Big firms wait on sidelines as West slaps Russia with sanctions
By Brian Baxter, The Am Law Daily
President Vladimir Putin announced Tuesday that he would accept Crimea’s bid to join the Russian Federation, potentially opening the door to further sanctions by the United States and the European Union against his country and wealthy business elites with close ties to the Kremlin. Caught in the middle of the deteriorating situation between East and West are several top international and Am Law 100 firms, whose offices in Moscow could be adversely affected by a more permanent schism as hardliners on both sides angle for confrontation.
The Obama administration and the EU announced sanctions Monday against several key individuals with ties to the Kremlin—including Ukraine’s ousted president Viktor Yanukovych—as a result of Russia’s incursion into Crimea and subsequent recognition of the peninsula’s independence from Kiev. Russia, which according to data compiled by Mergermarket accounted for 17.2 percent of global M&A value in 2013, has watched its economy take a nosedive amid the political unrest in neighboring Ukraine. Norton Rose Fulbright partner Troy Ungerman told Investors Weekly earlier this month that sanctions of any kind are likely to put a damper on Russian M&A, and more could be forthcoming following Putin’s decision to formally annex Crimea.
The economic impact of those sanctions, as well as additional costs incurred by absorbing Crimea into the Russian state, have yet to be determined. Some analysts have put the figure as high as $400 billion, and economist Sergei Guriev notes in a recent post for Prague-based Project Syndicate on Russia’s “imperial road to economic ruin” that the damage will be vast as the ruble continues to decline in value.
“The situation in the economy bears clear signs of a crisis,” Russia’s deputy economic minister Sergei Belyakov said publicly this week. Already reports have emerged of huge flows of capital being repatriated to Russia ahead of another potential round of sanctions. Nearly $105 billion in U.S. government bonds were recently withdrawn from the Federal Reserve and moved offshore, leading many to speculate that Russia was behind the removal of state assets so it could have the flexibility to sell them away from U.S. jurisdiction. (The BBC reported this week that in the past, Russia has tried to use other ways to play with U.S. financial markets.)
All the uncertainty surrounding the deteriorating relations between Russia and the U.S. has some American lawyers in Moscow worried.
“It is scary,” one senior U.S. lawyer told The Moscow Times this week on the condition of anonymity. “I wish Russian colleagues would get a more balanced view [of the current crisis], maybe by talking to colleagues in Britain or the U.S. Their viewpoints are getting more radical, and it is depressing to hear them.”
The unidentified lawyer, who like many working at large international firms in Moscow advises Western companies seeking to enter Russia, told the English-language newspaper that foreigners in the Russian capital these days are exposed to unwelcome scrutiny at a time of heightened nationalism.
After the fall of the Soviet Union, Moscow became an attractive destination for Am Law 100 and Global 100 firms seeking a slice of transactional work stemming from the country’s abundant natural resources and oil and gas reserves. While only a handful of large foreign firms have offices in Kiev, nearly a quarter of the Am Law 100 now have a base in Moscow.
Media representatives for nearly a dozen firms—such as Akin Gump Strauss Hauer & Feld, Baker Botts, Cleary Gottlieb Steen & Hamilton, Hogan Lovells, K&L Gates, King & Spalding, Latham & Watkins, Morgan, Lewis & Bockius, Squire Sanders and White & Case—declined a request for comment by The Am Law Daily this week about what plans they might have for their Moscow outposts should the situation worsen between the U.S. and Russia.
Other firms who did not respond to a request for comment on the matter include Baker & McKenzie, Chadbourne & Parke, Debevoise & Plimpton, Dentons, DLA Piper, Jones Day, Orrick, Herrington & Sutcliffe, Skadden, Arps, Slate, Meagher & Flom and Vinson & Elkins.
PHOTO: Kremlin complex in Moscow Martha de Jong-Lantink / Flickr
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Related story:
Ukraine making plans to pull troops from Crimea
From Fox News
The Ukrainian government says it is planning to withdraw its troops from Crimea, where Russia has been taking formal control as its forces seize military installations.
National Security and Defense Council secretary Andriy Parubiy said Wednesday that Ukraine will seek UN support to turn Crimea into a demilitarized zone as it seeks to relocate armed forces to the mainland.
Ukraine’s military, which is heavily outnumbered in Crimea, has come under increased pressure since the region was nominally incorporated into Russia on Tuesday.
Earlier Wednesday, masked Russian-speaking troops seized control over Ukraine’s naval headquarters in the city of Sevastopol. A Ukrainian navy commander was also detained during that operation.
The seizure of the installation in Sevastopol — home port of Russia’s Black Sea Fleet — came as Acting Ukrainian Defense Minister Ihor Tenyukh said his forces would not withdraw from Crimea despite being largely outnumbered and coming under increased pressure since the region was nominally incorporated into Russia on Tuesday.
Pro-Moscow Crimean authorities reportedly blocked Tenyukh and another Ukrainian official from traveling to the peninsula to try to defuse tensions. “They are not welcome in Crimea,” Crimean Prime Minister Sergei Aksyonov was quoted saying by Interfax news agency. “They will not be allowed to enter Crimea. They will be sent back.”
Tens of thousands of heavily armed Russian and pro-Russian troops reportedly are now patrolling in Crimea.
The Russian-speaking troops, who arrived on base after the storming, wore helmets, flak jackets and uniforms with no identifying insignia. By afternoon, they were in full control of the naval headquarters, a set of three-story boxy white concrete buildings with blue trim. It was not immediately clear how many, if any, Ukrainian servicemen remained on base.
The several hundred pro-Russian militiamen and Cossacks who captured the base reportedly met no resistance. It came a day after a confrontation between Ukrainian soldiers and pro-Russian militia left two dead.
Tenyukh said there were no reports of injuries in the raid.
The defense ministry said in its statement that Sevastopol base commander Rear Adm. Sergei Haiduk was detained by unknown people after the storming of the fleet headquarters.
Tenyukh said Ukrainian forces will not withdraw from Crimea despite the signed treaty between Russian President Vladimir Putin and Crimean leaders, Reuters reported. When asked by journalists outside a government meeting if Kiev would pull its forces out of the peninsula, Tenyuka replied: “No. We will stay.”
Vice President Joe Biden, meanwhile, declared Wednesday the United States will respond to any aggression against its NATO allies.
Biden announced in Warsaw that in addition to new NATO exercises that will take place in Poland, the U.S. was considering rotating American forces to the Baltic region as a step toward ensuring the collective defense of NATO allies. Those forces could conduct ground and naval exercises, and engage in training missions.
Standing side by side with a pair of Baltic leaders in Vilnius, Lithuania, Biden said the U.S. was “absolutely committed” to defending its allies, adding that President Barack Obama plans to seek concrete commitments from NATO members to ensure the alliance can safeguard its collective security.
Biden said the U.S. stands resolutely with Baltic states in support of the Ukrainian people against Russian aggression.
“Russia cannot escape the fact that the world is changing and rejecting outright their behavior,” Biden said, after meeting in Vilnius with Lituanian President Dalia Grybauskaite and Lativan President Andris Berzins.
Jubilant crowds in Moscow and other cities across Russia, meanwhile, hailed the Crimea annexation, while Ukraine’s interim government called Putin a threat to the “civilized world and international security.”
Russian news agencies on Wednesday cited Constitutional Court chairman Valery Zorkin as saying the treaty signed by Putin has been ruled valid, thus formally clearing another hurdle for Moscow to annex Crimea. The treaty now only requires ratification by the Russian parliament.
Thousands of troops under apparent Russian command took over Crimea two weeks before Sunday’s hastily called referendum, seizing Ukrainian military bases, blockading others and pressuring Ukrainian soldiers to surrender their arms and leave.
Putin insisted Russia’s military presence in Crimea was limited to those stationed under the terms of a treaty with Ukraine that allows Russia to have up to 25,000 troops at its Black Sea fleet base. Ukraine claims that Russia deployed further forces, however, and expressly went against its request for troops to remain confined within their barracks.
Russia’s military reportedly started large-scale aviation exercises in the northwest Wednesday, officials said, in regions that do not border Ukraine.
Officials said the exercises involving jet fighters and bombers were being conducted close to Baltic ex-Soviet republics, Reuters reported.
Interfax reported that the drills involving more than 40 Sukhoi and MiG warplanes being held in regions including Leningrad, which borders NATO-member Estonia and Finland, are scheduled to end in late March.
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