As Russia looks to China, will law firms dig in?

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The increasingly close diplomatic relations between China and Russia are subject to a stress test.

The Chinese government has suggested to Russian President and aggressor Vladimir Putin that he should seek negotiations to end his conflict in Ukraine. While this suggests that the Chinese government does not approve of the war Russia has waged, China will also not join many world governments in imposing sanctions on Russia.

China is Russia’s largest trading partner in the world and for many years a long list of Chinese and international law firms have benefited from this relationship.

In 2020, King & Wood Mallesons launched its Russian Cloudoffice as part of a wider launch of cloud-based offices globally. Its main partners for Russia-related transactions are based in Singapore, Beijing, London and Dubai. The company’s credentials on the Russian deals are vague on its website, but mostly relate to energy, oil and gas and infrastructure projects.

Last year, Morgan Lewis & Bockius represented a consortium of investors led by the Russia-China Investment Fund (RCIF), which was set up by the Russian Direct Investment Fund (RDIF) and sovereign investor Chinese, China Investment Corporation, during the launch and pooling development of the Binnopharm Group pharmaceutical holding company.

Also last year, Bryan Cave Leighton Paisner advised RCIF and now highly-watched Russian state-owned financial institution Sberbank on a $14 million investment in an offshore investment holding company, Eruditor Group Holdings.

Chinese law firm Fangda & Partners also advised RCIF.

Again last year, the international firms White & Case and Dechert advised on the sale of 40% of the shares of the Russian Amur Gas Chemical complex by the country’s main petrochemical company, SIBUR Holdings, to the Chinese energy company and chemicals, China Petroleum & Chemical Corporation. (Sinopec). White & Case represented the seller and Dechert acted for Sinopec.

White & Case, which also advises Russian oil giants Bashneft and Rosneft, has since said it will “take steps to exit certain representations” in accordance with applicable ethics rules. It is not known if SIBUR would be one of these missing relationships.

The US law firm Cleary, Gottlieb, Steen & Hamilton has also previously advised SIBUR. In 2015 and 2016, Cleary acted for SIBUR in two separate share sales to Sinopec and Chinese public investment fund, Silk Road Fund, respectively. Herbert Smith Freehills was also involved in this latest transaction.

Cleary’s credentials for Russian-Chinese agreements run deep. In 2019, the company represented Russian integrated telecom operator MegaFon in its joint venture with Chinese conglomerate Alibaba Group, Mail.ru Group and RDIF, to build the large Internet and e-commerce platforms public of Russia.

Last year, the firm also advised MegaFon on its joint venture with Chinese fintech giant Ant Group and three other Russian funds and firms, to upgrade the country’s digital financial and payment services. . In fact, Cleary, along with Sidley Austin, led Hong Kong’s first Russian initial public offering, advising metals maker Rusal, in 2010, raising $2.2 billion.

A Hong Kong-based Cleary partner did not respond to specific questions and instead directed Law.com International to its London and New York-based spokespersons, who did not provide comment in time for the publication.

Russia’s hope of reviving its economy hinges heavily on China as mounting Western and Asian sanctions continue to mount.

Four other Asian governments – Japan, South Korea, Singapore and Taiwan – have also imposed sanctions on Russia.

Singapore has made a rare move to block some Russian banks and Russian-related financial transactions. The city-state, along with South Korea, has also imposed export controls on items that can be used as weapons in Ukraine. Taiwan Semiconductor Manufacturing Company, one of the world’s largest computer chip companies, has halted sales to Russia.

Japan took an even tougher stance and froze assets held by six Russian individuals, including Putin, and three Russian banks – Promsvyazbank, Bank Rossiya and Russia’s economic development bank VEB. Its sanctions package also includes export controls on 49 entities operating in sectors such as technology and semiconductors.

“Japanese banks, in general, are struggling to determine whether any money transfer involving Russia or Ukraine is prohibited under the sanctions imposed not only by the Japanese government but also by other governments,” said a Japanese partner of one of the big four companies. Banks are therefore voluntarily suspending such transactions to avoid any violation of sanctions, he added.

International law firms have also been under pressure, advising Asian stakeholders on the impact of tougher sanctions on their investments in Russia.

Japan and Russia have long had a contentious relationship over territorial issues. Two of Japan’s islands were seized by the Soviet Union after World War II, and Russia has considered these islands to be its territory ever since.

To ease tensions, the two countries signed agreements worth $2.5 billion in 2016. Law firms have benefited from this progress, with Japan’s big four firms taking the lead in advising on certain transactions within the Japan-Russia link.

Big Four firm Mori Hamada & Matsumoto, which did not respond to a request for comment, has set up a practice in Russia and the Commonwealth of Independent States led by five Tokyo-based partners who advise on security issues. business, regulatory, finance and international trade. According to the Big Four competitor Nishimura & Asahi’s website, its legal work related to Russia and Japan includes mergers and acquisitions, business alliances and dispute resolution, particularly involving the energy, natural resources and automotive.

International law firms with local expertise on the ground have also gained ground – in 2018 Freshfields Bruckhaus Deringer advised Japan Tobacco on its acquisition of Donskoy Tabak, then the fourth largest tobacco company in Russia , for $1.6 billion.

Just last month, Baker & McKenzie’s Japan office was still advising the Japan Bank for International Cooperation (JBIC) and the Tokyo branches of Deutsche Bank AG, Societe Generale Bank and Goldman Sachs Realty on a credit facility of 871 million dollars for the Russian tanker Irkutsk. .

Both Freshfields and Baker are among the best legal advisers to Russian companies. Freshfields has since issued a statement stating that it “acted promptly and responsibly with respect to pending mandates and new mandate applications to comply with our legal, regulatory and professional obligations and keeping a watchful eye on our values ​​and our reputation as a company, regardless of the potential commercial impact that will ensue.Various mandates have therefore been terminated, suspended or refused.

Baker McKenzie also released a statement saying it is “reviewing and adjusting our Russia-related operations and the work of our clients to align with all applicable sanctions and comply with these rapidly changing laws,” but declined. to comment on specific customer relationships.

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