Law firms navigate transparency amid Russia-Ukraine conflict - Crain's Chicago Business

Chicago’s top law firms are eager to show the world that they’re cutting ties with Russia, following the lead of corporate giants like McDonald’s and Starbucks that shuttered stores after customers threatened to boycott companies doing business in the country.

Sidley Austin, Winston & Strawn and Baker McKenzie—some of the city’s largest—are just a few of the U.S. firms declaring they will either close offices in Russia or drop regime-backed clients in response to the country’s invasion of Ukraine.

But the reality of the firms’ ongoing links to Russia is much murkier. Even firms that give up a physical presence in Russia can continue working on the same cases or transactions from offices elsewhere. Client lists and financial information are typically confidential, making it difficult to know whether firms are accepting work linked to the Kremlin and how much money they’re making from it. Few firms have unequivocally pledged to stop work for all Russian-based clients even as observers, attorneys and prospective job candidates demand it.

“The point is not where they work from, but whether they are working for Russian clients and whether they are greasing the skids of the Russian economy,” says Robert Daines, an associate dean for global programs at Stanford Law School who's spearheading a project to track Russian-generated profits at U.S. law firms. “A commitment to shut an office that leaves open the possibility of doing the same work from another location is not very meaningful.”

Take Mayer Brown, the city's third-largest firm, with nearly 400 attorneys in its Chicago office. When asked if it would pledge to stop accepting Russian-based clients for as long as the war continues, a spokeswoman responded that "the issue is far more nuanced and complicated than a simple yes or no allows."

Vague public statements and a lack of transparency help protect firms’ financial interests while they navigate a geopolitical crisis unlike any seen since World War II. Announcing the closure of a Russian office can burnish a firm’s reputation with current and prospective clients appalled by President Vladimir Putin’s aggression. But fully disclosing a firm’s continuing work on behalf of Russian interests could alienate those same clients, especially as mounting atrocities in Ukraine fuel global outrage and calls for total divestiture.

There’s also a cost to cutting all ties with Russia. With rising inflation and revenue growth projected to taper this year, firms won’t want to lose any paying customers—no matter where they’re from. Firms are already preparing for slowing growth after a frenzy of transactional work during the pandemic pushed revenue to record levels in 2020—a jolting $4.8 billion at Chicago’s Kirkland & Ellis, the greatest haul of any firm.

“As a general rule, law firms follow the money,” said Kent Zimmermann, a strategic adviser at Zeughauser Group, a law firm consulting agency. “Law firms face pressure all the time to steer clear of certain controversial clients. If you only represented popular clients and causes, that would be a choice. But it’s not the choice of market-leading firms, usually.”

Sidley and Baker had represented VTB Bank, Russia’s second-largest financial institution, which was added to the U.S. sanctions list in February. Baker also worked for Russia’s Ministry of Finance, state-owned gas company Gazprom, state-owned weapons maker Rostec and other financial institutions, according to a report by the International Consortium of Investigative Journalists.

Sidley said it dropped VTB Bank, won’t represent any entities on the sanctions list and has “committed not to take on any work for Russian state-owned enterprises.” A spokesman would not disclose how much revenue Sidley generated from Russian clients.

Baker, which is spinning off two offices in Russia into independent firms, said it will stop representing “any individuals or entities that are controlled by, or directly linked to, the Russian state and/or current regime” and withdraw from such matters where judges and legal ethics allow. Transitioning the offices in Moscow and St. Petersburg could take “a matter of months,” and there’s no set timeline because there are many details to resolve, a spokeswoman said.

Firms might also have business reasons for winding down their Russian operations. Though U.S. firms don’t break revenue down by region, public filings by U.K. law firms show that at least four large international law firms saw revenue decline in Russia during the most recent fiscal year. Russia is home to just four of Fortune's Global 500 companies, and venture-capital investment in Russia fell 21% from 2019 to $702.9 million in 2020, according to Crunchbase.

Those factors could have accelerated Big Law’s departure from Russia, where firms may have concluded that financial opportunities are no longer worth the public relations risk. All 25 of the world’s largest law firms that had a physical office in Russia have left, with the last, Akin Gump Strauss Hauer & Feld, announcing its departure on March 16.

“Money can’t be transferred, the sanctions are having real impact, and I think, physically, it probably isn’t safe for a lot of Western firms to be operating in Russia right now,” said Cassandra Burke Robertson, who directs the Center for Professional Ethics at Case Western Reserve University’s law school.

In addition to losing clients, failing to clearly break with Russia could cost firms talent. Hundreds of law students are demanding more transparency from firms, according to a petition circulating at top law schools that's drawn 340 signatures.

Ryan Donahue, a second-year student at Harvard Law School, says he withdrew from a summer job at a big law firm in New York because he was dissatisfied with their response to the war. He declines to name the firm but says it has a presence in Chicago.

Donahue, 25, questions what incentives law firms have to drop Russian-based work if there’s no external accountability measures.

He acknowledges that Russian oligarchs often operate through shell companies, making it harder to tell which clients are connected to Putin, but insists law firms should realize that any business with enough resources to hire Western lawyers is likely in his orbit.

“I don’t know if I trust lawyers with these creatively worded statements,” Donahue says. “I think there’s a lot of opportunity for abuse—a lot of statements that sound good on the face of it, but don’t represent much substantive policy changes.”

source: https://www.chicagobusiness.com/law/law-firms-russian-offices-ukraine-transparency

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