On February 5, 2013, the Berkeley Center for Law, Business and the Economy (BCLBE) and LegalConnect RU held the Russian Market: Legal and Business Perspectives symposium. Several of the panelists also presented at Berkeley Law the following day. The various panels discussed the benefits and obstacles of doing business in Russia, Russia’s accession into the WTO, Russia’s changing Intellectual Property regime, and innovation in Russia (private and government-backed). Common themes included the effects of corruption on Russian law and business, the need to partner with a Russian attorney for all cross-border transactions and litigation, and the differences between Russian-style and American-style law and business culture.
Russia is a high-risk, high-return country, enjoying 8 to 25 percent growth across sectors. The benefits of investing in Russian companies, especially high-tech companies, include a smart, motivated workforce and robust tax incentives (e.g., a 20% corporate tax, no tax on dividends and long term capital gains, and a 10-year tax exemption for Skolkovo start-ups). But the vast bureaucracy, corruption and cultural differences present daunting challenges. A lawyer’s job is to minimize the risks of investing in Russia, while helping her client to reap the benefits.
According to the panel, Russia’s legal and business culture in the 1990s was akin to the Wild West – rampant corruption, cheating, and stealing. While the panelists discussed how Russia has made strides in this area, in 2012, Russia still ranked 133rd out of 174 countries on the Corruption Perceptions Index. Because of this history and because Russia is still not free of corruption, compliance with Russian laws is attained through methodical documentation. The result is a document-heavy regime that is inflexible, time-consuming, unforgiving, and at times confusing and unpredictable. Panelists Michael Sanders and Ramsey Hanna, partners at Reed Smith, discussed a joint venture between Domain and RusNano that involved an 84-page term sheet. Mark Chizhenok, a partner at the Russian firm Ivanov Makarov & Partners, described an intellectual property regime with little judge-made law. He hopes that the establishment of a specialized intellectual property court will solve the dearth of precedent and make decisions more consistent.
The panel also discussed how foreign companies subject to the Foreign Corrupt Practices Act (FCPA) face due diligence challenges because shortcuts and cheating are ingrained in Russia’s business culture. For example, panelist Arseny Seidov, partner at Baker & McKenzie’s Moscow office, told an anecdote of an American company backing out of a deal after discovering a vast network of kickbacks between a Russian target company and its contractors.
Russia’s procedurally driven legal regime and distinctive business culture demands having trusted partners in Russia. Panelists unanimously suggested hiring well-established Russian attorneys before engaging in any deal with Russian companies. In order to cut through red tape, the American lawyer must “know someone.” Otherwise, a process that should take a few days may end up taking many months.
Possibly the most important advice echoed by the panelists is to consider the cultural aspects when doing business in Russia. Two panelists’ organizations help bridge the gap between American and Russian laws and culture. Anna Dvornikova, founder of AmBAR, connects American Venture Capitalists and Silicon Valley companies with Russian start-ups, while Sergei Millian assists American companies doing business in Russia through the Russian-American Chamber of Commerce.
The Network will feature additional articles detailing the intellectual property regime in Russia, the benefits and challenges of cross-border transactions, and Russia’s involvement in innovation.