Get the latest updates as we post them — right on your browser

. Last Updated: 07/27/2016

No jokes please! Russia needs lawyers

Ambassador to the U. S. Robert Strauss may have found a simple, logistical solution to a problem affecting two nations.

"I've found the only place in the world that could use five hundred lawyers", Ambassador Strauss told reporters last month at a press lunch, referring to Russia. "If we take five hundred lawyers from our government and move them out here, it would be one of the greatest bonanzas of all time for both sides".

Laughter aside, lawyers, often the targets of scorn and abuse in the West, are in tight supply and urgent demand in Russia as the country moves quickly away from its centrally planned past. Theoretically, the sheer number of lawyers here, in the tens of thousands, is not a problem. Their lack of experience in commercial affairs, however, is.

"There has never been and there isn't a structure for (Russian) business lawyers", said Mikhail Vashinsky president of "Lawyers For the Business World" a newly formed international association. Vashinsky is also a former Soviet vice minister of justice.

But while his new association aims to "unite lawyers and help them find their role in the market", creating a recognizable legal infrastructure will be a daunting task. Vashinsky estimates that only 15 percent of all lawyers have any experience in business. The remaining 85 percent work in criminal law with such institutions as the army, KGB and militia.

"There is a tremendous deficit of lawyers here. There are few with adequate training or knowledge. You see it in contracts, which are very primitive", said James Mandel, an attorney with LeBoeuf, Lamb, Leidy & MacRae.

One reason Russian attorneys have a limited knowledge of contracts is that they have been excluded from the process in the past by directors of enterprises. In the West, groups of attorneys, often from several different firms, play major roles negotiating the same contract.

Limited experience now impedes common negotiating practices such as the waiving of sovereign immunity clauses, of utmost importance in the Russian market with government owned enterprises. Such a waiver gives a foreign partner the right to sue an enterprise. Without it the enterprise is regarded as the government, and thus is essentially above the law and in some cases beyond reproach.

But while lawyers here may have a long way to go, many are finding employment with Western firms. Most Western lawyers point out that once trained, a Russian lawyer is an invaluable commodity. "The lawyers here really are very good. It's a question of experience rather than acumen or intelligence. The idea is to get Western lawyers working side by side", said Robert Langer, an attorney with Chadboume, Hedman, Raabe & Advocates U. S. S. R. , a joint venture here with U. S. , European and Russian interests.

In its simplest form, the lawyer shortage simply is another factor that makes it more difficult to do business in Russia. A shortage of skilled lawyers has led to a lack of comprehensive and cohesive laws.

"The problem with law for business here is the application of law in specific circumstances isn't clear. Uncertainty equals risk - that's your whole problem", said Langer. The legal system has created risks that could deter foreign investment.

For example, the Foreign Investment Law passed last July states that a joint venture may be liquidated if 50 percent of the initial capital contribution is not made within one year of registration. The law does not stipulate whether ventures signed before the law was enacted are subject to liquidation.

"No one knows", Langer said. "The Ministry of Finance could issue a liquidation order, but where do you appeal it. That uncertainty, that risk, makes people cautious".

Other legal quagmires here include the inability to pay local salaries in hard currency, in the opinion of many a pointless law which is often circumvented or ignored. The mandatory sale of 10 percent of total hard currency revenues by foreign investors with more than a 30 percent stake in a venture contradicts foreign investment legislation which exempts specific investors from forced sales.

And just what is a law here? What is a decree? In the West laws are debated first and then passed, while here the opposite holds true. In principal, presidential decrees have the force of a law, but can also be changed by the force of a law. Just how much power does Russian President Boris Yeltsin yield?

"Virtually every question asked by a client is an open question", Langer said.

Thus, long-term, the lawyer short-age is a threat to a market economy in general because businesses may not be able to settle disputes or operate within a solid, stable framework.

The legal gaps existing here would in the West be solved through the court system. Russia's court system is back-logged, though, and even if it wasn't the judiciary isn't a separate branch of government and doesn't interpret the laws.

"This has been a civil law country based on a codified system of rules. It does not rely on judicial precedent", LeBouef's Mandel said.

Recently, the court system has shown some signs of independence, but legal sources say it is not enough to quell investors fears. In the West, win or lose, usually a company's best shot is in the courtroom.

Markets, throughout history, have appeared and developed before legal infrastructures, but just how far can the law lag behind before it has an adverse effect on the market? This is particularly important in light of plans to privatize state structures rapidly.

"I suppose market economies pre-dated legal institutions, but if you want a market economy - where people respect private property, contracts, intellectual property; etc. - there isn't much hope without a strong legal system", Mandel said.

While most sources here remain positive on the outlook for this legal quagmire, it is generally acknowledged that the situation could go either way. Some see a crisis brewing.

"Of course there will be a crisis", Vishinsky said. "There have already been seven years of perestroika, but the legal system stays the same".

The crisis could be averted with some help from the West.

First, the Soros Cultural Initiative, a $1 million annual fund to promote peace, has earmarked some funds for training lawyers. The American Bar Association has also been active in its effort to match Russian attorneys with U. S. firms.

There are also other options, such as Ambassador Straus's vision of "lawyer aid". Vishinsky, the legal association's president, couldn't agree more. With just 400, 000 rubles of start up capital to take on a $1 billion job, he is reeling.

"Everyone speaks about aid. The West brings us chocolates. Give us experience, help us develop a juridical infrastructure", Vishinsky said.