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BigLaw Joins the Iron Curtain Against Russia

By Camila Laval, J.D. on March 18, 2022 3:11 AM

When President Vladimir Putin ordered an invasion of Ukraine at the end of February, many multinational companies either decided to end their business in Russia or were forced to do so from the sweeping sanctions imposed by several countries. International law firms have recently joined this movement, severing ties with Russian clients and closing their offices in the country.

Navigating the Sanctions

Various countries, as well as the European Union, have imposed numerous sanctions against Russia  since the invasion. Some measures target Putin's oligarchs(the fat cats who made their fortunes in the government privatization that followed the dissolution of the Soviet Union), while others target oil imports or banks. Law firms with a presence in countries that have imposed sanctions have suddenly found themselves having to change the way they deal with their Russian clients, or even cut ties with them altogether.

The U.S. Treasury Department has resources devoted explicitly to Russia and Ukraine-related sanctions with links to dozens of documents. The Department of Commerce has compiled a summary of sanctions as well. While many sanctions on Russia actually began well ahead of the Ukraine invasion, with Russia's 2014 annexation of Crimea, they have increased at an unprecedented pace since the military attack last month.

As a result, companies need legal help to navigate around increasingly complex rules and regulations in order to ensure compliance with new sanctions and trade embargoes and in the process of offloading assets and parting ways with sanctioned institutions. Adam M. Smith, a partner with Gibson, Dunn & Crutcher who specializes in economic sanctions and export controls, told the American Bar Association that he has gotten "nonstop" calls from clients seeking such legal advice since the latest round of sanctions.

Since the invasion in February, the White House has released three fact sheets announcing sanctions against Russia. However, it is not always clear who is obligated to comply with those sanctions.

For example, on February 24, President Joe Biden decided to impose sanctions on several Russian banks and their subsidiaries. For all but one of the banks, the sanctions state that "U.S. persons" are prohibited from dealing with any assets of these banks that touch the American financial system. But the sanction related to Sberbank, Russia's largest financial institution, does not contain the "U.S. persons" language.

Another "seize and freeze" measure announced the same day concerns the assets of some of the Russian oligarchs. This sanction freezes assets (such as yatchs or estates) in the U.S. and additionally bans the billionaires from traveling to America. But if a law firm is holding funds of one of these Russian oligarchs in a trust account, will it be able to return those assets to its clients in compliance with the sanction?

How Have Law Firms Responded?

Law firms have taken different approaches to their operations in Russia and representation of Russian clients. 

Before the invasion, there were over 20 international law firms with offices in Moscow, and many more representing Russian clients abroad. DLA Piper, Clifford Chance, Hogan Lovells, White & Case, Allen & Overy, Linklaters, Freshfields, Norton Rose Fulbright, Herbert Smith Freehills, Eversheds Sutherland, Dechert, Squire Patton Boggs, Bryan Cave Leighton Paisner, and Gowling WLG, have all decided to close their Moscow offices. Some have been present in Russia since just a few years after the collapse of the Soviet Union.

Both Dentons and Baker McKenzie initially decided to stay in their Russian offices, but later announced that they would separate from these offices, which will continue to operate as independent entities.

Other firms have decided to drop particular clients. Cleary Gottlieb and Winston & Strawn have decided to stop representing the Russian government and State-sponsored clients. A spokesperson for White & Case, which has represented one of the sanctioned banks, stated that the firm is "taking steps to exit some representations in accordance with applicable rules of professional responsibility."

Lastly, Sidley Austin and Venable have terminated their registrations to lobby for two of the sanctioned financial institutions.

Ethical Implications

The decision to leave Russia or discontinue representing Russian clients has ethical implications. For attorneys practicing in the United States, the American Bar Association's Model Rules of Professional Conduct requires lawyers to "comply with applicable law requiring notice to or permission of a tribunal when terminating a representation." Additionally, once representations ends, "a lawyer shall take steps to the extent reasonably practicable to protect a client's interests." This includes providing reasonable notice, allowing time for the client to retain replacement counsel, surrendering papers and property, and refunding any fees or expenses paid in advance. Russia's own Code of Professional Ethics of Lawyers does not contain any specific rules on terminating an attorney-client relationship.

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