Legal support for investment projects in Russia
The Moscow Times sat down with Andrey Goltsblat, managing partner of Goltsblat BLP, to learn more about the current investment climate in Russia.
- Please tell me a little bit about yourself: How long have you worked in law?
I graduated as a lawyer in 1987, and I did my PhD under Professor Valerii Zorkin, who is now the Head of the Constitutional Court of Russia. My legal career began at the Russian Parliament, called at that time the Supreme Soviet of Russia. I was the Chief of Staff of the Constitutional Commission for three years (1990-1993). And in fact it was us who prepared the draft document that was finally passed in the referendum in 1993.
-You founded the law firm Legal Practice in the early 1990s as one of the first law firms in Russia to advise major international companies entering the Russian market. How has the company grown over the years?
In 1994, I started my commercial career as a lawyer. Mars, Inc. needed a good commercial lawyer, and it seemed like I was a good guy, and my career began. I set up a law firm consisting of myself, an interpreter, and a secretary.
By 2002, we had about 22 lawyers and we merged with Pepeliaev’s group of tax lawyers from the Russian audit firm FBK. Pepeliaev, Goltsblat & Partners was the first truly commercial business-oriented law firm in this market. In 2008, I realized that we needed global ties with international firms. We separated from [Pepeliaev] and merged with Berwin Leighton Paisner in January 2009. We are happy now, different deals, different laws – we work a lot in different jurisdictions (Hong Kong, Singapore, etc.).
- Goltsblat BLP seems to work in practically every area of corporate law. What advantage does this provide your clients?
The whole strategy when we merged with BLP was to combine our deep understanding of Russian law and at the same time apply an institutional understanding of corporate law because we have a large group of UK lawyers in London. The largest office is in London, the second largest is ours, then it’s Asia, then Germany. What we offer is a language to understand corporate law, and at the same time we offer the realities of Russian law and Russian practices. We know how things work when it comes to a dispute. It depends on where the enforcement might happen. Very often, law firms that don’t have an understanding of how the law works in Russia may do a standard UK governed SPA or SGA agreement in Cyprus. But if you need to enforce it in Russia because you have assets in Russia, then it might be difficult if you forget something or don’t use the right wording.
[Furthermore], the large Russian corporations want lawyers who understand UK law, not just Russian law. That’s why it works.
- What are some of the changes in the investment climate in Russia and challenges for foreign business?
Well, there is perception and reality. There is the perception that there is the Ukrainian issue, oil prices going down, and there are sanctions, which worry those who are looking to invest. But the realities are that foreign investors are welcome here now even more than before. This is the paradox of the current environment. From the political point of view, the country wants to demonstrate that we are welcoming to investors, and that’s true. The [regional] governors desperately need investments to support their regions, to create jobs, to get taxes to fill the budgets. And because of that, no one bothers if it’s an investor from Japan, or the US or Europe. And the governors are more sophisticated now. They are more investment-business oriented, not like old Communist governors. They are truly modern people and they know what investors need and they support them by all the means they have in their regions. I believe this is a great opportunity for investors to come in.
The issue is the economic situation—the falling oil prices and the sanctions. That is a different factor. But politically, it’s good to be here.
- Which sectors and industries have been more stable and attractive for foreign direct investment so far and why? What are the best sectors with the highest potential for development?
There are some industries like agriculture and chemicals. Retail and food continue growing, too. There are a lot of Japanese and heavy industry, by the way, because steel prices went up. Construction is doing very well. I think the only difficulty is oil.
When the economic consequences of the things I mentioned happened in 2014, I thought that this would be a political crisis that would continue for some time. But in reality, it’s really a cycle. And we noticed at the end of last year that our workload started growing, and it’s continuing at quite a good speed. It’s not because we’re getting better, but because business is growing. And of course, we get better too—don’t forget to mention it. We’re hiring new people, looking for new talents, and we are growing.
- What are some of the difficulties for foreign investors in Russia? Are there specific industries that are off limits to foreign companies?
Of course, there are specific industries called “strategic industries.” They have to go through a special foreign investments commission [Government Commission on Monitoring Foreign Investment] under the Prime Minister of Russia, for oil, military, etc. Otherwise, the main job for a foreign investor is to understand local realities.
The classic mistake they make is to try to apply the practices they use in their country of origin, and when that doesn’t work, they believe that it is not their fault, it’s the country’s. But those who are smart enough – most of the multinational companies understand what they need to do. Of course, corruption is an issue, but it is getting much better. A number of enforcement cases have been made recently over the past three years. We still have a lot to do, but the environment’s getting better and better. The budget deficit creates a situation where fiscal motivation does sometimes prevail - tax officials, for instance, they are more aggressive. But at the same time they are implementing wider practices now - they are learning too. You just need to be smart, but the business opportunities are tremendous.
I recently went to Stavropol, where an [agricultural] company is looking at an IPO in London. You can’t believe the size of the fields there, they are just enormous. When you fly out of Stavropol heading north, you can see the fields for an hour.
- Have there been any recent changes in Russian law?
Positive changes, particularly in corporate law. Corporate law has recently changed to make it more business-friendly, basically trying to reinstall the corporate major UK law institutions in the Russian corporate world. Because Russian corporate law was quite restrictive in the past. You couldn’t make an option, you couldn’t make a liability shareholder for a business, etc. You couldn’t do warranties in the past. Now institutions like reps and warranties are fully incorporated into Russian corporate law, which makes Russian corporate law adaptive and [it] can be used for transactions. That’s a great achievement for Russian law for investors. We can use Russian law in corporate governance.
- How does Goltsblat BLP support cross-border transactions? Do you have offices in the CIS or in other countries with strong economic ties to Russia?
We usually do it ourselves with our own lawyers from other jurisdictions. But because UK law is still widely used in some local jurisdictions, we use either our local branch or some of the local firms we have had strong relationships with. They support us in our deals; we support them when they need Russian lawyers.
We don’t have offices there [in the CIS] because, economically, we can’t justify opening our own office. There are good local lawyers and we use them when needed. They provide us with great advice and we incorporate this into ours.
We’re thinking about Kazakhstan, but not setting up our own office; if we go to Kazakhstan, we will identify a local firm and merge with them.
- Russia is actively promoting the Far East. To what extent can this region be attractive for international investors?
The region in itself is huge. Plus, all the major global players are there: China, Japan, Korea. This is why it’s quite an attractive territory to invest in and develop. When we opened an Asian practice here recently, we hired a partner from K&L Gates. He is fluent in Japanese, as well as Russian and English, obviously. We offer support for deals with the Japanese, and we deal with the Japanese Embassy here. We provide advice to Japanese businesses on a regular basis pro bono, and if they decide to invest in a large project, then we would very much like to see them as our clients. I have visited Japan a number of times, and we see great opportunities. I think that sooner or later there will be a peace treaty between Russia and Japan. That’s what business in Japan is waiting for. Prime Minister Abe has urged them to invest.
China is a bit different. They invest in a lot here too, but they are a specific culture, they need to be understood well. We work with China Development Bank, Geely International Corporation, and others, and try to develop them. We have a lawyer who is Chinese and has worked in China. We target in China too. It is the one of the largest economies in the world. But they are not as easy as the Japanese to do business with.
- How are international businesses adjusting to the recession in Russia? How are they going to do business in Russia in a period of political tension and a great deal of uncertainty?
I think they have realized that the situation was not the worst it could have been, even though the ruble depreciated twice against the dollar.
All of our clients have already adjusted quite well. Operations after the crash of the ruble obviously required a different model, and I think they all understand, especially those who have been here for a while, for more than 20 years.
- What is your vision for supporting investment projects in Russia?
We are thinking about growing. We have almost grown out of our niche in the Russian market, in the current setup. We can wait and continue to mature organically, and we’ll become more attractive to other nations; but we can also expand geographically and go further into the CIS – probably Kazakhstan, as I said. I’m headed to Ukraine this weekend, and have a portfolio of ideas about how to get into that market as well. And probably Central Europe. But it’s not the right time yet.