Russia – its laws and bureaucracy

Every second reform initiative for Russia, sponsored by the West in recent years, aims to improve the legal system and “rule of law” here. As a Canadian lawyer who has worked in Moscow at the Baker & McKenzie law firm for most of the past 18 years, I am often asked by visiting government and professional delegations to discuss the Russian legal system and ways in which it could be improved. It can of course be further improved, but my overwhelming conviction based on years working here is that there are few countries that have achieved as much in overhauling their legal system, most notably introducing many laws aimed at facilitating business, in as short a time as Russia.

The purpose of its laws, the reasons for a large bureaucracy, and the importance of the state in Russia now, as in the past, have always differed from those in the UK, North America and the common law societies created there.

My introduction to Russian (then Soviet) law came when I arrived at Sheremetyevo airport in February 1979 as a recently graduated law student, one of twelve Canadians arriving for a four months’ student exchange program in Russian language. In retrospect, we were flying into the nadir of the era of Soviet “stagnation”. We were introduced to law and order, Soviet style, before we even left the airport. In searching the luggage of the arriving Canadian students, the customs guards found four identical Russian language bibles in four different suitcases. Our little group was marched into an interrogation room, together with our beloved 55-year old language and literature professor. He was a Soviet World War Two war hero who had been teaching at Dalhousie University in Halifax on a ground-breaking exchange with the (then) University of Leningrad. Three or four hours of intense interrogation and intimidation in a language that was beyond the reach of our six months’ intensive language training ensued. The officials were threatening to charge us all with “anti-Soviet conspiracy”. In the end we were allowed to leave the airport to start our four-month stay with only a very stern warning.

The next morning when we arrived at the chilly language institute, our mentor Victor Sergeievich, who had visited most of our homes in Canada, stood at the blackboard and wrote that we had “killed” a six-month old child. The “child” was the period we had spent together with him at our Canadian university preparing for our great adventure in Russia. He left us to go back to Leningrad with the command “don’t kill”.

After this diatribe, the lawyer within me was raging – could this system not distinguish between naiveté of students who had been told that a Russian bible would be a valued gift and a concerted conspiracy? Where was the criminal intent? How could you call this a conspiracy? How could religion be illegal? These were my angry thoughts at the time.

However, fear was instilled in us all that first day – we couldn’t help but realize that we had arrived at a place where law and order was heavy-handed and could be applied arbitrarily and with impunity. Indeed, a few days later, we were still adjusting and reacting to our new circumstances, we had a further shock. Unbeknownst to the rest of us, one of the girls still had a bible, which had not been discovered at the border. Afraid to leave it in her room, she was carrying it with her, including on our first visit to the great Lenin Library. The terror that she felt on discovering we would be searched before leaving the library to ensure that no books were being removed, led us into the women’s washroom in a tense and almost hysterical effort to tear up and flush down the toilet the last remnant of our “anti-Soviet conspiracy”.

The “bible incident” aside, once having left the confines of the airport it quickly became apparent to us that rules and regulations were everywhere, together with armies of bureaucrats to enforce them. And not just bureaucrats – “citizens” in the form of little old ladies on the streets and in the buses were equally ready to tell you what to do. In winter, you had to wear fur hats, scarves and mittens at all times, and not doing so would result in multiple chastisements from passengers in the buses and Metro en route to the institute. In summer, which arrived that year with ferocity in the last week of May, we quickly learned after fierce verbal attacks that you could not wear shorts into the store to buy some scarce Western soda pop. Everything that we would do without thinking about it in Canada seemed to be forbidden in Russia. Gruff, angry orders were the order of the day.

My enduring lesson of the power of the Russian bureaucrat came at the hands of the woman who worked at the “service bureau” in our university hotel. While as foreign students we did not have access to the special food stores that were then the only reliable source of many fresh fruits and vegetables, we did have one perk. The service bureau, which we could use, was a source of incredibly hard-to-come-by tickets to the Bolshoi Theatre, and other Moscow theatres. While our conversations among ourselves centered on recounting the miracles that could be found in Canadian grocery stores, we were not starving for culture.

Having seen the now legendary Vladimir Vysotsky playing “Hamlet” at the Taganka, I noticed that “Hamlet” was again playing and was determined to buy two tickets for my new Russian friends, who were dying to go to the performance. I ordered the tickets from the woman working in the Service Bureau, and returned confidently several days later to pick them up on the day of the performance. The same woman who had taken my order was there, and I presented rubles and asked for my tickets only to be met with a barrage of scolding, criticism and scorn. Of course she could not give me the tickets, for I had not followed the rules on pre-payment, it being implied that it was unthinkable that I could have failed to understand all these requirements. This was so unexpected and I was so upset at the prospect of disappointing my friends that I burst into tears. Amazingly, the tears prompted an immediate change in attitude from the stern, shouting service bureau tyrant, who began comforting me, poor little “rabbit”, and assuring me that, there, there, she had the tickets after all, and she would sell them to me. Stifling my anger and swallowing my humiliation, I paid the money for the tickets, and escaped. I realized that the “service ethic” that ruled at the Service Bureau was this: they were in total control. If you showed due deference to their authority, and remained “human”, you would be shown human kindness and consideration. If you asserted your rights, you would get nowhere. If you lost your temper, you would be treated with contempt.

After four months of indoctrination in this rigid, alien and sometimes terrifying regime, we were counting the days to our return to comfortable and forgiving Canada. Had you told me when we left tearful friends behind and boarded the plane back to Canada in June 1979, that my recently-obtained Canadian legal education would be put to use in future by living 18 years in Moscow working for an international law firm advising foreign companies eager to invest in Russia, I would have thought you were doing something else unimaginable in Russia then – smoking dope!

My vivid memories of life in Moscow in 1979 as a foreign student have informed my subsequent experiences here -- in an overwhelmingly positive way. However deplorable strange or foreign the state of “rule of law”, “bureaucracy” or however heavy-handed the “state” might seem on a bad day in the Russia of the 2000s, it is incomparably better than what preceded it.

* * *

Change that I could not have imagined, did take place, and finally the news reaching Canada from Russia in the late 1980s about perestroika seemed to merit inquiry. When I arrived back in Moscow in August 1990 to start work as a foreign lawyer advising foreign companies investing in Russia, there were two laws of relevance to the foreign businesses that were our clients – the USSR Joint Venture Law, and the Regulation, governing representative offices of foreign companies. That was all we needed to know in that first year or two.

We worked from the outset with Russian lawyers, but there was only a very small pool of bilingual lawyers, most of whom had been trained for the diplomatic service and were serving in the Ministry of Foreign Affairs. In those early years, the best “lawyers’ lawyers” we encountered were not English-speaking, but were advocates in the colleges of advocates that provided legal services and primarily criminal defence services to directors of state enterprises. Lawyers with a conception of the concerns of foreign companies as they began to invest in Russia, had to be trained, rather than found.

The first company law was passed by the USSR government not long before it dissolved, and it was followed by a Russian Federation decree setting out the required features and general governance for a Russian joint stock company. Within a few short years, Russia enacted not only a comprehensive Joint Stock Company Law, but also a fully revamped Civil Code, a Bankruptcy Law, a Land Code that allowed land ownership, a Tax Code, a Competition Law, a Trademark Law, laws regulating lending and mortgages, and many other commercial laws. At the same time, the profession of law increased in importance and prestige, and the law faculties began to attract the best students.

For example, as both foreign and Russian companies began to carry out share acquisitions and property development, and enter into financing arrangements, the role of the lawyer expanded. I first noticed this trend at work when advising a multinational company that asked us to carry out an extensive due diligence exercise on a privatized consumer goods plant on the Volga river. Our team, which included accountants, engineers, and lawyers, began meetings with our counterparts in the plant. The general director of the plant – as was common -- was an engineer, and had advanced to his position from the production side. The finance director, or chief accountant was a very powerful and respected person in the organization. However, our requests as lawyers for all the legal documents – the privatization plan, the right to land use, and evidence of ownership to the building, and all the corporate protocols for decisions taken by the company had to be referred to the “jurist” – who was not a very senior executive in the company, as a glance at the pay scales clearly showed. In this case during the course of our investigation and the negotiations, the jurist’s role in the company increased, to the extent that he was included as a member of the first board of directors of the post-acquisition company. In all cases where an acquisition was contemplated, the Russian privatized companies which had used lawyers more as clerks than senior executives, upgraded the job of the jurist to legal counsel, or hired outside counsel, as the role of the lawyer became more critical.

In 1990, when I came back to Russia, I anticipated that the role of the foreign lawyer would be a short- term role – that we would find qualified Russian lawyers and phase ourselves out. And, indeed, in the early years of Baker & McKenzie’s building an office, I found a superb mentor in Russian law, but he came from the “advocatura” side of the profession, and was not an English speaker. What happened in actual fact, was that the development of the new laws, and the influx of investment created its own demand. Ambitious talented university entrants began competing for admission into the law faculties and made law the most desired profession, in contrast to a generation earlier, the most talented people were going into engineering, geology, and other applied sciences.

The result has been that my firm, which relied in the first five years of its foundation on experienced Western-trained lawyers from UK, US, Canada, Germany, France and the Netherlands, all of whom had Russian language skills to varying degrees, was soon a recipient of newly-graduated Russian lawyers with language skills. We sent our lawyers on training program exchanges to our bigger offices in Chicago and London, and to do graduate degrees in law in the US and the UK. During the 1990s and early 2000, there were many US and UK-government sponsored exchange programs which invited Russian law graduates to study for a masters’ law degree abroad. There is a group of hundreds of highly qualified talented lawyers – all graduates since 1990 of the legal system who learned the new laws in law school – working at the highest levels of responsibility in major Russian companies and the very many international law firms which recognized the importance of Russia and opened. Based on my own informal survey, most of these newly-minted lawyers have highly-educated parents, but they were diplomats, engineers, chemists, geologists, academics – not lawyers.