Russia – Its Laws and Bureaucracy

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Every second reform initiative for Russia, sponsored by the West in recent years, aims to improve the legal system and "rule of law" here. As a Canadian lawyer who has worked in Moscow at the Baker & McKenzie law firm for most of the past 18 years, I am often asked by visiting government and professional delegations to discuss the Russian legal system and ways in which it could be improved. It can of course be further improved, but my overwhelming conviction based on years working here is that there are few countries that have achieved as much in overhauling their legal system, most notably introducing many laws aimed at facilitating business, in as short a time as Russia.

The purpose of its laws, the reasons for a large bureaucracy, and the importance of the state in Russia now, as in the past, have always differed from those in the U.K., North America and the common law societies created there.

Change that I could not have imagined, did take place, and finally the news reaching Canada from Russia in the late 1980s about perestroika seemed to merit inquiry. When I arrived back in Moscow in August 1990 to start work as a foreign lawyer advising foreign companies investing in Russia, there were two laws of relevance to the foreign businesses that were our clients -- the U.S.S.R. Joint Venture Law, and the Regulation, governing representative offices of foreign companies. That was all we needed to know in that first year or two.

We worked from the outset with Russian lawyers, but there was only a very small pool of bilingual lawyers, most of whom had been trained for the diplomatic service and were serving in the Ministry of Foreign Affairs. In those early years, the best "lawyers' lawyers" we encountered were not English-speaking, but were advocates in the colleges of advocates that provided legal services and primarily criminal defense services to directors of state enterprises. Lawyers with a conception of the concerns of foreign companies as they began to invest in Russia, had to be trained, rather than found.

The first company law was passed by the U.S.S.R. not long before it dissolved, and it was followed by a Russian Federation decree setting out the required features and general governance for a Russian joint stock company. Within a few short years, Russia enacted not only a comprehensive Joint Stock Company Law, but also a fully revamped Civil Code, a Bankruptcy Law, a Land Code that allowed land ownership, a Tax Code, a Competition Law, a Trademark Law, laws regulating lending and mortgages, and many other commercial laws. At the same time, the profession of law increased in importance and prestige, and the law faculties began to attract the best students.

For example, as both foreign and Russian companies began to carry out share acquisitions and property development, and enter into financing arrangements, the role of the lawyer expanded. I first noticed this trend at work when advising a multinational company that asked us to carry out an extensive due diligence exercise on a privatized consumer goods plant on the Volga river. Our team, which included accountants, engineers, and lawyers, began meetings with our counterparts in the plant. The general director of the plant -- as was common -- was an engineer, and had advanced to his position from the production side. The finance director, or chief accountant was a very powerful and respected person in the organization.

However, our requests as lawyers for all the legal documents -- the privatization plan, the right to land use, and evidence of ownership to the building, and all the corporate protocols for decisions taken by the company had to be referred to the "jurist" -- who was not a very senior executive in the company, as a glance at the pay scales clearly showed. In this case during the course of our investigation and the negotiations, the jurist's role in the company increased, to the extent that he was included as a member of the first board of directors of the post-acquisition company. In all cases where an acquisition was contemplated, the Russian privatized companies, which had used lawyers more as clerks than senior executives, upgraded the job of the jurist to legal counsel, or hired outside counsel, as the role of the lawyer became more critical.

In 1990, when I came back to Russia, I anticipated that the role of the foreign lawyer would be a short- term role -- that we would find qualified Russian lawyers and phase ourselves out. And, indeed, in the early years of Baker & McKenzie's building an office, I found a superb mentor in Russian law, but he came from the "advokatura" side of the profession, and was not an English speaker. What happened was that the development of the new laws, and the influx of investment created its own demand. Ambitious talented university entrants began competing for admission into the law faculties and made law the most desired profession, in contrast to a generation earlier, the most talented people were going into engineering, geology, and other applied sciences.

The result has been that my firm, which relied in the first five years of its foundation on experienced Western-trained lawyers from U.K., U.S., Canada, Germany, France and the Netherlands, all of whom had Russian language skills to varying degrees, was soon a recipient of newly-graduated Russian lawyers with language skills. We sent our lawyers on training program exchanges to our bigger offices in Chicago and London, and to do graduate degrees in law in the U.S. and the U.K.

During the 1990s and early 2000, there were many U.S. and U.K.-government sponsored exchange programs which invited Russian law graduates to study for a masters' law degree abroad. There is a group of hundreds of highly qualified talented lawyers -- all graduates since 1990 of the legal system who learned the new laws in law school -- working at the highest levels of responsibility in major Russian companies and the very many international law firms which recognized the importance of Russia and opened. Based on my own informal survey, most of these newly minted lawyers have highly-educated parents, but they were diplomats, engineers, chemists, geologists, academics -- not lawyers.