelecom and other providers who face what Zubarev describes as “the incredible costs” of installing the necessary technologies required for compliance.

Zubarev also refers to the trend for “import substitution” or “localization” — pushing investors to open plants and factories rather than importing goods into Russia.He says the project has had mixed success, but it’s growing, especially in the “core industries” of Pharma, Agriculture, and Automotive sectors (not only in terms of car manufacturing plants, but also in manufacturing of components). As a result of the State initiative, there are a number of transactions in these areas, relating — as examples — not only in terms of opening new plants, but also in joint ventures, the construction of new factories, repackaging, and so on. The end result allows the application of “Made in Russia” tags, which helps in public procurement processes. Zubarev reports that “this is quite interesting for us, and also where we’re quite busy.” 

Zubarev refers to ongoing changes to the Russian Civil Code last year and this, which he describes as “a continuous reform of the Russian Civil Law.” He says that “was, and still is, a challenge every day, because the Court practice hasn’t caught up.” Another factor continuing to affect Court practice, Zubarev says, is that the August 2014 contraction of the Russian Supreme Court from two separate supreme courts (one dealing with simple civil law disputes and criminal law matters, and another dealing with commercial disputes between companies) into one has resulted in a Court practice “getting more and more difficult”, as the Court is less concerned with freedom of contract, and more interested in exploring the actual intent of the parties, and protecting the weaker party. Courts are getting more and more eager to get involved and inject themselves into the relationship between the parties. 

Talks are also ongoing to formalize a regulation of the legal profession in Russia, which to this point has been haphazard, at best. The Government, primarily acting through the Ministry of Justice, has been working to introduce such regulations,  especially on non-criminal law attorneys (i.e., the commercial lawyers), but Zubarev describes the process as a “bumpy road,” as many lawyers in the country resist it. He doesn’t expect it to happen soon — at least before the 2018 elections. Afterwards, however, Zubarev says, “anything can happen.”

BuzzIn “The Buzz” we interview experts on the legal industry living and working in Central and Eastern Europe to find out what’s happening in the region and what legislative/professional/cultural trends and developments they’re following closely.


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